Inside Asian Gaming

inside asian gaming December 2015 8 PHILIPPINE DREAM Jimei pioneered casino ownership by junkets with Fontana, an opportunity that followed the US withdrawal fromClark Air Force Base in 1991. Located about 80 kilometers (50 miles) northwest of Manila, Clark and surrounding areas and totaling 632 square kilometers (244 square miles), Clark once housed 15,000 US military personnel and their families. The vast plot was divided into a Philippine military facility, commercial Clark International Airport and Clark Freeport, a special economic zone with duty free imports and 5% corporate tax for qualifying investors, leveraging the airport as a magnet for cargo and passenger traffic. In 1998, Fontana’s original investors acquired a 300 hectare plot including the US base’s officer housing area, laid out like an American suburb with extensive green areas, a stark contrast to urbanized Manila or Macau, and just a 10 minute drive from the airport. Conceived as a membership resort and secured with gated, guarded entrances, Fontana refurbished former military duplex homes and built new villas, nearly 500 units in all, offered on an ownership or timeshare basis. Pagcor, the Philippine casino regulator and operator, granted Fontana a gaming license “to cater to foreign junket players and certified club members” in 1999. As a leading Macau junket promoter, Jimei was already doing business with Philippine casinos. Fontana chose Jimei to operate the casino, with Pagcor’s consent, in 2004, the year the resort opened. Jimei eventually took control of the leisure park operation as well. Fontana has grown into Jimei’s flagship property, open to the Cover Story Beating the House Casinos complain that junkets get the biggest share of gaming profits. Junket promoters contend casinos and the government hold the best hands. Inside Asian Gaming asked University of Macau gaming expert Ricardo Siu to settle the argument. Using conservative commission estimates IAG provided, Dr Siu’s calculations found that junket promoters collect up to 65% more of VIP revenue than casinos in four jurisdictions where junket promoters are or hope to become casino owners. Casinos have revenue streams beyond VIP play, but the numbers are striking nevertheless. Dr Siu finds the carping from both sides in Macau understandable. “Casino operators and junket promoters may complain because what they each get here is less than their counterparts get in the other jurisdictions,” the Associate Professor of Business Economics says. “The primary reason is that in Macau, the government shares a larger portion.” Macau’s gaming tax and other levies reach 40%. As tax rates drop, casinos get more of the gain but still trail junkets’ percentage. Those numbers don’t tell the whole story, junket investor and consultant Tony Tong says. When junkets prosper, operators react. “Junket promoters complain that casinos change the rules, especially outside Macau,” the founder of Pacific Financial Services says. “They raise rents and other charges if they see junkets making a lot of money. If they’re jealous, they’ll try to get a bigger piece of the revenue.” Junkets also face high costs for capital and debt collection issues. What happens on the gaming floor is the easy part of the junket business. Dr Ricardo Siu , University of Macau Who gets what? Jurisdiction Tax rate Commission Macau 39% 1.25% Philippines 15% (1) 1.40% Vietnam 17% (2) 1.50% Saipan 0% 1.7% (3) (1) This rate for VIP. Mass rate is 27% (2) From 1 Jan 2016 rate is 35% but commissions are deductible making estimated effective rate 17% (3) Conservative estimate Assumptions 1. VIP play is predominantly baccarat 2. VIP play utilizes dead chip program 3. House advantage is 2.9% of dead chip rolling (pair bet is available) Macau Saipan Vietnam Philippines Junket Casino Casino Junket Government Macau 16.9% 43.1% 40.0% Philippines 36.7% 48.3% 15.0% Vietnam 31.4% 51.7% 16.9% Saipan 41.4% 58.6% 0.0% Government