Inside Asian Gaming

Oct 2007 | INSIDE ASIAN GAMING 21 There are two probable explanations: 1. The junkets are overstretched, and now need funding to grow their business. 2. With the increasing rate of side-betting or multiplier practised, the junket op- erators need a heavy capital injection to fund what is essentially their own vir- tual casino. The first explanation is probable. How- ever, considering the sheer volume of funds some of them are trying to raise (A-Max, for example, recently made the headlines by first trying to raise HK$6 billion, then looking for HK$3 billion when that proved too much for the markets), one can calcu- late that if they raised that sort of money, they would not have to put in a single cent of their own capital to finance their opera- tions. They simply do not need such large sums for the purposes they state those sums would be used for—namely, buying the non-negotiable chips. The business model the junket opera- tors seeking financing have put together for their potential investors does not even make much sense. According to A-max, the sub-junkets currently get 0.7-1.0% from the main junket operators who in turn get 0.9-1.2%. After A- Max’s new subsidiary AMA takes over all the junket operators, the company intends to pay—wait for this—0.9-1.2% to each of them. What’s the change? Nothing that I can see, insofar as the junket operators are concerned. All A-Max is proposing to do is to inter- pose 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 in- vestors have asked all these questions, or have they? And which casino might this be? Well, the question is who might be desperate enough to give away an additional 0.15% of their house edge to get some business, any business. The South China Morning Post already gave up the industry ru- mours a few weeks ago—our own enfant terrible in Taipa, who whilst strenuously denying the rumours, is at this point in time desperately rushing to convert around 50% of its main gaming floor into more VIP areas. (This is taking things a full 360º. Stanley Ho started with a predomi- nantly VIP business, then along came the big bang with Sands showing everybody that the main hall was where the big mar- gin was, then everybody started building big main gaming floors, and now this one property is not only swinging back to a junket-dominated business but deliber- ately risking all its business on one single customer. Phew!) In its proposal, A-Max also stated that other casinos are unlikely to raise their com- missions higher as it would leave them only 0.3% of the nominal house edge to cover costs—a bit of a circular argument going on here, when the casino A-Max is signing this new deal with has just agreed to give up 0.15% to get A-Max’s business. House advantage rising 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 ap- pears to satisfy the fund managers and in- Junket Operations