INSIDE ASIAN GAMING | Oct 2007 22 vestors that there is still plenty of overhead room, and for the casino business develop- ment 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 3.0-3.2%). 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. The other explanation for this fund rais- ing is also logical if you were to string to- gether all the various articles yours truly has ever written on this segment of the gaming market. 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 com- petition 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 1.2-1.4% (depend- ing on how candid the casino operators are with you). They in turn give the players 0.9- 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 be—with the casino and government tax effectively removed from the equation. Take the multiplier up to ten times, and you might see why some of these long-es- tablished 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 mor- tar one they are operating inside. Food for thought, eh? ( Octo Chang is the pseudonym of our regular columnist, a casino marketing pro- fessional with extensive qualifications and background in the gaming industry. Please feel free to forward any amusing anecdotes or observations of the marketing variety to him at
[email protected]) The Multiplier Revisited Octo Chang originally detailed the workings of The Multiplier in the April 2007 issue of Inside Asian Gaming . Here’s a recap. 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 oper- ator 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 be- tween 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 gov- ernment 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 be- fore 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.