Between Law and Custom—Examining the Interaction between Legislative Change and the Evolution of Macao's Casino Industry

Abstract

This paper examines the evolution of regulatory and business structures of the casino industry in Macao in the context of its current rapidly changing legal and economic environment. This analysis discusses the interaction between legislative change and the evolution of Macao's casino industry from the middle of the nineteenth century to the present. The role of institutions, the process of institutional change and their interrelationships with the industry's performance in both the short and the long run are examined. Models are developed to explain the relaxation of formal constraints that permit the main stakeholders to maximize economic rents within the historic and current context of Macao casinos. The paper also discusses some of the business practices and regulatory challenges that will confront Macao's casino industry in the years ahead.

Notes

 1. On 20 December 1999, the Portuguese government officially returned the sovereignty of Macao to China. The Macao Special Administrative Region was established accordingly.

 2. (1) SJM (Sociedade de Jogoes de Macao: Macao Gaming Company)—a wholly-owned subsidiary of the former Macao gaming monopolist, STDM (Sociedade de Turismo e Diversoes de Macao); (2) Galaxy JV—a joint-venture company formed by Galaxy Hong Kong and Las Vegas Sands, which operates The Venetian in Las Vegas; and (3) Wynn Resorts (Macao).

 3. Macao's casinos recorded a total gaming revenue of MOP40.19 billion (US$1 = MOP8) in 2004 and 46.08 billion in 2005 (Gaming Inspection and Coordination Bureau, Macao, 2005 and 2006).

 4. Today, Macao's land mass is 27.8 square kilometers, made up of the Macao Peninsula, Taipa, Coloane and Cotai. This includes various areas of recently reclaimed land such as Cotai.

 5. These political crises resulted in China changing its dynasty from Ming to Qing.

 6. Macao's industries at the time included some traditional fisheries and small-scale, low-value added handicraft production.

 7. Although the Macao-Portuguese Government announced that gambling had been legalized in Macao, no legal documentation concerning the legislative process behind this decision could be found.

 8. Vaeseng is composed of two Chinese characters, ‘vae’ refers to the venue where the imperial examination was carried out in ancient China (until the end of the Qing Dynasty); and ‘seng’ refers to the surname of a person. Vaeseng is a kind of ‘ticket’ offered by some organizations that allowed the community to bet on the surnames of those who would pass the imperial examination in a specific year. For details, see Pina-Cabra (2002), ch. 4.

Pacapio is composed of three Chinese characters, ‘pa’ and ‘ca’ refer to pigeon and ‘pio’ refers to ticket. Pacapio was a game that evolved from Vaeseng. When this game was first introduced, a certain number of tickets (say, 10) with Chinese characters (Chinese surnames) would be picked out by a pigeon from a pool containing a certain number of different characters (say, 80). Gamblers would bet on the characters being picked out. Pacapio progressed to become the Chinese Keno that can be found in Macao today.

 9. Among the studies that estimate the number of Chinese coolies shipped out from Macao around the third quarter of the nineteenth century (Porter, 1996, pp. 56–57; Cheung, 1999), the authors favour the estimate of Liu (2002). This is because Liu's number is consistent with estimates from other sources and he claims that his estimate is based on documents filed with the Chinese custom house (the so-called Gong-bei custom today), situated at the border between the Macao peninsula and the Mainland in 1891.

10. In practice, civil law is quite different from the English-based common law system, where the development of the regulatory system is ‘based on the precedents created by judicial decisions over time’, and custom can be developed as part of the regulatory system.

11. Among the business leaders who played this role were Lu Jiu (1837–1906) and his son Lu Lianruo (1878–1927), two dominant gaming practitioners in the last quarter of the nineteenth century and the beginning of the twentieth century; Huo Zhiting, one of the owners of the Hao Xing Company that obtained all the gambling licenses from the Macao-Portuguese government between 1930 and 1936; and Gao Ke-ning (1878–1955), one of the two partners of the Tai Xing Company that won the monopolistic license in 1937. In the second half of the twentieth century, Stanley Ho, the major actor within the SDTM organization, took on the role of philanthropist and economic development leader with a variety of infrastructure and community projects.

12. Barbosa, Artur Tamagnini de Sousa.

13. Non-institutional factors such as key characters involved and strategies adopted during the bidding process, which subsequently led to the ultimate success of the STDM in obtaining the concession, are not covered in this paper.

14. The following articles from websites provide overviews of these incidents.

1. The Great Proletarian Cultural Revolution in China, 1966–1976 (Watkins, n.d.). http://www2.sjsu.edu/faculty/watkins/cultrev.htm; accessed 23 May 2005

2. History (n.d.), ch. 4. http://members. lycos.co.uk/Macao1999/history/ch4.htm

3. The 1967 Leftist Riots and Regime Legitimacy in Hong Kong (Wong, June 2004). http://www.hku.hk/hkcsp/ccex/ehkcss01/frame.htm?mid = 0andsmid = 1andssmid = 3; accessed 23 May 2005

15. Translated from the Chinese version of Decree Law No. 6/82/M.

16. According to the gaming tax paid by the STDM, it was estimated that the total gaming revenue in 1985 was US$225.4 million (including non-casino gaming revenue). The total casino gaming revenue reported by the GICB in 2001 was US$2,263.6 million.

17. Translated from the Chinese version of Decree Law No. 6/82/M.

18. In practice, the name ‘dead’ chips or ‘mud’ chips are commonly used to refer to various forms (and functions) of the chips being used in the private VIP-room operations. A common feature of these chips is that they are non-redeemable for cash by the buyers from the seller (e.g. by the ‘contractors’ from the gaming concession holder, or by the players from the junket operators or chip rollers).

19. For more details about the common structure and operations of private VIP rooms, see Leong (2002) and Siu (2003).

20. See Brady (1998).

21. Wynn Resorts had been founded in 2001 by Steve Wynn, who had previously been CEO and Chairman of the Board of Mirage Resorts Inc., until that corporation was acquired by MGM Grand (now MGM Mirage) in 2000. Under Wynn's leadership, the company built The Mirage, Treasure Island and The Bellagio resort casinos on the Las Vegas Strip between 1989 and 1998, considered to be among the most dramatic and successful of the new generation of Las Vegas Strip mega-casinos. Las Vegas Sands Inc., under the ownership of Sheldon Adelson (and a privately held company until December 2004), built the Venetian Resort Hotel Casino on the Strip, which opened in 1998 and has since become one of the strongest performing properties in that highly competitive market. The Venetian is also known as the most successful convention hotel casino in Las Vegas, another attribute attractive to the MSAR.

22. Because of different perceived risk exposures related to VIP room operations, Las Vegas Sands and Galaxy subsequently split their concession to become separate and independent operators in Macao.

23. According to Nevada Revised Statute 463/720, Nevada gaming licensees operating in ‘foreign jurisdictions’ (i.e. outside of Nevada) are held to the same regulatory standards in their business practices that they would be if those operations were in Nevada, regardless of the laws in the foreign jurisdiction. See Leonard (2005, pp. 7–10).

24. For a discussion of Nevada regulatory practices that reflect the importance of the reputation of the gaming industry in light of bad reputation or activities of licensees, see Burbank (2000), especially chs 2, 3, 6 and 7.

25. In 2005 Singapore authorized two ‘integrated resorts’ with casinos, with tax rates at 15% and 5% for premium players. This may put pressure on Macao to reduce its 39% tax rate, especially when regional competition for gaming customers becomes more substantial.