University of Macau Faculty of Business Administration

GAMM302 Gaming Regulations and legal Environment

2009/2010, second semester

Written Assignment Topic:

H istory of the 2001 -2002 concession public tender process in Macau

Name: Lau Hiu Tung Number: B-A7-0070-2

Date: 30 April 2010

Abstract The purpose of the report this time is to share and have a discussion in the concession public tender process in 2001 – 2002. By reading this sharing, I hope we can have a clear picture about the whole tender process, what has happened, and how was it organized during those 2 years. As this is a very important topic in the gaming sector. Moreover, I will also have a discussion to see the main reason why were those 3 companies won in the competition, and also some specific issue that raised by some of the candidates. Introduction Macau has a very long history in the area of gaming business. In the old days, Macau is being named as “Eastern Monte Carlo”. Now, Macau can be called as “Eastern Las Vegas”, as many foreign companies have started their business in Macau after the liberalization of the gaming industry in 2002. This change let Macau step into a new era and increase its reputation all over the world. Why Macau can have such a big change after the operation in the style of monopoly concession for more than 70 years? How the tender process has been gone through? Why result in these 3 concessions – even though now there are 3 plus 3 sub/concessions, but this is another story. The main purpose of this paper is to go through the tender process in the year 2001 – 2002. Through our discussion, let you understand and think about is government really do good in this area. The reason why government liberalized the gaming industry in Macau may have to trace back to the 1980’s. In May 25, 1982, the Macau SAR government enacted the gaming law (Law 6/82/M) and firstly mentioned the opening of the sector to other competitors instead of just STDM - “Fortunately, the betting operation, which can be granted to the patent system as a system (monopoly) or quasi-bound (oligopoly/ “special license”)." "According to the special quasi-grant system, the maximum amount of 4.” Four? Why currently there are only 3? The answer is in September 15, 1986, another law (Law 10/86/M) has made an amendment in the total number of “special licenses” from 4 to 3. However as we all know that, the occurrence of this “special license” does not happen until 2002 named as a “concession”. From Hou Heng, Tai Heng to STDM, Macau has experienced more than 70 years of monopoly in the gaming industry. Until 30 August, 2001, Law 16/2001 was passed through by Legislative Assembly of the Macau SAR, this is the continuous of the story of the Law 10/86/M and it also stir up the prelude of another tender process after the first open bid happened in 1961.

Tender Process in 2001 – 2002 Prelude Stage As STDM has experienced around 40 years of gaming monopoly in Macau, its story reached the end in 2001 when Law 16/2001 (Legal Framework for the Operations of Casino Games of Fortune) was passed, and things were going to change, even its contract should be ended in 2002. In October 8, which can be called as the starting point of the tender process, the Macau SAR government started to collect the intention letters of all the interested companies. As a result, many companies were rushed to apply hoping to join this attractive biscuit in Macau, and 22 companies’ were collected at the end. As desire to be one of the companies in the consider list of the tender process, some requirements and standards should be met. Therefore, the Administration Regulation n.º 26/2001 was approved and released in the end of October. The most important requirement has been pointed out is the suitability of moral integrity and financial capacity of the company. Besides, it also has a clearer mentioning in the detail of the run-down about the whole tender process. After the requirement and even the committee of the tender process have been announced through the Dispatch of the chief executive n.º 216/2001 in the same period, everything is ready and on the right track. So the main part should be started after the long preparation in the stage of prelude. Preliminary Stage A new month come, and the new stage of the tender process began. This started with a new Dispatch n.º 217/2001 of the chief executive in November 1, which confirmed the total number of concessions are to be 3 and the application deadline fall on the December 7, 2001 at 5:45 in the afternoon. Also the whole tender process should at least have 2 phases. Therefore, at 9:00 in the morning on November 2 the first phase of the tender process formally in progress. This drew everyone attention, especially for the interested companies, the journalists and also the Macau residents. During this period, many guesses and questions among people are being raised. Suddenly this becomes a hot topic around Macau, Asia, or even the world. Many people have a great believe and confidence on Stanley Ho’s STDM should be one of the winners, as they have experience, it is the “history” and plays a decisive role in Macau, together with the saying – “We will collaborate with the Macau SAR government, and build great effort in order to initiate on the Macau economic” - announced by Dr.
Stanley Ho’s.

