Casino high rollers aren’t the only ones facing ‘liquidity’ issues in Asia
When analysts talk about a ‘credit crunch’ facing high roller gamblers from Mainland China, it may unwittingly be a euphemism for ‘their betting agent has been arrested back home’.
Betting agents are in effect the oil that keeps the wheels of Macau’s VIP gambling juggernaut turning, in terms of providing credit and organising collection of debts.
Within Mainland China, though, they operate in what is at best a legal grey area. They are vulnerable to occasional hostile regulatory action by the police and judicial system, especially if they advance money to someone who later dips in to public funds to pay off the debt.
In the good times there were enough creditworthy high rollers to ensure profits all round. In leaner times some of the more ambitious (or less scrupulous) betting agents may be taking on higher risk clients and risking the subsequent fall out this can create.
Gang or business?
In late June, Xinhua, China’s official news agency, reported the arrest of what it described as a ‘gang’ but which sounded more like a more formalised betting agent network.
The report said the ‘gang’ had 18 business development agents and aimed its services at wealthy Chinese business people wishing to gamble in casinos outside the country’s national borders (including the Special Administrative Region of Macau). The report added the scheme had 125 members, providing turnover worth 20 billion yuan. That’s the equivalent of US$2.9 billion, although it seems this may have been spread over more than one year. Nonetheless the police action means Macau and other Asian jurisdictions are likely to have lost some heavy hitting customers in the high stakes baccarat market. The removal of their business will certainly feed through to the casinos’ bottom lines at some stage this year unless the VIPs manage to hook up with new agents pretty sharply. Coincidentally, gross revenue for VIP baccarat fell 20.1% year-on-year in the first quarter of 2009 to US$2.1 billion.
Xinhua said the detection of the high roller ‘gang’ came about because of a separate sting operation against a betting syndicate linking Mainland customers with online betting sites and sports books outside the country. That involved five schemes worth an additional 30 billion yuan according to police sources.
A spokesman for the Mainland’s Public Security Bureau was quoted as saying: “Through the detection of the five cases, police found clues to another gambling gang, which organised gamblers in casinos in Macau, Taiwan [where incidentally there are no legal casinos], the Philippines, Singapore [ditto] and Malaysia, and lent out money at high interest rates to gamblers.”
Public cash
Xinhua said the alleged gang’s leader, whom it named as Liu Qingli, surrendered to the police in May. The clue as to why the Mainland authorities were more interested in this network of betting agents than they appear to be in some of the others may lie in the fact that public money was allegedly involved.
Xinhua added that one of the VIP agent’s customers, identified only as a manager of a coal mine in north China’s Shanxi province, gambled away HK$400 million (US$51.6 million) on a week-long trip to Macau in June last year.
China started cracking down on officials betting with public money last year by placing undercover police in Macau casinos. The move coincided with the rationing in the second half of 2008 of visas enabling Chinese citizens to visit Macau privately rather than in escorted tour groups.
Crackdown
Enforcement action against the betting agents themselves in China rather than rogue players in Macau is if anything an argument for official recognition of the agent trade rather than an argument for pushing the sector further underground. Licensing the trade would arguably help to control the rogue players by preventing them from getting credit in the first place. That must be more effective than dealing with them once the damage has already been done in terms of them racking up unsustainable debts at the casino table.
The answer must be to manage the public demand among Mainland Chinese for gambling. That means creating a regulated system that works in the public interest by controlling compulsive gamblers and raising tax on the spending of more sober ones. That’s a much trickier issue and a lot harder to implement than arresting betting agents once their clients have already gone off the rails.
