Macau has been cashing in on her unique status as the only jurisdiction in China where casino gaming is legally allowed. Business has grown so fast that in less than a decade, her gaming revenue has become seven times bigger than that of Las Vegas. However, in the last 12 months or so, investors’ confidence in Macau’s gaming stocks has fallen dramatically. The major downturn in business apparently is a combined result of certain measures taken by the Chinese Central Government and its slowing economy which have impacted Macau’s gambling revenue. More recently, news concerning the theft of possibly hundreds of millions of dollars from a junket in one of the major casinos is not helping the situation.
Gaming Operators and Junkets
A casino in Macau offering table games and slot machines must either be operated under a concession or sub-concession contract granted by the Macau Government. Currently there are three concessionaires and three subconcessionaires making a total of six operators. These operators are well-known even to the non-gaming public because of their luxurious hotels, entertainment facilities, and food and beverage outlets which are the basic fixtures in a world-class gaming resort.
Junkets, more formally known as “gaming promoters”, are independent companies or individuals who are registered and licensed by the Macau gaming regulator, namely the Gaming Inspection and Coordination Bureau (also known as DICJ because of its name in Portuguese: Direcção de Inspecção e Coordenação de Jogos). Junkets operate VIP or private rooms in casinos, usually for their own clientele. While the casinos operate all junket gaming tables, supply the dealers, supervisors, surveillance and security, the junkets typically are risking their own balance sheet when their patrons gamble. The casino receives a commission from the junkets based on several possible formulas related to either gross gaming win or the junket’s turnover.
Legalisation of Gaming Credit
Since the opening up of the Macau gaming market in the 2000’s, the Macau Legislature has legalised gaming credit. Under the gaming credit law, casinos and junkets may give credit to their patrons typically in the form of non-negotiable gaming chips as opposed to cash chips. If the borrowers do not repay the credit in either chips or cash, the loan may be enforced against the borrowers by legal process in Macau or jurisdictions where the enforcement of gaming credit is recognised (Hong Kong is one of them). The law also permits casinos to give credit to junkets. Some junkets take credit from the casino where they are operating, usually in the form of non-negotiable chips, and then lend the non-negotiable chips to their patrons, thus taking the credit risk on their patrons.
Recent News Concerning a Junket
As junkets operate somewhat independently like a casino within a casino, they may also maintain accounts for their patrons, such that funds can be deposited by the patrons with the junkets. Recently, it has been reported that as much as US$258 million has been stolen from a junket by its employee. As junkets are independent licensed operators, any money received by the junkets is handled by junket employees and not the casinos. The junket’s obligation in honouring withdrawal request is a direct contractual relationship between the junkets and their patrons without involving the gaming operator.
This may give some comfort to investors who have stakes in one of the six gaming operators. Yet, some Macau junkets are owned by companies listed on the Hong Kong Stock Exchange.
More Competitive Market
A number of new properties developed by the gaming operators are due to open in the coming months. The recent downturn in gaming revenue has put a number of junkets out of business. On a macro level it has caused the Macau Government to cut spending. With supply going to increase and the market becoming more competitive, it is anticipated both casinos and junkets will be more aggressive in giving gaming credit on better terms with a view to attracting more high-rollers. This may lead to increased enforcement actions by casinos against their patrons in the near future.