Upcoming Regulatory Changes

Macau Gaming Update: Upcoming Regulatory Changes

8/13/2008
By: António Ramirez/Luís Pessanha I. INTRODUCTION For quite some time, there has been much discussion about the next wave of gaming legislation in Macau. All indications are that the new legislation is coming soon. Yet it is still not easy to fully and wholly understand the legislative changes under review by the lawmakers of Macau. At this stage, it appears reasonably certain that the main focus is on regulation of the employment of local labor by the casino gaming sub-concessionaires and on the commissions paid to the local gaming promoters (junkets). These two quite distinctive issues are worthy of further consideration because they clearly represent the increasingly complex political climate facing the lawmakers of Macau. II. PROTECTING LOCAL WORKERS As an initial matter, the new legislation must strive to keep the local population happy, and prevent the unavoidable import of an increasingly numerous workforce from outside Macau from depressing wages and cutting labor benefits. The concern is understandable. In the past, manual labor imports into Macau have restricted the job opportunities of local unskilled employees. Hence, though it may be necessary to continue to bring people from outside Macau to work in the many new casinos, resorts and hotels, it is also necessary to manage and limit the potential negative impact of their sudden arrival on the local labor market. The Government has proposed to manage those impacts by making it clear that the Government expects the sub-concessionaires to fully comply with the contractual obligations they have assumed, and to "give preference" in hiring local residents. But this requirement is commonly understood to be insufficient, and the legislature is now considering establishing certain fixed quotas to be filled by local residents.(3) It has even been suggested that a certain percentage of the corporate management positions be earmarked exclusively for local employees. Any such requirement will raise significant concerns for the casino sub-concessionaires, and has the potential to cause considerable difficulties in finding sufficient local talent to actually fill the positions.(4) It is currently the policy of the Government that only Macau residents be hired as dealers. However, in the long term, this measure may not help the Macau population. That is, an 18-year old hired as a dealer can make more than MOP $5,000 per month -- a relatively substantial sum. Thus, young adults in Macau are dropping out of school to work in the gaming industry. The majority of these young dealers will not have the required tools for future promotion. Further, the next generation of casino patrons will be more likely to gamble on highly sophisticated machines than on traditional table games they are, of course, the Play Station and Game Box generation. As this shift occurs, casinos will likely need fewer dealers and more technicians. The question, then, will be what to do with the Macau residents that are only prepared to be dealers. Perhaps it would be better to allow the casinos to have a mixed work force, even in dealer positions, and impose other rules (e.g., allowing only people above 21 years of age to work in a casino, thus reducing the dropout rate) or even offering tax benefits or quota benefits to the casinos that promote and support the local employees in obtaining degrees and further qualifications and/or offering IT and language skills training programs. Finally, if the "blue card" holders (nonresidents temporarily permitted to stay and work in Macau) cannot be promoted, this may lead to unnecessary discrimination, and may even be considered a violation of the Macau Basic Law. Moreover, an environment where both locals (because positions are earmarked for them) and non-locals (because of the "glass ceiling") are disincentivized from performing at top levels is counterproductive on many levels. Macau has a long tradition of welcoming foreigners and treating them well. It should remain this way. The keys to protecting the Macau resident workers: Education, Education and Education.... III. REGULATING COMMISSIONS The other significant open issue has long been the need to regulate and impose a cap on the commissions paid out to the local junkets. It has become clear that the operators themselves would not and could not agree on a voluntary maximum ceiling for the commissions paid to the local gaming promoters (even if such an agreement would not breach competition rules). The Government recently announced publicly that it intended to issue a Dispatch of the Chief Executive, a form of legal statute, to set a mandatory maximum amount or percentage that the operators would be allowed to pay as commissions to the gaming promoters.(5) This has not yet happened. But the Government has made plain that it wishes to pursue this avenue. It should be mentioned that in response, the main gaming promotion companies which have been raising considerable amounts of capital in the Hong Kong Stock Exchange, consolidating a vast number of gaming promoters, and purchasing the management operations of VIP rooms finally expressed their dissenting views with regard to this policy.(6) It is nevertheless questionable whether Government regulation of the commissions paid out to the gaming promoters will have a substantial and long-term effect on the pressures felt by the operators to forward an increasingly larger share of their profits to the gaming promoters they employ. After all, there will be intense pressure to violate any such mandatory restrictions. And, even if such restrictions are vigorously enforced, which is certainly optimistic, it must be noted that the amounts paid out as commissions are only a part, even if a key element, of the wider package deal agreed to between the various operators and each gaming promoter. It can be expected that the fierce competition in the premium casino market will shift from the commissions paid out to other benefits, namely lodging or credit conditions, but will continue to press profit margins. Hence, in order to have the desired effect on the market, the legislature should enact basic measures regarding the credit that the casinos can extend to junkets. Nevertheless, in the end, the command and control that the gaming promoters have over a significant portion of the high rollers will continue to be a recurring and problematic issue. Thus, the Government would be well advised to consider extending to the junket companies some basic rules presently applicable solely to the sub-concessionaires (e.g., imposing requirements with regard to minimum investment in Macau, and imposing more restrictive licensing requirements). The Government should also consider if and how publicly traded companies from Hong Kong can lawfully operate as junket companies in Macau, given that the law presently seems to indicate that doing so is not possible (even if they are major players). Last, but certainly not least, the casino operators should really consider making a greater effort to expand the relevance of alternatives markets, which would decrease excessive dependence on the mainland China market.(7) The announced new laws may bring some needed answers, but many questions will remain in this difficult battle of junkets, casinos and the sustained development of the gaming industry of Macau. _______________________________________________________________ 1. António Ramirez is the Managing Partner of the Ramirez Law Firm. He is a member of the International Masters of Gaming Law, has many years of experience in the gaming industry, and formerly worked as an in-house counsel for an American gaming operator. He can be reached via e-mail: antonio.ramirez@ramirezlawfirmacau.com or by phone (+853) 2871 6221. 2. Luís Pessanha is a lecturer on the Faculty of Law at the University of Macau, where he lectures in tax and administrative law. He earned his L.L.B. from the New University of Lisbon; he has a postgraduate degree from the Catholic University of Lisbon and obtained his L.L.M. from the University of Macau. He may be reached via e-mail at luisp@umac.mo. 3. See article 35(2)(2) of the Casino Gaming Concessions Contracts. 4. Note that Macau has a population of approximately 400,000 residents, many unskilled laborers, so it is difficult to find qualified managerial-level employees. 5. There have been widespread reports in the local press that the commissions would be capped at 1.25%, well bellow the 1.35% that the market is paying as of now. See, Anni Lam, Gaming concessionaires' junket commission to be regulated August end, Macau Times, 09 July 2008. 6. See, e.g., Neil Gough, Commission caps hard to swallow for junkets, South China Morning Post, 12 July 2008. 7. Our next article will address the countries and territories that may offer potential for diversification and expansion of the local gaming industry.
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