Scientific Game

At the Crossroads

Could Singapore's massively undercutting gaming tax regime be a threat to Macau's VIP sector?

Tuesday, 12 May 2009 00:00
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On the surface at least, the prospects for the VIP market in Macau in the remainder of 2009 appear to have got a little brighter compared to the gloomy predictions of the final quarter of 2008. Back then analysts were expecting shrinkage on gross turnover of anywhere from 15% to 4% year on year.

In Macau Gaming & Property—Turning the Corner, a new report from Morgan Stanley issued in late April, analysts put this year's correction at the lower end of that range—i.e., 4%. They cite the possibility of improved margins on the back of cost cutting and potential commission caps (of which more later).

"March [VIP] revenue up by 20% MoM (month on month) is encouraging," states the report.

"VIP revenue increased 28% MoM in March and shows signs of better credit conditions," adds the paper.

"We expect industry revenue to decline 4% this year and margins could improve based on cost cutting and potential commission caps. Although opening of City of Dreams could ignite a fierce war between Venetian and Melco, other players might see sustained growth."


While this analysis has a clear rationale in terms of the Macau market's traditional catchment area for players (i.e., Hong Kong, Taiwan and Guangdong province in Mainland China), there is arguably, beginning in the final quarter of 2009, a wild card coming into play—namely the threat of external competition in the form of Singapore, with its massively undercutting tax regime.

The total tax burden on the gross of VIP play in Singapore will be one third of that in Macau. Singapore's effective tax rate for high rollers will be 12% (5% gaming tax plus 7% Goods and Services Tax) compared to Macau's rate of just under 40% (35% gross gaming tax plus an additional levy for social purposes). This differential means Macau junket operators may seek to give high rollers the option of a three or four-hour plane ride from the Pearl River Delta to Singapore to give them more bang for their buck.

Lion's Share

Is Macau's VIP trade being targeted by Singapore?

When Singapore decided to set its tax rate on VIP gross at 5% it appeared to signal a willingness not only to build a new VIP market, but aggressively to attack existing ones. The obvious target, because of its sheer size, is Macau's VIP trade.

Industry leaders in the former Portuguese-administered territory are aware of the potential competition. Macau's Chief Executive Edmund Ho has already been lobbied by sections of the industry on the possibility of reducing the near 40% tax on the VIP gross to a more internationally competitive level. Given that Mr Ho's term of office expires in December, it's likely he will leave any consideration of such a major policy initiative to his successor.

Regime change

The advantages of a low tax regime in stimulating VIP casino business have already been seen in Cambodia. NagaWorld, the casino monopoly in the country's capital Phnom Penh, has built a successful medium level junket business (with a US$50,000 upper credit limit) on effectively a zero tax base.

Here's what Octo Chang, our occasional commentator on VIP play in Asia, wrote in his article on Cambodia, 'Rolling. Rolling Everywhere' in September 2007.

"….there is no above-the-line gaming revenue tax in Cambodia, so the casinos in fact enjoy the full 2.52% (or 2.7% if you subscribe to the American belief) theoretical house advantage. The casinos pay the agents 1.6% plus some minor soft costs like free hotel rooms and F&B coupons. Assuming these soft costs add up to 0.4%, the casino still enjoys a net 0.5% hold or a profit margin of 20%."

Singapore's modest tax take—as well as potentially guaranteeing the success of the nascent Singapore integrated resort market—may have also been designed to ensure that the multiplier culture that allegedly bedevils parts of the Macau VIP market had no chance of developing in Singapore VIP rooms (not that it would ever be condoned by the operators themselves as they also lose out).

Active versus passive competition

An interesting question will be the degree to which (if at all) the Singapore resorts use active marketing to attack the existing VIP segment in Macau, or whether they end up doing so passively, by default, because of the sheer value of Singapore's tax offer. It's possible there may be enough regional VIP trade to feed Singapore without encroaching on the Macau market. Genting Berhad for example, which will operate Resorts World at Sentosa in Singapore, already has a VIP customer base at Genting Highlands.

