Dragonara Casino: Waiving of concession fee ‘not in the best interest of government’

Updated with Dragonara Gaming reaction

A waiver on the payment of a concession fee by Dragonara Gaming Ltd to operate a casino in Malta was “not in the best interest of the government”, according to the National Audit Office.

In its annual report, the NAO raised concerns on the economy ministry’s decision to provide a waiver of the concession fee if the concessionaire pays the Malta Gaming Authority upwards of €7.7 million in contributions, licence fees, gaming device levies and/or gaming tax.

The concession fee for the casino set out in the RfP amounted to €11.1 million, payable in three equal payments of €3.7 million each, spread over three years. However, the same clause also provided for the possible waiving of the concession fee.

Dragonara Gaming Ltd was the only bidder for a concession to open and operate a casino in Malta. It entered into the concession agreement on 28 July 2021 after submitting a financial offer equal to the requested minimum of €1.5 million.

The NAO compared the request for proposals (RfP) of the Dragonara Casino to that of the National Lottery concession. The latter clearly specified that all amounts offered by the concessionaire are payable in full without any deductions or set-offs, and the concessionaire is responsible for all taxes, duties, charges and relevant expenses that need to be paid.

Meanwhile, the RfP for the casino concession provided a waiver on the concession fee from the outset. The first concession fee payment of €3.7 million, due on 1 August 2022, was waived entirely. Only the financial offer of €1.5 million was paid as at June 2023.  

“Given the lack of documentation to support the rationale behind certain decisions taken, the National Audit Office considers that such an arrangement was not in the best interest of the government,” the NAO said.

In its response to the audit office, the economy ministry said the concessionaire paid a total of circa €5.922 million during 2022. “[This] is significantly more than the yearly average amount paid by casinos,” it said. “Therefore, the ministry does not agree with the assessment that the government’s interests were not safeguarded in this case.”

The concession under scrutiny is unrelated to a 2019 agreement that left gaming industry players fuming, with the Dragonara Casino operators receiving a 64-year extension to their lease agreement without government issuing a competitive tender.

Chris Cardona, the economy minister at the time, had tabled a motion in Parliament outlining Dragonara Gaming’s request for a 64-year lease extension until 2083.

The motion sought parliament’s approval so the new lease agreement between the government-owned Casma Ltd and Dragonara Gaming can go ahead.

Dragonara Gaming Ltd reaction

Dragonara Gaming Ltd has refuted "any claim, inference or suggestion" that payments due by the company as concession fees for the casino concession were somehow waived by the government "to the selective benefit of Dragonara Gaming Limited".

In its reaction to the NAO report, the company said the request for proposals for a concession to open and operate a casino in Malta was published by the Privatisation Unit on 17 February 2021 and provided for a two-tiered payment structure: A ‘Financial Offer’, which was to be of a minimum of €1.5 million; and a ‘Concession Fee’ for a predetermined amount of €11.1 million.

"In terms of paragraph 3 of the RFP the ‘Financial Offer’ was to be paid prior to commencement of operations, whereas in terms of paragraph 2.8 the ‘Concession Fee’ was to be paid in 3 equal instalments of €3,700,000 each, during the first three years of operation. Paragraph 2.8 of the RFP, however, provided that payments made by the operator to the Malta Gaming Authority by way of contributions, licence fees, gaming devices levies and/or gaming tax as may be due in accordance with the Gaming Licence Fees regulations and/or Gaming Tax Regulations (together the “Qualifying Payments”), to be taken on account of, and set off against, the ‘Concession Fee’ payments," the company said.

It added that the RFP was structured in a manner which, as opposed to previous competitive processes for casino concessions, not only required an upfront guaranteed payment but also a second guaranteed layer of revenues to government in the form of Qualifying Payments. "If the casino operation did not generate sufficient revenues to effect Qualifying Payments in the amount of €3.7 million during each of the first three years of operation, then the operator would have had to top up the Qualifying Payments with an additional payment to make up the €3,700,000 due."

"Effectively, therefore, the two-tier payment structure was intended to guarantee a higher revenue to the public purse, with the operator of the casino taking the full risk of the operation generating sufficient revenues to make Qualifying Payments sufficient to cover the yearly payments of the ‘Concession Fee’. The concession agreement awarded to Dragonara Gaming Limited, a draft of which was also attached to the RFP, does not depart from this structure," the company said.

It insisted that according to the payment structure there was neither any waiver of concession fees due by Dragonara Gaming Limited to the government, nor was Dragonara Gaming Limited given any advantage or contractual terms other than those set out in the RFP.