At this stage, of course everything is still a mist and too early to say, nothing can be confirmed before the judgment was announced by the government Although this tender process is a very concerned topic, everyone is so desire to know who the candidate is. But the interesting point is all the bids were not submitted until it faces the deadline – 2 bids submitted on December 6, 2001, and the other 19 bids were mostly submitted in the last 2 hours before the deadline. Some people believe the purpose in doing so is to create a sense of mystery. Or it is another story which is similar to the STDM’s case during the first tender process in Macau in 1961, it is something only the candidate themselves know. As a result, Government announced that there were altogether 21 bids have interested in the tender competition – included MGM Mirage Macao, Wynn Resorts (Macau) Limited, SJM (new name of STDM), Macau Luen Hing Gaming Company Limited (Hold by the son of MA Man Kei – Frederick Ma) Asian American Entertainment Corporation Limited (Taiwan based company), Galaxy Casino Company Limited (In associated with the Las Vegas Sands) etc. Just few days before the deadline, an interlude happened between the Asian American Entertainment Corporation, the Las Vegan Sands and Galaxy Casino Company Limited. There will have a further discussion on this issue in the later section. Later the Dispatch of the chief executive n.º 259/2001 stated that companies can regroup their association only after the first stage of examine is passed and confirmed to be one of the candidates in the tender competition. Buffer Stage In the first day of the announcement about the liberalization for the gaming industry, STDM’s era was going to end. STDM’s monopoly business started in 1962, after gone through a number of times in extending the concession, their contract should be expired in December 31, 2001. Somehow this is one of the reasons that make the government to change the existing monopoly structure and liberalize the gaming industry. However, in December 18, 2001, n.º 259/2001 of the chief executive’s Dispatch released. Good news came out to STDM which was their “monopoly contract” will be extended to March 31, 2002. This is because government mentioned that a longer period of time should be taken so as to have a finally judgment on the tender process due to the numerous candidates. As a result, STDM enjoyed 3 months longer for his monopoly concession. At this stage, the first phase almost reached its end. 3 days before the end of 2001, the committee of the tender process announced that 3 of the candidates were disqualified because of their tender letters did not meet the standard and they were:

1. Art Concept International Gaming Resort Company Limited (hold by Michael Mak, the son of Stanley Ho’s sister Winnie Ho) 2. Kao U-Investment Limited and 3.CM-Development Limited. Therefore, only 18 were left and joining into the second phase of the tender process. They even have the right to regroup their associated combination in order to increase the chance to win in the competition. Show must go on, a more excited new phase of the tender process was going to start soon. Climax Stage As 18 of the companies were getting into the second phase without a hitch, they therefore, have a chance to present their proposal to the tender process’ committee started from the 3rd January, 2002 and used almost 1 week to finish interview all the candidates. The committees asked very detail questions in order to obtain sufficient information to have the best choice, as it is a very important issue in Macau. In the middle of January, the committee announced that 9 out of the 18 companies have been shifted out and will have a second interview since they have a higher potential to be one of the concessionaires. “Experience, Financial capacity and Ability” are the three main issues in considering the winner, no matter how good their proposal is and how well their presentation is. So everything have already done, the thing that can do is only waiting the result to come out. Just before that, the committee confirmed one more time if any companies want to regroup by the end of January. 3 out of 18, only have one-sixth chance to win, everyone is so excited, nervous and pay much attention in waiting the result. Still need to wait after the Chinese New year. Closing Stages After almost 2 months process, everything has been done, and the competition should reach the end in its term. In February 8, 2002, 4:00 in the afternoon, the result which was so interested by all the people eventually came out. In the conference, the committee announced the 3 winners and 3 Runner-up, ranking from the first to the last were: 1. Wynn Resorts 2. Galaxy / Las Vegas Sands 3. SJM Runner-up 4. MP Entertainment 5. MGM 6. Macau Star Limited

It is so clear that the winner are the first 3 companies, and the runner-up is for back-up only, just in case any one of the 3 winner left, and the runner-up will replace the vacant position. However, it is so shocked that during the process, the hottest one MGM can only get the fifth, and the Galaxy can unexpectedly run in the second place.

In March 28, just before the expiry day of STDM, they signed the concession contract using their new form, SJM to continuous their gaming business. The contract started from April 1, 2002 to March 31, 2020, totally 18 years. Later in June 24 and 26, Wynn and Galaxy / Las Vegas Sands also signed their contract respectively. However, their contract is altogether last for 20 years instead of only 18 years like SJM, from June 27, 2002 to June 26, 2022. This happen because the Government thought that SJM can currently start operates their business, and they have all the properties built in Macau already. Therefore, it is different from the other two concessionaries, who cannot run their business immediately, and time is needed for them to build the property. So one is 18 years and the other two are 20 years.