If the idea of Macau VIP agents migrating with their Chinese clients to Singapore to work with operators there sounds far fetched, consider the following scenario: for every HK$100 spent in a Macau VIP room (in above the table bets), significantly less than the theoretical house edge of circa 2.5% to 3% is finding its way to the casino operator.

In theory of course, using the traditional 40:40:20 revenue sharing arrangement pioneered by Stanley Ho, the government and VIP room/junket operator each get 40% of gaming revenue off the top, and the casino license holder gets the remaining 20%. Subsequent adjustments to that revenue sharing formula have not disguised an underlying reality. This is that the theoretical house edge is the real battle ground in the fight to unlock the value of Macau VIP gaming's huge revenues, given that much of the gross is swallowed up by fixed costs that may be hard to whittle down.

In the case of the agents and the casino operators, expenses need to be deducted from that gross and in Macau they are typically high. High rollers make the agents and casinos work hard for their business. Agents also need working capital to cover guarantees to the operators; for runs against the house; for bad debt and, of course, to pay commissions to sub agents bringing in business in the form of their own contracted players. Of course the Macau government also has gaming-related expenses to come out of its gaming tax gross—namely the running of Macau's regulator, the Gaming Inspection and Coordination Bureau, not to mention the cost of infrastructure to move tourists around the territory efficiently. One imagines though that the expense account of the average gaming inspector is considerably more modest than that of the pampered VIP gambler.

House edge

Once all deductions for overheads are calculated, foreign casino operators in Macau typically report net house win of plus or minus 3% on the gross turnover after expenses (i.e. HK$3 for every HK$100 legally wagered). That nominal 3% is subject to stoppages related to incentives and commissions paid to promoters, though the details are normally kept confidential even from shareholders on the grounds of commercial sensitivity.

The fact there's no consensus among operators and analysts on the theoretical house edge for baccarat means that as with cross-border standards in general accounting, there is considerable opportunity for creative interpretation. In Macau the foreign casino operators have certainly shown a tendency to put a positive spin on house edge.

Mr Chang gave a possible explanation for these variations in his 'House of Cards' piece in November 2007.

"How about this—the house advantage assumed on VIP baccarat in the financial statements of Macau casino operators is no longer the long-established 2.5%, nor the more recent 2.7%, but now 3.0%. That appears to satisfy the fund managers and investors that there is still plenty of overhead room, and for the casino business development managers to argue that they can still give some more margin away in return for the promised business.

"Another six months from now, when the other casinos decide that they will not sit idly by and decide to up the bidding war, I guarantee you that we will see the house advantage go up above 3.0 (in fact, some are claiming that their actual win in Macau is 3.0% to 3.2%). And when a lousy quarter or year comes around, they will inevitably call it an abnormality whereas the statisticians will call it a correction that brings the actual results back closer to the theoretical," stated Mr Chang.

This is effectively what has happened. In the fourth quarter of 2008 for example, Las Vegas Sands Corp. reported rolling chip (i.e. VIP baccarat) percentage win at The Venetian Macao of 2.82% (up from 2.72% in the fourth quarter of 2007). This compared to what the company said was its 'expected' rolling chip win percentage of 3.0% (calculated before discounts and commissions).

Through a Glass Darkly

Accurate analysis of Macau's VIP business is hard to achieve

The opacity at the centre of Macau VIP gambling has all sorts of knock on effects that could ultimately make it harder for the sector to compete in an open and increasingly globalised market. How many multi-billion-dollar industries can you think of in the rest of the world that have virtually no formal market research publicly available?

The US$9.23 billion spent in 2008 on VIP gambling in Macau is in all likelihood coming from a tiny number of players—probably numbered in the low thousands—compared to the 22.9 million people recorded as tourist arrivals in Macau in 2008. The reality is we can't be sure.

The people who could potentially provide the information—the agents, sub agents and casinos and, of course, the players themselves—generally have a vested interest not to shine too bright a light into the corners of the business. For one thing, the agents don't want to give important information about their players away to competitors. Octo Chang adds that those with a cynical turn of mind believe that the greater the distance between the casino, the agents and the hard men who may ultimately have to enforce any debts owed by players, the better for the image of the industry as a whole.

