Sheldon Adelson’s contention that there is an almost inexhaustible demand for gaming and entertainment services from the populations of Greater China and beyond looks like it might be on the mark.
It follows news that more than 90 gamblers, including people from Europe and Southeast Asia, were arrested in a swoop on an illegal casino in Dongguan, Guangdong province in Mainland China.
The fact Dongguan is only 48 miles from Macau across the Pearl River Delta and less than an hour by ferry seems to give the lie to the thesis that Macau is an effective safety valve for China’s pent up gambling demand. Rather, the reverse may be true. The more legal product you give them, the more they want. Indeed, it’s possible that as management standards in Macau’s legal casino trade rise under the influence of global competition and global investment, so the criminals will copy those practices from the legal product that boost their bottom line, such as using well trained dealers. Any boost in illegal casino margins will, in turn, create fresh incentives for the criminals, trumping the risk of a prison sentence if they are caught.
Stimulus
Even with legalised gaming in Macau so close, it doesn’t take much to create incentives for criminal gangs to set up underground casinos in China. The risk/return profile looks pretty good. Wages on the Mainland are on average much lower than in Macau and Hong Kong and you can keep your illicit dealers happy by paying them over the odds. There’s no irksome requirement to share the gross with the taxman, though some money must be skimmed off the top to pay off local officials who might otherwise blow the whistle.
According to a report in the South China Morning Post, quoting a local Mainland newspaper the Southern Metropolis News, this strategy worked pretty well for several years in the Dongguan ‘casino’s’ case.
Residents living nearby said they had for three years repeatedly tried to warn the township police about the place, but no action was taken until a provincial investigation team paid two undercover visits in September.
And these places aren’t just ‘hole in the wall’ speakeasies of the sort that flourished during [alcohol] Prohibition in the United States in the 1920s.
The newspaper report said the owner was closely linked to Hong Kong triads, and the casino was run according to “Macau industry standards”. That’s a pretty sweeping statement. It’s unlikely, for example, that anti-money laundering rules applied to Macau casinos were in place at the underground venue. It does suggest, though, that criminals are paying close attention to trends in the professionally run legal gaming industry.
Professional
Well-trained croupiers allegedly from Macau ran the tables, according to the local press report, and the illegal casino even offered a ‘security service’ to ensure big winners could transport their money safely.
The venue was housed in an innocuous-looking residential building behind a hotel and entertainment venue in Dongkeng Township. Spread over two floors, it reportedly contained 23 gambling tables, VIP rooms and a kitchen. A sum of between 20 million yuan (US$2.93 million) and 30 million yuan was gambled on average each night, the Southern Metropolis News reported. That compares pretty favourable with the table drop at some of the legitimate operations in Macau.
In July last year Melco Crown Entertainment said the average daily mass-market drop at its City of Dreams resort on Cotai was about US$3.3 million, though that legitimate resort admittedly opened during a global economic recession.
What role, if any, China’s visa restrictions into Macau may have had on the development of an illegal gambling venue in Guangdong province is hard to quantify. The enforcement action has, however, uncovered evidence of a parallel and apparently increasingly well-organised illegal casino industry across the border. Moreover, it’s one that can offer more monetary value to the ‘customer’ because it doesn’t have to share revenue with the government. And how many more are still operating under the radar of the Mainland authorities?
Commission
An anonymous customer of the Dongguan establishment was quoted in the local media report saying the owner of the illegal operation took a 5% commission from gamblers who won, in addition to regular takings. Casino agents who introduced new gamblers were given a commission of around 2% of the total bet.
An interesting question is whether demand for gaming is so elastic within China that there are enough customers to suit every price point (regardless of whether the supplier is a legal operator in Macau or an illegal one in the Mainland), or whether the illegal trade could potentially have a negative impact on one or more segments of the Macau market.
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