\n(Bloomberg) \u2014 Macau\u2019s gambling riches sparked bloody gun fights between triad gangsters two decades ago. Today, there\u2019s a new conflict brewing, only this time it\u2019s being waged with private jets, limousines and million-dollar loans.The latest battle pits casinos against their long-time allies, so-called junket operators that for years have recruited rich gamblers from China, whisked them to Macau and given them interest-free loans to circumvent limits on cash they can take out of the mainland. Now companies such as Sheldon Adelson\u2019s Sands China Ltd. offer the same services, aiming to cut out the middlemen. At stake are profits from the world\u2019s biggest gambling market with $45.2 billion in revenue last year \u2014 almost seven times the size of the Las Vegas Strip.
\n\t\u201cDirect VIPs give us considerably higher profit margins,\u201d MGM China Holdings Ltd. Chief Executive Officer Grant Bowie said over coffee at the Rossio restaurant near the company\u2019s 25,000- square-meter (269,000-square-foot) gaming floor.<\/p>\n
\tA casino can make 10 percent to 15 percent more off big- time Chinese players if it hosts them itself, instead of paying junkets to do the same job in exclusive VIP rooms it leases to them, according to Karen Tang, an analyst at Deutsche Bank AG in Hong Kong. Others put the potential at as much as 50 percent more. Either way, the casinos going it on their own could be a revolution for the world\u2019s richest gambling hub.<\/p>\n
\tSteady Grip<\/p>\n
\tJunket operators, led by Suncity Group and Jimei Group, have a steady grip on the industry. Still, some are feeling the pressure. \u201cWe are being squeezed,\u201d said Yu Yio Hung, who operates a single VIP room at Altira casino.<\/p>\n
\tSuncity and Jimei, as well as Sands China, Galaxy Entertainment Group Ltd. and Wynn Macau Ltd., declined to comment for this article.<\/p>\n
\tMGM China dropped 1.2 percent to close at HK$32.25 in Hong Kong trading. SJM Holdings Ltd. dropped 1.2 percent, Galaxy slid 0.5 percent while Melco Crown Entertainment Ltd. fell 0.2 percent. Sands China rose 0.8 percent. The city\u2019s benchmark Hang Seng Index fell 0.8 percent.<\/p>\n
\tVIPs account for about two-thirds of Macau\u2019s casino revenue. The majority of them are mainland Chinese who bet on credit because of the country\u2019s cash regulations. The laws restrict to 20,000 yuan ($3,300) the amount a citizen may take across the border, and a maximum of 10,000 yuan from a cash machine in a day.<\/p>\n
\tThat\u2019s not enough for a VIP, who by the industry\u2019s definition bets at least $1 million during every visit to the enclave, the only place in China where casinos are legal. So most big spenders from the mainland play with chips loaned to them, at no interest.<\/p>\n
\tSky 33<\/p>\n
\tThey flock to private clubs like Sky 33 in Galaxy Entertainment\u2019s casino, where anybody who doesn\u2019t wager at least 5 million yuan isn\u2019t welcome, or Sky 32, which has a waterfall and a 10 million yuan minimum. The junkets that bring most of them in scout for patrons across China, and then arrange transportation, hotels and a line of credit.<\/p>\n
\tThe system made sense when Macau opened up its gaming market in 2002, granting permits to five new operators \u2014 Sands China, MGM China, Galaxy Entertainment, Wynn Macau and Melco Crown \u2014 and breaking a 40-year monopoly held by Stanley Ho\u2019s SJM Holdings Ltd.<\/p>\n
\tSJM, Asia\u2019s largest casino company by revenue, relies entirely on junkets to bring in its VIPs and has no plan to change its full reliance.<\/p>\n
\t\u201cSJM is comfortable with our junket relationships and with the junket system, which operates legally in Macau,\u201d CEO Ambrose So said in an e-mail.<\/p>\n
\tIn-Depth Databases<\/p>\n
\tThe newcomers, barred from marketing in China and with no legal route to collect debts, had to rely on promoters with agents who could lure VIPS and make sure they paid their debts.<\/p>\n
\tNow, after a decade of operations, the casino companies are familiar with many of China\u2019s well-heeled residents, including those who\u2019ve spent time on their gambling floors.<\/p>\n
\t\u201cCasinos have a much more in-depth database to tap,\u201d said Richard Huang, a Hong Kong-based analyst at CLSA Ltd. They have more opportunities to collect debts too. \u201cWith most of the rich Chinese having offshore bank accounts or properties, that gives casinos increased comfort in extending them credit.\u201d<\/p>\n
\tHigh Risk<\/p>\n
\tMGM China wants to develop its own customers to help manage risks, said Bowie, the company\u2019s CEO.<\/p>\n
\t\u201cThe junket model is a very successful model in terms of efficiency but we need to diversify,\u201d he said. \u201cNo organization should limit themselves to one geographic market or one business strength. It\u2019s too high risk.\u201d<\/p>\n
\tA junket operator \u2014 also known as a VIP or gaming promoter \u2014 typically draws a commission for each high-stakes bettor it delivers that\u2019s equivalent to 1.25 percent of the gambler\u2019s rolling chip turnover, or the amount of bets made, said Kenny Lau, a Credit Suisse Group AG analyst in Hong Kong.<\/p>\n
\tCommissions total about 44 percent of the gross revenue from high rollers, according to the brokerage. That means junkets earned about $13 billion in commissions last year, or 29 percent of the casinos\u2019 total revenue, according to data compiled by Bloomberg.<\/p>\n