Publicity shy

The chances of the players themselves volunteering information about their consumer habits as VIP gamblers aren't high either. An academic at Macao Polytechnic Institute recently made a brave attempt to add some kind of metrics to the high volume end of the Macau table gaming trade. He did it via the painstaking but relatively low-tech method of monitoring Chinese media sources for information on criminal and other judicial hearings where high volume gambling in Macau was mentioned as a contributory factor in proceedings.

Care is needed for anyone tempted to extrapolate wider messages from the findings of Professor Zeng Zhonglu's research. In all likelihood only a small proportion of Macau's high volume table game gamblers end up the subject of criminal proceedings. It's also important to bear in mind that not all high volume gamblers use VIP rooms. Some are known to play on the public tables. Their motivation for this is not clear, though it's been suggested in sections of the local the media that it's in order not to draw too much attention to their presence in Macau. Most high volume gamblers (whether labelled VIPs or not) appear to take their wins and losses with equanimity and without it having a catastrophic effect on their lives and businesses.

Even with those caveats, it's fair to say Prof. Zeng's findings make startling reading. Perhaps the most interesting statistic was that among the 99 high rollers from Mainland China he tracked via media reports, the average debt contracted over the period of their Macau trips was US$3.4 million.

Of the group Prof. Zeng followed, more than half worked for the Chinese government or state-owned enterprises. A total of 33 state officials each reported average US$2.7 million losses. Nineteen senior managers at state-owned enterprises each lost US$1.9 million, and seven cashiers at state-owned businesses US$500,000 respectively. Such behaviour is reportedly less of a problem since Mainland police started monitoring casino floors last year. Macau's anti money-laundering laws also require suspicious transactions or those by "politically exposed persons" to be reported.

Losing streaks

His research found that in a single gambling session one gambler lost US$12 million, and one private company owner lost US$96 million over several years. During the period of his monitoring work, at least ten Chinese companies collapsed, reportedly casualties of massive gambling losses by big-spending players, said Prof. Zeng.

The academic's analysis of media reports revealed that 44% of the 99 high rollers had either died or been given long jail sentences as a consequence of their gambling. Mainland courts sentenced fifteen to death, seven committed suicide or were 'killed by others', two were given a death sentence reprieve and 20 were serving long jail sentences.

Prof. Zeng said he wasn't able to determine which casinos the gamblers in his survey had used. He added he was unable to use questionnaires or surveys to poll high rollers because they were 'reluctant to reveal their gambling experiences'. Under the circumstances as revealed by his survey that's probably not surprising.

The theft of state funds by government workers was certainly mentioned by analysts last year as one of the reasons for China's clampdown on issuing visas for visits to Macau.

Who's in Charge?

A multi billion dollar business run by proxy

In most multi-billion dollar industries the names of the senior executives are widely known. That's not necessarily the case in Macau VIP gaming.

As an industry insider told IAG recently: "The newspapers go on about people like Ted Chan from the days when he was at Amax [the Hong Kong-listed junket aggregator], but the real people behind VIP gaming in Macau don't do interviews and don't have their photos in the newspapers. Most people in Macau don't even know their names."

Macau's high roller trade is unique in the casino gaming world for the sheer volume of its business set against the distinct opacity of its management.

In an effort to shed some more light on the sector, IAG presents here an update on the prospects for Macau's VIP business in the remainder of 2009 and how conditions on the ground relate to Mr Chang's recent analyses and predictions. We don't shirk from holding up our collective hands if his crystal ball was clouded on occasions, but nor are we shy of taking credit on his behalf where his call was on the mark.

Changing Landscape

Tax cuts on the VIP gross and caps on agent commissions are being actively discussed in Macau

The economic challenges faced by the Macau gaming industry in 2009 could be an opportunity to re-engineer the VIP segment of the industry. Major changes, including a reduction in the tax on the VIP gross and possible cooperation between operators regarding VIP commission caps are being actively discussed.

