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ESG Views - Gambling
Gambling is viewed by some as a “sin” due to its inevitable association with unethical human behaviours that fuels social harm, and its ground for money laundering. Casinos in Macau have a unique positioning compared to other casinos, considering their instrumental role in Macau’s economy as well as plans for economic diversification. Furthermore, regulatory and business developments in responsible gaming have significantly increased over the past few years.
In this article, we discuss our views on gambling, in particular our review of Macau gaming and how the landscape has evolved in support of more robust environmental, social and governance practices in recent years.
An instrumental role in Macau’s economy
The gambling industry has been instrumental in fueling Macau’s economic development. Its contribution to GDP increased from 30% in 2001 to 66% in 2011, primarily driven by the increasing tourist footfall. While its share has been on a steady decline in recent years, it still constitutes over 50% of Macau’s GDP, consistently collecting more revenue than Las Vegas, year after year. The tax revenues from casinos have equipped the Macau government to improve the city’s infrastructure and the living standards of its residents. In 2018, of the US$16.6 billion collected in tax revenue, gaming contribution was close to 80%1. Additionally, the gaming industry employs around 30% of the local labour force, providing approximately 80,000 jobs at casinos and junkets and boosting employment opportunities in related industries like hotels, and restaurants2.
An economically viable and politically healthy Macau is a key part of the “Greater Bay Area’ Development and President Xi’s goal of “Common Prosperity”. To achieve this, diversification plans for Macau were put forward in 2015 that encourage casino operators to venture into different non-gaming business areas3. The objective is to develop and reposition Macau as a global tourism hotspot, with its large-scale integrated resorts providing a plethora of options-hotels, pools, shopping, food and beverage outlets and other entertainment offerings, to increase the number of non-gambling tourists and their average spending.
To this end, Galaxy Macau has shown the greatest potential, with its rapid buildout and expansion in non-gaming businesses. It is also the only operator to own land on Hengqin Island, a Special Economic Zone, that is expected to be utilized to widen Macau’s appeal to more than just casinos4. According to forecasts, Galaxy’s non-gaming revenue is expected to reach 155% of its 2019 levels by 2025, while its gaming revenue is expected to be lower by 118%5.
Crackdown on Junkets
The Macau gaming market can be broadly segmented into VIP, Premium Mass, Base Mass and slots. Traditionally, the VIP segment has accounted for the lion’s share of Macau’s gaming revenue, representing 65%-73% of overall gross gaming revenue (GGR) between 2006 and 20136. However, it has also been the mainstay of junkets who bring wealthy gamblers from Mainland China to Macau by offering luxury travel and accommodation, personalized services and issuance of credit. Facilitating the underground flow of embezzled money out of China has been a standard practice for junkets for over 20 years.
The onslaught of China’s anticorruption campaign from 2014-2016 significantly decimated the junket business; VIP's contribution to GGR was driven down to below 50% in 2016 and thereafter7. According to Chinese media, from early 2020 to October 2021, the renewed focus of the Chinese government’s anti-gambling campaign led authorities to investigate over 30,000 cross-border gambling cases, detain over 160,000 individuals, and shut down over 5,100 gambling platforms and 3,900 illegal payment platforms8.
The Macau government has also used responsible gaming as a policy tool to prevent and limit gambling addiction and other associated problems. Responsible gaming efforts are primarily led by the Gaming Inspection and Coordination Bureau (DICJ). Some key initiatives launched include:
- Self-Exclusion and Third-party Exclusion Programs: In 2012, the DICJ started a self-exclusion and third-party exclusion program for problem gamblers which enables the affected individuals and their family members to apply for a ban from entering some or all casinos in Macau. The number of exclusion requests has increased every year, starting from 276 in 2012 to 564 in 2019 (+15% y/y growth), of which 87% of applications were made by individuals themselves9.
- Off Duty Casino Entry Ban: According to the Macau Government, the majority of problem gamblers are casino workers10. To control this problem, the Macau Legislative Assembly passed a bill that came into force in 2019, that bans gaming industry employees from entering casinos after work hours. The law targets over 54,000 people, covering all staff employed by casino operators and provides an exception only during the Chinese New Year11.
Despite gambling stocks being often referred to as “sin stocks” and sometimes excluded by investors with ESG investing objectives, we see distinctiveness in Macau gaming whereby the associated social harm of gambling in nature may be outweighed by the positive economic and social benefits contributed to the Macau economy and society. Furthermore, we also see social externalities to be relatively well controlled due to the industry now being heavily regulated as a result of regulatory reforms to crack down on junkets and enhance responsible gaming practices.
Staying Ahead with Mirae Asset’s Latest Insights
1. Bernstein Research, December 2019
2. Bernstein Research, December 2019
3. Daiwa Research, January 2022
4. Galaxy Entertainment Group, November 2021
5. Bernstein Research, August 2022
7. Bernstein Research, December 2021
8. Bernstein Research, December 2021
9. Bernstein Research, December 2019
10. Nikkei Asia, March 2020
11. Bernstein Research, December 2019
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