Inside Asian Gaming

INSIDE ASIAN GAMING | May 2009 22 VIP Market Outlook The Multiplier Revisited A recap on Octo Chang’s April 2007 analysis of side betting in the Macau VIP market T he 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. Convenience 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 S ingapore’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