Macau is an overwhelmingly baccarat-centric and in particular VIP-centric place. The game in all its table forms pulled in gross revenues of 95.2 billion patacas (US$11.9 billion) in 2008—equivalent to 87.5% of all Macau's takings that year from games of fortune. Of that baccarat gross, more than three quarters (73.7 billion patacas) came from the VIP market.

It follows therefore that what happens to the Macau VIP market in 2009—in terms of numbers of players, volume of business, and the commissions paid to agents and sub agents—will have a big influence on the fortunes of Macau and the wider Asian industry. In the first quarter of 2009, Macau's VIP gross showed a year on year fall of 19.1% compared with the equivalent quarter in 2008 (although it was up 7.8% on the fourth quarter of 2008). Analysts are currently predicting an annualised year on year decline in the VIP gross in Macau this year of anywhere from 4% to 15%.

Boom to not-so-boom

During the boom times of late 2007 and early 2008, the Macau VIP sector was arguably a sellers' (i.e. agents') market. Casino operators (especially new entrants to the market such as Melco-PBL as it then was) needed to jump onto the VIP bandwagon in a rising market and weren't always too squeamish about how they did it. This was seen in the 1.35% commission deal on rolling chips that Crown Macau did with the junket aggregator Amax. Now, at a time of a global credit squeeze, casinos are more focused on protecting themselves from bad debt than at growing VIP market share at any price. As a result, Macau has become arguably more of a buyers' (i.e., casino operators') market when it comes to taking on VIP business.

Nonetheless the ability of the VIP agents to adapt to new trading conditions (including the shift from SJM's monopoly to a liberalised market post 2002) has been one of their strengths. China's relative isolation from the international money markets has undoubtedly assisted in this—so far. No one should doubt, though, that in the medium to long term Macau's VIP agents face an existential threat. The history of business has shown that the trend to remove the middleman from the equation is consistent and inexorable. A good example is the grocery supermarket sector, where many large chains use their buying power and economies of scale to purchase supplies directly from producers. Arguably Macau gaming has already seen the start of this process of squeezing the middleman through the growth of the junket aggregators, who suck in the smaller fish and on occasion (in the case of Amax and Crown) have such a symbiotic relationship with the casino operators that they actually interchange senior staff.

Survival strategy

Here's what Mr Chang wrote in IAG in his piece 'Long Live the Middle Man' published in October 2007:

"The VIP Rooms that will survive in Macau will be the ones that can move quickly, and are adept at playing off one casino operator against another. The ultimate winners from more competition will always be the customers—in this case, the players."

What he didn't say (because at that time he had no way of knowing Singapore's planned tax rates on VIP play) was that junket operators might come to play not just one casino off against another, but one jurisdiction off against another. In the case of Las Vegas Sands Corp., which has the advantage over other Macau operators of a presence in the Singapore market, it might actually be in the interests of the operator to help the outside VIP agents it is currently working with in Macau, to up sticks and relocate their VIP players to Singapore.

Devil in the Detail

Performance clauses are a key element in Macau's VIP gaming business

Commissions are the real battleground of the VIP trade. The formulae used for deals between the properties and the agents can look pretty dense to the casual observer, but as with most systems, they can be boiled down to a few key principles. In this case it's about cost versus benefit, incentives, and levels of sales performance that determine whether a VIP agent makes a reasonable living or a good one. Typically performance clauses are structured so that the achievement of a certain volume of roll triggers an improvement in commission paid by the casino operator, and thus it goes on down the line of what is in effect a pyramid-marketing scheme.

Depending on one's point of view, the complexity of the agreement formulae is either deliberate (to divert attention from who actually contracts the debt with the player and thus who actually enforces it if necessary) or it's an accidental by-product of the spider's web of sub deals done with sub-agents delivering players to the venues.


Here's what our columnist Mr Chang wrote in his piece 'Long Live the Middle Man' in October 2007.

"Whatever its origins, the VIP room has evolved into what is today a symbiotic and highly specialised marketing operation that exists not side by side but within the host gaming operation, to provide a pipeline of customers who not only have the propensity to gamble, but also the means.