\tAfter government taxes of 39 percent, casinos can be left with \u201crather thin\u201d profits, said D.S. Kim, a Hong Kong-based analyst at BNP Paribas Securities Asia Ltd.<\/p>\n
\tThat\u2019s a relative assessment: Sands China, for instance, posted an 80 percent gain in net income to $2.2 billion on revenue of $8.9 billion last year.<\/p>\n
\tGlitzy Shows<\/p>\n
\tTo reduce their dependence on the wealthy, casinos have also been adding glitzy shows and shopping malls to draw middle- class families.<\/p>\n
\t\u201cThe influence of junkets is decreasing as the mass and the premium mass segments become more substantial,\u201d said Lawrence Ho, co-chairman of Melco Crown and Stanley\u2019s son.<\/p>\n
\tThere\u2019s more money to be made. While the junkets are still important partners of casino operators, companies including Sands are working to bypass the middlemen.<\/p>\n
\tThe Las Vegas-based company puts its fleet of private jets and limousines at high-rollers\u2019 disposal, night and day, and comps their stays in suites that run to 8,000 square feet and come with on-call concierges, according to its 2012 annual report.<\/p>\n
\tGambling Parlors<\/p>\n
\tCasinos are also setting up their own high-stakes gambling parlors in Macau, with sizable minimum bet hurdles.<\/p>\n
\tA few years ago, most of these sorts of clubs operated in what a report from the U.S.-China Economic and Security Review Commission, a group created by Congress to monitor China, called \u201ca gray financial market.\u201d They were run only by junkets, as independent contractors renting space inside the casino operators\u2019 buildings and outside the direct oversight of Macau\u2019s gaming regulator, according to the report.<\/p>\n
\tHo, now 92, had a gambling monopoly in Macau while it was a Portuguese colony and for a few years after the city came under Chinese control in 1999. Loan sharks were often on the lookout for marks in gaming halls, according to a report by the New Jersey gaming enforcement agency, and there was a wave of violence in the 1990s as gangs battled for control of high- stakes rooms.<\/p>\n
\tOne of the crime bosses arrested during the decade\u2019s VIP room wars was Wan Kuok-koi, known as \u201cBroken Tooth.\u201d He was convicted in 1999 of loan sharking and triad membership after his arrest during an investigation into a car-bomb attack on the local police chief, and released from prison in December 2012 into a very different city.<\/p>\n
\tExtensive Links<\/p>\n
\tMacau has 35 casinos, with more planned, and glitzy hotel towers and shopping malls stocked with brands including Rolex, Dior and Prada. It\u2019s increasingly attracting tourists who aren\u2019t hard-core gamblers with spas, concerts, theaters, fine dining and family-friendly entertainment.<\/p>\n
\tHigh rollers\u2019 share of Macau gambling revenue peaked at 73 percent in 2011.<\/p>\n
\tSome junkets are diversifying in response. Suncity, for one, has set up VIP clubs in South Korea and the Philippines and branched out to movies, music and immigration consulting, according to its website and a brochure. Still, it continues to serve customers in Macau casinos, including Galaxy Entertainment and Sands China.<\/p>\n
\tJunkets are unlikely to ever be pushed out entirely. That\u2019s both because of their knowledge of wealthy gamblers in China and their willingness to take on credit risks that casinos won\u2019t.<\/p>\n
\tVigorous Checks<\/p>\n
\tThere are more than 200 licensed junket operators in Macau. They have extensive networks in China of people who know the tycoons in a city or province, and have at least a rough idea of individuals\u2019 net worths.<\/p>\n
\tJunket operators can afford to be more liberal with credit extensions than casino operators, according to Hoffman Ma, deputy chairman of Success Universe Group Ltd., the operator of a casino resort in Macau. The U.S.-based casinos typically require more vigorous credit checks, something that VIP players don\u2019t like, according to BNP\u2019s Kim.<\/p>\n
\t\u201cThere are limits as to how much casino operators can do in recruiting direct VIPs,\u201d Kim said. \u201cVIPs are loyal to junkets \u2014 but not the casino operators.\u201d<\/p>\n
Posted by:<\/strong> HardNine on February 25, 2014, 10:16 pm<\/p>\n \tIf you ever have a chance to go near there, make an effort to play craps in Macau.<\/p><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":" (Bloomberg) \u2014 Macau\u2019s gambling riches sparked bloody gun fights between triad gangsters two decades ago. Today, there\u2019s a new conflict brewing, only this time it\u2019s being waged with private jets, limousines and million-dollar loans.The latest battle pits casinos against their…<\/p>\n","protected":false},"author":36,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10],"tags":[],"class_list":["post-7034","post","type-post","status-publish","format-standard","hentry","category-latest-casino-news"],"_links":{"self":[{"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/posts\/7034","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/users\/36"}],"replies":[{"embeddable":true,"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/comments?post=7034"}],"version-history":[{"count":0,"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/posts\/7034\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/media?parent=7034"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/categories?post=7034"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/tags?post=7034"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}