Inside Asian Gaming

INSIDE ASIAN GAMING | February 2011 8 Macau Revenue adverse weather or bad debt owed by other parties) that can affect year on year comparisons and ultimately profitability, Macau is arguably even more resistant to high quality analysis and forecasting on an operator by operator basis.This is because gaining a real insight into the dynamics affecting the relationships between junkets and individual operators is difficult. There’s a lot of chatter in the market but little hard evidence ever likely tomake its way into a US Securities and Exchange Commission filing. But in a market currently 78% dependent on VIP gaming (the January figure) for its gross casino revenue, one can’t blame a fellow for trying. The problem is certainly not in identifying general market trends. That trend is clearly one of expansion. Casino revenue in Macau surged 33% year on year in January to 18.6 billion patacas (US$2.3 billion) from 13.9 billion patacas, according to data from Macau’s Gaming Inspection and Coordination Bureau. Union Gaming Research estimated additionally in a recent note a 10% year on year increase in visitor numbers during this Chinese New Year, though as Union Gaming points out, that could have been partly attributable to depressed numbers in 2010 when there was unusually cold weather during the equivalent holiday period. The problem arguably in Macau is both to understand the impact of the direct human relationships involved in the junket- casino courtship and also in calibrating market risk as it applies to issuance of VIP credit. The latter is especially important given that nearly 80% of Macau’s gaming revenues currently pass through the hands of third parties; i.e. those junket operators, before reaching the concessionaire’s books. Clear as mud Despite some innovations such as the listing of junket entities in Hong Kong that theoretically at least suggest a trend towards transparency, in practice Macau junket o p e r a t i o n s are still very opaque by the standards of modern businesses in most developed economies. That’s in terms of the way they issue credit and the way they collect that revenue after it’s actually been recorded by the casinos (not as a receivable, but as actual revenue). More on that in a moment. The elephant in the Macau VIP gaming room is that with 60% of Macau players overall coming from the Chinese mainland, and gambling debts being unenforceable via the courts in the People’s Republic, if a player doesn’t honour his credit, someone, somewhere, may have to be leaned on pretty heavily by foot soldiers indirectly kicking back up to the junket operators. That’s about as opaque as it’s possible for a business to get and not be technically labelled as racketeering. Chinese gamblers could be the biggest single credit risk currently facing the Las Vegas market In defence of the junket system, it’s difficult to see an alternative way of running high roller operations in Macau given non-execution on gambling debts incurred by Chinese citizens and the currency and banking controls currently limiting overt cross-border movement of large amounts of money out of and into China. Year of the rabid gambler Indeed, Chinese gamblers could be the biggest single credit risk currently facing the Las Vegas market. Last month, the Las Vegas Sun newspaper reported Vegas casinos are owed at least US$80 million from gamblers in China and Hong Kong alone. That puts into perspective the HK$100 million-plus debt recently reportedly incurred by one gambler in Macau. The internationalisation of the player market in Las Vegas may be welcomed as a much-needed boost during domestic economic slowdown. But at least credit issued to domestic US players can be recovered via the courts. This is not to say that the in-house credit issuance system used by Las Vegas casinos is entirely without risk or indeed entirely without opacity even when dealing with domestic players rated by a centralised credit bureau. The Las Vegas Sun also reported last month that while a Vegas gambler’s first marker triggers an application process and a bank inquiry akin to taking out a personal loan, subsequent markers involve little paperwork other than a Flight risk—relationships between junkets and operators are sometimes more like love affairs than business Fireworks—Chinese VIPs could pose the biggest single credit risk to Las Vegas