Inside Asian Gaming

INSIDE ASIAN GAMING | September 2008 8 Cover Story Dazed and Confucius A beginners’ guide to Asian betting agents To give an idea about exactly what foreign investors are up against when trying to use the Asian agent system, it’s worth quoting froma recent presentation by Tom Hall, Executive Vice Chairman and CEO of London-listed AsianLogic, a provider of online and land-based gaming services. The agent arrangement works not so much as a cascade system, but more like a water wheel powering a mill. Money, in the form of credit, flows downhill from the gaming service provider via a principal agent then back uphill in the form of player bets. Every time the player loses, liquidity flows back into the scheme, as long as the agent system is successful in getting the player to pay up. Sub-divided In the case study illustrated, Mr Hall refers to the principal agent as a ‘super master affiliate.’ A series of sub agents (known in this example asmaster affiliates and affiliates) subdivide and pass down the cash.Each level expects a commission on the cash it passes on, as each layer is taking on a degree of commercial risk. The ‘affiliate’ is the sub agent in direct contact with the players (often known as ‘members’). In the non-VIP gaming market, the members are granted lines of credit typically ranging from US$5,000 downwards. It is not unknown for members themselves to further subdivide their credit allocation into parcels of micro credit for lower income players, again taking a commission for their trouble. “A player may give as much as 50% of his win or loss to the person in contact with him, and so back on up. Everyone gets a share,” explains Mr Hsu. Debts honoured Ultimately, what mitigates risk and reinforces this scheme is that agents at the bottomof the pyramid quite literally know where their customers live and what their personal circumstances are. Agents do typically ask players for a deposit before granting credit in order to cover potential bad debt, says Mr Hsu of iFaFa. The potential for debts related to gambling credit to be enforced through duress cannot though be ruled out, as recourse to the law is not usually an option. This causes more than a passing problem for most foreign investors with their public shareholders and tests for ethical standards and due diligence. For the most part, though the agent arrangement works in Asia because of a shared sense of social and financial obligation—sometimes referred to in a generalised way as ‘face’—that is difficult for many Westerners, brought up on a culture of individualism, to understand. abroad in too great a quantity. Third, and by no means least, gaming may actually be illegal or at best stuck in a grey area in the country concerned (exceptions are state-run lotteries of the sort found in China and Thailand). Another problem is that gambling debts are often not recognised as enforceable contracts in many Asian jurisdictions, making it inevitable that provision and enforcement of credit terms is conducted by these informal routes. The Agent System Illustrated Macau VIPs None of this deters really dedicated players or their would- be agents. The huge amount of cross-border credit silently and invisibly facilitated for Chinese citizens playing in Macau’s VIP casino gaming rooms bears witness to that. Bill Weidner, the President and Chief Operating Officer of Las Vegas Sands Corporation, which is investing around US$12 billion in gaming and leisure real estate in Macau, once Asian Sportsbook Super Master Affiliate Master Affiliate Affiliate Member