Why Wynn, Galaxy / Las Vegas Sands and SJM? For SJM first, it is very clear that why it can get one of the concessions. As I have mentioned before, it is the “history” of Macau. Although some people think that STDM business did not have any improvement throughout these 40 years. However, giving no cause for much criticism that STDM indeed have done many thing for the society in Macau-land construction, bridge construction, MJC, airport, Macau Ferry Terminal, hotel, etc, they also have a great impact in leading the growth of Macau’s economy. In addition, STDM has such a plentiful experience in Macau gaming industry. So it is not strange that one of the concessions fall into SJM. Stephen Alan Wynn, the founder of the Wynn Resort. He has a superior experience in the area of holiday center operation, and his creativity and his name“Steve Wynn”is also extremely famous among the world. The committee announced that actually the proposal of Wynn is not really good and detail enough for him to win. But he still get one of the concessions is because most of the committees also have a great confident on Steve Wynn, as he is one of the key person in changing Las Vegas from a gambling place to a tourism place now. This change is what Macau desire much on. Another reason is because the proposal of Wynn is so attractive on its wording - “to create a Las Vegas tourism business fill with Chinese style in Macau”. This idea is so interested and looked forward by the committee, so Wynn became the winner in the tender process.

Lastly is the Galaxy associated with Las Vegas Sands. This is the most unexpected

one in winning the competition. Even in the second interview, Galaxy also has not been invited, so no one can guess that he will be one of the concessionaires. But many people believe that the main reason that let Galaxy to win is due to his partner, Las Vegas Sands. Las Vegas Sands is a company famous in the area of holding global convention and exhibition event. Macau in order to diversify its gaming industry to the MICE industry, this will be the key element that make it success its goal. Besides, this can also help Macau to strengthen its name and relationship in the world. As a result, it can be said that Las Vegas Sands is the key point that make Galaxy became one of the winners and even win SJM coming into the second place. However, in the very early stage, Las Vegas Sands actually was not associated with Galaxy but another Taiwan company – Asian American Entertainment Corporation limited.

Las Vegas Sands’ issue As I have mentioned above, the Las Vegas Sands changed his partner in the last minutes, and they also created a chain effect and many problems have been raised up afterward. “The most significant revelations so far are that Sands was forced to drop its early partner in the bid, Asian American Entertainment Corp., because of the potential political fallout from the latter's Taiwanese ownership; and that Sands President William Weidner testified during a deposition that Macau's government "married" the Las Vegas company with Galaxy Entertainment Group at the last minute.” --- World Casino Directory.com As Asian American Entertainment Corp. is a Taiwan base company, base one the political issue between China and Taiwan, Las Vegas Sands afraid this will affect the winning in the game if he associated with this company. Therefore, in order to increase the chance of winning, he decided to change his partner to Galaxy. As a result, the judgment is correct, they win with no trouble. However, another problem appeared with Las Vegas Sands again after they have won the competition with Galaxy: “The Venetian split from Galaxy over strategic differences and opened Sands Macau using a subconcession from Galaxy.”---Macau Business.com

Las Vegas Sands want to target in mass market, but Galaxy want to target in VIP. As they cannot come up with a common consensus, what can the government do? 1. Tell Las Vegas Sands to go home; 2. Find another solution. As Macau SAR Government desire to keep Las Vegas Sands since they have a good prestige and experience, it is extremely useful for Macau. Also, as I have mentioned before, one of the reason that made Galaxy get a concession is because they associated with Las Vegas Sands. So Macau SAR Government chooses to find one solution, which is to offer a subconcession to Las Vegas Sands, and let it separate from Galaxy. Because of this separation, SJM and Wynn also ask for subconcession in order to sell half of their licenses to other company. As a result, SJM sold to MGM, and Wynn sold to Melco PBL. And at the end, Macau has 3+3 sub/concessions instead of just 3 concessions. This is also an issue that is currently still arguing by the people that why totally come up with “6”.

Conclusion Liberalize the gaming industry in Macau really stimulate the Macau’s economy a lot. For what we have seen in the past, the whole process of the tender process actually did a great job, every step was clearly stated and every aspect was clearly held. Besides, the result of the concessionaire also has a good reason in winning the competition. Just have a look in what we have in Macau right now, this gives evidence that the government has made a right selection in the tender process. The only this that we have to argue is the acceptance of the subconcession. In this area, government did not do a good job in handling the case, and did not have a very clear explanation to the public why subconcession is accepted. Some people may argue that what is the purpose of decision of altogether 3 concessions, and now have a result in 6. And it is seems to be unfair to other competitor in the tender process. In addition, Macau has only experience 2 times of tender process. The first one was held in the 1961, and the second one was 2002. So will it be the third one in the 2020 / 2022 when all the concession have reached their expiry date. Or will government just use some other method to continuous the gaming industry in Macau. This is something that we should look forward and have a further discussion later.

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