"The VIP room does this in a manner that hides the darker side of these operations, particularly regarding the extension and collection of credit, and helps the casino operator disavow knowledge of the source of the funds or what happens when the players fail to pay their debts."


One of the developments particularly in the latter part of 2007 and into 2008 in the Macau VIP market was the appearance of stock market-listed junket consolidators. The rationale presented by different interest groups in the Macau gaming industry for the existence of these companies covered three main points. The first was their ability to raise working capital from outside investors; the second was their economies of scale as aggregators of smaller agents. The third was their ability to negotiate improved commissions from casinos by their ability to deliver much-prized volume. The timing of the emergence of such aggregators was also linked by some commentators to a belated move by the Macau government to register and regulate agents, giving the trade a degree of respectability it previously lacked in Macau and in the wider community.

Here's what Mr Chang said about the consolidator trend in his article 'House of Cards' in November 2007:

"The business model the junket operators seeking financing have put together for their potential investors does not even make much sense.

"According to Amax, the sub-junkets currently get 0.7% to 1.0% from the main junket operators who in turn get 0.9% to 1.2%. After Amax's new subsidiary AMA takes over all the junket operators, the company intends to pay—wait for this—0.9% to 1.2% to each of them. What's the change? Nothing that I can see, insofar as the junket operators are concerned.

"All Amax is proposing to do is to interpose itself between the casino operators and the junkets. So what is the attraction for the junket operators to come in under A-Max? Darned if I know. I'm sure the investors have asked all these questions, or have they?"


Arguably one of the arguments in favour of Amax and the like is a degree of business transparency not previously available when casinos were dealing with privately-run agents and their informal aggregation deals with sub agents. This is likely to be of particular appeal to publicly owned casino operators regulated overseas.

Paperwork for deals between Macau casinos and VIP agents and sub agents used to be done on scraps of paper in the old days of Dr Ho's casino monopoly. Sometimes investors were lucky even to get a scrap of paper. On one famous occasion after the ending of the monopoly in 2002, a Hong Kong company engaging in due diligence on plans to buy an interest in a Macau casino junket operator couldn't even find a paper trail to confirm whether there was a business to buy.

Under the modern aggregator model, there is at least a clear paper trail. The recent agreement between Galaxy Entertainment Group's StarWorld Casino and Neptune Group, the Hong Kong-listed casino cruise ship operator and junket consolidator, is one example with which IAG is familiar.

It's worth bearing in mind that such agreements are typically subject to review by the contracted parties and may be renegotiated in order to respond to changing market conditions. The terms stated here are those applying at the time of the deal last autumn. We mention them here for purposes of illustration.

A junket deal illustrated

The technicalities of the deal last autumn to deliver high rollers to StarWorld (done indirectly to comply with the regulatory requirements of the Hong Kong stock exchange) were that Rich Pearl, a wholly-owned subsidiary of Neptune Group, acquired 100% of the equity in an investment company called Best Max for HK$4.32 billion (US$554 million).

Under the aggregator model, Lucky Star, a gaming promoter, was indirectly loaned up to HK$6 billion by Neptune Group via a third party company to provide the liquidity to pursue VIP promotion. In return, Lucky Star was to pay Best Max 100% of the commission derived from monthly rolling turnover (up to HK$20 billion) at 0.45%. If monthly rolling turnover rose above HK$20 billion to a maximum of HK$45 million, then the 0.45% commission was to be split 10:90 between the gaming promoter and the intermediary loan company. If the monthly rolling turnover topped HK$45 billion then the 0.45% commission was to be split 45:55 between the promoter and the loan company. We mention this at length because there's nothing like an example to illustrate what otherwise might seem like an abstract and rather obtuse point.

Another possibility raised by Mr Chang in relation to the aggregators' need to raise extra capital (though we make no suggestion that such practices have been pursued or condoned by Neptune Group or any other aggregator company mentioned in this article) is that VIP rooms are running in some cases a virtual casino by way of side bets.

Capital injection

Here's what Mr Chang said in 'House of Cards' in November 2007:

"Having chatted with various junket operators, the feedback I received is that a two times (2x) multiplier is common in every VIP room in Macau, and it does go up to ten times (10x). Yup, you read it right folks. For every thousand dollar bet in the VIP rooms, the real bet can be either two thousand or ten thousand.

