Inside Asian Gaming

December 2011 | INSIDE ASIAN GAMING 37 Feature But before discussing some of the mechanics of the junket trade—and how those mechanics differ from popular public perception—it’s worth remembering the bigger picture. The junket sector is in effect the local industry’s credit broker. Without it the market would be only a fraction of its current size. The casinos couldn’t have handled the credit exposure needed to fuel hundreds of billions of dollars in rolling chip turnover. More specifically, they—or rather their investors and regulators—wouldn’t have tolerated the commercial and ethical risk involved. The casinos don’t have the network and depth of connections in mainland China to be able to collect on player losses. The junket operators do what the casino operators cannot—vet Chinese players for creditworthiness (in a country that doesn’t yet have a national system for personal credit ratings). The junkets also organise the issuance of credit and assume the market risk for that credit. The junket system organises gambling cash for people the casinos don’t know and who in some cases don’t want to be known by the wider community. Not surprisingly, competition among the casino operators for the services of the junkets is intense. The casinos often provide the junkets with enticements beyond the standard industry incentives programmes, i.e. either commission on rolling chip turnover or share of casino net VIP win. The extra incentives can include contributions to junket cage capital and subsidies on or gratis use of facilities such as hotel suites (known as ‘comps’ in the trade) for the junkets’ VIP players. In addition, the operators may absorb some of the cost of rebates on player losses. These forms of assistance are all a function of the tussle among the six concessionaires and sub-concessionaires for high roller business. In 2002, when Dr Ho still had an effective casino monopoly, the average commission rate on VIP chips in Macau was 0.7%. By 2008, it had crept up to an average of 1%. Then, in December 2008, Crown Macau (now Altira)—desperate for players after failing to make an impression in its chosen VIP segment—broke all commission records by offering junket consolidator AMA International a rate of 1.35% on rolling chip turnover. Eight months later—after a frenetic period of competition between operators attempting either to match Crown Macau’s headline commission rate or to structure incentives packages that added up to more or less the same thing—the Macau government belatedly drafted a regulation to cap commission levels at 1.25%. There appeared to be consensus in the local industry that this was a sustainable level for junkets and operators given the low house edge on baccarat. The threat of imminent commission capping didn’t make much difference. The junket circus quickly moved on to a revenue share model with the casino operators. So the price war raged on largely unabated—just on a different battleground. The most aggressive operators have reportedly been operating on a 47:40:13 model—i.e., up to 47% of house net win going to the junket, another 40% going to the government in the form of gaming tax, and the remainder retained by the operator. In Singapore—where junkets have yet to be licensed—a spokesman for Genting’s property, Resorts World Sentosa, has called junkets “integral” to the market’s “international success.” It’s been alleged, however, in the mainstream and trade media that there are already quasi junkets operating informally in Singapore—without the acquiescence of the operators or permission from the Casino Regulatory Authority—possibly fronting as travel agents and providers of luxury concierge and leisure consulting services. IX. Crime Macau’s casinos promoters and junket operators must be licensed by the Gaming Inspection and Coordination Bureau (the DICJ, as it’s known by its Portuguese initials), which regulates the casino industry and all games of chance in the Special Administrative Region under the auspices of the Secretariat for Economy and Finance. It is the bureau’s responsibility to “examine, supervise and monitor the eligibility” of the promoters, their partners and key employees and their “activities and promotions” for compliance with applicable law. Currently, 155 companies ( colectivas ) and 38 individuals ( singulares ) hold licences. The promoters had no such formal status under the Portuguese administration, and the influence of the criminal gangs known as ‘triads,’ originating mostly from Hong Kong, was—according to Western gaming regulators—pervasive in Stanley Ho’s VIP rooms in the waning days of the colonial period leading up to the 1999 handover. That’s why they blocked him from having gaming licences in Australia and the US. The US State Department’s International Narcotics Control Strategy Report 2011 continues to stick to this line. It classifies Macau as a “major money laundering” territory and a “jurisdiction of primary concern,” zeroing in on “loosely-regulated gaming promoters”. Triad tales Dr Ho has never been charged with any wrongdoing, but allegations of triad associations have dogged him for decades. In 2009, the New Jersey Division of Gaming Enforcement concluded four years of investigation by finding his daughter Pansy Ho “unsuitable” as a business partner for US-based MGM Resorts International on the basis of her business ties to her father, who granted her—via his casino operating concession Sociedade de Jogos de Macau SA—the gaming sub-licence for MGM’s Macau casino. MGM responded to the New Jersey investigation by promptly announcing an exit from its Atlantic City operation—placing its 50% interest in the Borgata Hotel Casino into a trust for sale. Interviewed as part of a Reuters exposé Behind closed doors—a Macau VIP room