by António Ramirez /Luís Pessanha

António Ramirez /Luís Pessanha

Any and all fields of economic activity that pass from a monopoly to free market via some form of liberalization have to face the harsh realities of competition. From a legal point of view it is challenging to make sure that all competitors are operating under equal market conditions and are treated fairly. This is true anywhere in the world and certainly is the case of the casino gaming industry of Macau after the boom that followed the liberalization of 2001/2002. It has lately become increasingly apparent that competitions issues are now felt to be at the heart of the worries of the local industry and may well deserve further attention by the regulators.

The opening up of the casino gaming market certainly brought many good things to Macau as a whole, not least thanks to an record influx of foreign direct investment, that allowed for an upgrade and modernization of the local hotels and casinos, bringing in know-how and business expertise, as well as an sizeable improvement of the salaries and overall work conditions, but also created new social and economical challenges to be overcome, as the local workforce is simply too small to satisfied all the demands of the labor market and there is a widening perception that there may be too much gambling in Macau. Or that at least the growing rate of the local casino gaming market should be slowed or cooled down a little bit. Maybe even that competition is getting too fierce and is starting to be harmful to some.
In the aftermath of the end of the traditional casino gaming monopoly the main policy concern had obviously to be to allow for room to competition to take place, making sure that the new operators were able to enter Macau’s gaming market and were allowed to make ends meet to cover their very substantial investments in Macau. In short, the concern in the first days of the tentative casino gaming liberalization certainly was to ensure that the long-established traditional operator , that had a considerable say over the gaming market at the time, would not suppress the infant competitors and that they would be allowed to be financially viable. That is why the lawmaker of Macau made a point not only to require that all casino gaming operators run their business in accordance with the general principles of a fair and healthy free market , but also states that no party shall be allowed to abuse of its dominant market position to prevent, restrict or distort competition. Even so, it is obvious that vigorous competition that captures business from other operators is permitted and cannot be seen as an anticompetitive practice. Moreover, it may also be mentioned that the law requires that the Macau Government does not discriminate any of the operators and ensures fair and healthy competition in the market. Even if such reference is redundant, as general principles of law require that the Government shall always deal fairly and impartially with all interested parties. Looking back it should be recognized that all things considered this policy was greatly successful and the objective of insuring that market competition takes sway in Macau was accomplished. Maybe even a little bit too well for comfort.
The issue worthy of consideration at present is if the market is now facing a period of such relentless competition that may well put the sheer existence of some of the weaker casino gaming operators into jeopardy. That at some point in the near future an operator may have to shut down some of its less attractive casinos or even may go out of business altogether due to adverse market conditions is a notion that simply does not ring true in present day Macau. It is still widely expected that all casinos are to be profitable and every operator can do good. The prevailing view in Macau appears still to be that competition should not be too harmful to the local operators and that all parties should be allowed to enjoy a fair and even share of the wealth generated. That such is not certain at all may prove to be a bitter disappointment. It is not by chance that this hard questions start to be asked now, but it is a direct result that an increasingly large chunk of the profits of the casino gaming operators has been paid out to a small number of organized gaming promoters (better known as junkets), that effectively control a substantial portion of the key VIP market, shrinking the profit margins of the casino sub/concessionaires to dangerous low levels. The paradox of this development is that even as the casino industry of Macau continues to growth and generates more gross revenues the operators are getting a smaller piece of the cake and find themselves in a difficult spot.

It should also be considered that the casino gaming market of Macau, with only six authorized operators, resembles more an imperfect oligopoly than a full-fledged open market, as additional competitors are not allowed to enter the single largest gaming market in the world. From a public policy point of view, considering the small number of operators allowed to operate, all forms of market consolidation of the local gaming industry would probably be looked upon as undesirable, as it would almost certainly to a large extent restrict competition. Hence, it may be considered that as a matter of policy competition is perhaps only welcome as long as it improves the quality of the gaming industry of Macau and does not put some of the operators out of business. The danger of cartelization in a market with such a restricted number of operators has long been recognized by the lawmaker and hence all parties are under a general prohibition to reach agreements or engage in concerted practises, whatever the form they may take, which may prevent, restrict or distort competition between the various sub/concessionaires. In case of breach of competition rules administrative fines may apply and the relevant parties may additionally have to face civil and criminal liabilities.
On 22 May 2008, the Government of Macau officially invited the representatives of the six authorized sub/concessionaires to take part in a newly created public body, a consultative council in which the industry should exchange views with the regional regulators behind close doors. The main point in the agenda of the first meeting of this consultative council was to deal with the delicate issue of limiting the commissions paid by the casino operators to the gaming promoters. Aware of the difficult challenges lately faced by the casino gaming industry, the Macau Government put forward the suggestion that all sub/concessionaires should voluntary agree to restrict the maximum percentage of the monthly rolling chip turnover volumes paid out to the junkets as commissions at 1.25%, but it stopped close of issuing any formal regulation on the issue.
This is in itself a tribute to the healthy spirit of competition that exists in the casino gaming market of Macau, even when encouraged by the Government and having a clear financial interest in reaching such an understanding, the operators appear to be unable to agree upon and enforce a voluntary price cap on the commissions paid to the gaming promoters. It should also be considered that such an understanding, even if sponsored by the local regulators, from a strict legal point of view could arguably be considered as an unlawful anticompetitive practice. After all, what had been proposed was nothing else then that the operators should agree between themselves to limit competition by setting a price cap on the commissions of the junkets. This is in principle a reasonable clear breach of the general prohibition to agree or engage in practises that may prevent, restrict or distort competition between the various sub/concessionaires. This view is supported by the fact that the la

Date Posted: 01-Aug-2008

Antonio Ramirez is the Managing Partner of Ramirez Law Firm. Member of International Masters of Gaming Law, with years of experience in the Gaming Industry, 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.
Luís Pessanha is a lecturer on the Faculty of Law at the University of Macau, where he lectures tax and administrative law. He earned his L.L.B. from the New University of Lisbon; he has a postgraduate 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.

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