"I am sure you can see where I am going with this. With the increasingly bitter competition between the junket operators, their own margins are being squeezed (higher labour costs, higher percentage given back to the players, cost of credit extended etc). I have been told that 1.8% is now offered freely in any VIP room in Macau (on the basis of a two times multiple). Figure it out. On the surface, the operators get 1.2% to 1.4% (depending on how candid the casino operators are with you). They in turn give the players 0.9% to 1.0% on the official bet. Taking the 0.9%, if a two-times multiplier is in effect, the players will get 1.8%, and the junket gets the rest of the pie on the side—with the casino and government tax effectively removed from the equation," he stated.

"Take the multiplier up to ten times, and you might see why some of these long-established junkets may need massive capital injections. They are now operating a virtual casino—and a potentially more profitable one—in close parallel to the brick and mortar one they are operating inside."

The Multiplier Revisited

A recap on Octo Chang's April 2007 analysis of side betting in the Macau VIP market

The multiplier is in essence a private arrangement between junket agents and their customers, governing the size of the bets placed. Most commonly, it occurs in two basic forms, with essentially the same outcome.

The first is when the agent agrees with players that whatever the value of chips placed on the table, the real ante is multiplied by an agreed number. For example, if the customer placed a HK$1,000 bet and the agreed multiplier is 10, then the "real" bet is HK$10,000.

The second common form of Multiplier is when the "real" bet is agreed to be denominated in a different currency to that of the actual chips placed. For example, the customer places a HK$1,000 chip on the table, but agrees with the junket operator that the bet is in reality denominated in US dollars, so the "real" bet is US$1,000, which represents a multiplier of 7.8 times.


Such arrangements are particularly convenient because the majority of junket customers in Macau hail from Mainland China and do not—and in any case can not—bring money with them, but rather rely on credit extended by junket agents. When a customer requests $1 million credit, the junket agent merely requests the casino to provide $100,000 worth of chips, with the implicit understanding between the junket agent and customer that a ten times Multiplier is in effect. In the first scenario, where The Multiplier is ten times, the result is that the government and casino licensee's share of revenue is reduced to a tenth of what it should be, or in Macau's case, a mere 4%.

Under the 40:40:20 revenue sharing arrangement pioneered by Stanley Ho, the government and VIP room/junket operator each get 40% of gaming revenue, and the casino license holder the remaining 20%. When a 10x Multiplier is in effect on the nominal value of bets placed, the junket operator's margin goes from 40% of revenue to 94%, while the government's take is reduced from 40% to 4% and the casino license holder's share from 20% to 2%.

Believe it or not, The Multiplier has been around for quite a while, even before the liberalization of Macau's casino industry. It is also fairly common in other countries, though the potential benefits to junket agents are obviously greater in Macau, given the city's high gaming tax rate.

Brave New World

Singapore could create a new VIP model

Singapore's tax take of only 5% on the VIP gross (plus 7% GST) opens up the prospect of a completely different VIP world—one with considerably more transparency and with considerably more potential for profit on lower volumes of roll. This would mean agents could pass on enhanced deals to players in terms of chip bonuses or discounts on chip sales or discounts on player losses.

Projecting the split

If we extrapolate from the current 40:40:20 model and for the sake of argument apply to Singapore VIP play the 2:1 ratio on the sharing of the gross currently existing between agents and casinos in Macau (i.e. 40:20), it would produce in Singapore a split (after 5% tax off the top) of 63.3% of the gross to the agents and 31.6% to the casinos. Once costs are netted out, that revenue split ratio could also theoretically be applied to the house edge (assuming junkets in Singapore were as influential in the VIP supply side as they are in Macau). In reality, given that they are starting with a clean slate, the Singapore casinos are unlikely to sit back and accept such a simplistic transfer of formula from the Macau market. Nonetheless if they wish to attract VIPs from Mainland China, and the Singapore authorities are willing to allow them to do it, there will in all likelihood be at least premium available to the agents for bringing in the business. If however the Singapore operators are focused more on bringing in high rollers from neighbouring Malaysia and other Asian markets outside China then a completely different style of business model could apply, with customer relationship management and junket operations more reminiscent of the Las Vegas model.

