You Need To Know About This, Casino Investors: Macau's Concessions Review

One of the benefits for U.S. gaming investors who own shares of Macau casino operators is that the government has limited the competition. Through 2020, only six operators are licensed to run casinos in Macau.

Of the six license holders, only four are listed on major U.S. exchanges: Melco Resorts & Entertainment Ltd (ADR) MLCO, Wynn Resorts, Limited WYNN, Las Vegas Sands Corp LVS and MGM Resorts International MGM.

However, the those licenses, referred to as concessions, start to expire beginning in 2020, leaving a major uncertainty hanging over Macau for long-term investors.

The first two concessions to expire in 2020 are those held by MGM and former Macau gaming monopoly SJM. The other four concessions expire in 2022.

So far, the government has no plan in place for how it will handle the expiring concessions, and there is no renewal process either. Once 2020 rolls around, the expiration could go one of four ways, according to Bernstein analyst Vitaly Umansky:

1. The operators will be granted what would effectively be a renewal of their current concession, which would maintain the status quo in Macau.
2. Operators are granted effective renewals but with additional costs included.
3. Concessions are granted to new parties outside of the six current operators.
4. Concessions held by one or more current Macau operators are revoked.

Umansky said the most likely scenario is number two, in which the current operators are granted renewals at a higher cost.

“Such costs could be in the form of higher taxes, gaming concession fees (up front or payable over time), low ROI capital investment requirement, or some combination of these,” Umansky wrote.

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The government could also choose to automatically extend the two concessions set to expire in 2020 to 2022 to get all six operators on the same page.

Bernstein’s top Macau stock picks remain Outperform-rated Melco Resorts and Wynn Macau.

Disclosure: The author is long MLCO.