High Volume, Low Margin
Why gambling agents matter in the Macau millions race
The whole Macau VIP system is based on huge volumes of play in terms of gambling revenue (79.8 billion patacas or US$9.98 billion in the VIP segment in 2009). But house theoretical win is slight (around 2.5%, though many casinos claim a theoretical win of 3% or more). There are also so many people (such as agents) and so many costs (such as comped rooms and entertainment) in the chain that once the government’s tax cut of around 39% is deducted from the top, margins on the VIP gross are low. Deals to bring in players to a particular venue can be made or broken on a few fractions of a percent of commission in either direction (i.e., from junket agent to player, or from junket agent to marketing agent or a combination thereof).
In traditional Macau VIP rooms prior to market liberalisation in 2002, the commission paid to agents on player’s non-negotiable chips (non-negotiable chips effectively being money that has been ‘loaned’ to the player to allow him to gamble) was around 0.7%. In other words, if the player rolled HK$1 million (US$128,000) in a session the agent would make notional commission of HK$7,000. That commission would only be realised, however, once the agent had been paid out of a player’s winnings or had been refunded by a losing player. Incentives are also paid to agents if they exceed rolling chip sales targets. In order to keep a player at the table, however, the agent is also expected to give a rebate to that player out of his agent’s commission. In 2007, business improved considerably for junket agents generally. Macau rolling chip commission soared during a price war sparked by the decision of Crown Macau (now Altira) to pay 1.35% commission to the junket consolidator Amax. That in turn meant agents could afford to give improved rebates to players, further increasing the players’ incentive to stay with Amax at that time.
The other operators joined in the price war and the Macau government threatened to impose a commission cap. In theory, the cap is now in place at 1.25% with regulations to cover ‘back door’ incentives paid for generating volume on borrowed working capital. Currently, it is generally accepted that junket agents in Macau are offering rebates to players of around 0.8%. By way of comparison, Bank of America Merrill Lynch said recently in a research paper to investors that Resorts World Sentosa, the new Singapore casino resort majority owned by Malaysia’s Genting, is likely to offer a 1.1% rebate on rolling chips to direct players. (It’s not yet clear whether junkets will be allowed in Singapore)
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