The down side of Singapore from the players' perspective is that under the table bets known as the multiplier (where in effect the Macau government is cheated of tax and the Macau casino operators are cheated of revenue by the operation of a parallel and undeclared side market in VIP room betting) will in likelihood be impossible. The disincentives for junket agents to promote such behaviour in Singapore are very great because of the city's rigorous regulatory system. Under the Singapore Casino Control Act 2006, agent contracts can be cancelled if they, quote: "affect the credibility, integrity and stability of casino operations".

The Las Vegas operators did try to change the dynamics of the Macau VIP business by cutting out the middleman and bringing in more 'direct' premium players in the manner of their core businesses in the United States. The reality is though that it's difficult to break the grip of the agents in an opaque business environment such as China, where the direct promotion of casino gambling is prohibited; where the local currency is not internationally convertible; where large amounts of cash cannot be legally moved across borders; where the source of a player's wealth may not always be officially declared to the domestic authorities and perhaps most importantly of all, where casino gambling debts are not legally enforceable in the courts.

Action plan

Faced with a squeeze on gaming revenues and on their business model by the politicians, the VIP agents and wider recessionary economy, casinos in Macau are now moving beyond the notion of simply a voluntary cap on VIP commissions to talk about full blown strategic cooperation. The possibility of a link up between SJM Holdings and Las Vegas Sands Corp. (and possibly other operators) was announced following a lunch meeting between Dr Stanley Ho and Sheldon Adelson in mid-April.

"Everyone agreed not to compete, to have enough rice to eat and to get more taxes for the government," Dr Ho told reporters after the meeting.

It turned out, after closer inspection, that this 'lunch' was not the bipartisan summit characterised in some parts of the regional media but in fact a meeting of a trade body called the Macau Gaming Operators' Association formed this year between the six licensees.


Dr Ho was quoted by the Chinese news agency Xinhua as saying he had "promised" (presumably to the junket operators themselves) not to talk about the commission rate for junket operators. But if he's not going to talk about commissions, then what's the point of cooperation, except perhaps to cap staff wages? In this context it's worth mentioning Macau Law 16/2001 contains prohibitions on anti-competitive behaviour.

The idea that the MGOA is just a cosy trade association is rather punctured by the fact that it's the key decision-makers rather than their underlings that have been meeting for discussions. And Dr Ho's assertion that VIP agent commissions are off the agenda seems to be contradicted by Francis Lui, Vice Chairman of Galaxy Entertainment Group, who told IAG ahead of the next meeting on 18th May that he expected that agent commissions would indeed be a topic for discussion.

Wild card

Such levels of casino operator cooperation weren't factored in to Mr Chang's analysis of the VIP market back in October 2007 as they seemed extremely unlikely at the time. As recently as November 2008 Dr Ho—in reaction to the news that LVS was suspending development on Cotai because of the credit crisis—called on the Macau government to take back Cotai land allocated to LVS and offer it to the open market.

Singapore has none of the historical impediments on its business model of the sort faced by Macau. Singapore is also highly unlikely to choose the low road of back stairs deals in its bid to secure its place as a world class gaming market. Cynics may argue that as long as the multiplier is tolerated (or at least not actively policed) in Macau VIP gaming then Singapore will effectively be shut out of the 'big bucks' available from Chinese gamblers. That may be right. But no one should be in any doubt that in the medium to long term, whatever the competitive threat from new and emerging Asian gaming markets, the VIP agents in Macau face an existential threat. That threat is a combination of the tide of history, as China becomes more plugged in to the world financial system, and the tide of consumer retailing. Anyone who thinks VIP agents are here for all time need only remind themselves of the grocery trade. Where are all the middlemen in that industry now? They're gone, swallowed up by the big retailers dealing directly with the producers.

Time and economics wait for no man. And that includes Macau's VIP gambling agents.

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