Inside Asian Gaming

INSIDE ASIAN GAMING | February 2010 14 Worth the Effort Did the foreign casinos overspend on their casino facilities? To accept the proposition that Macau’s Chinese VIP players and their middlemen are fundamentally promiscuous in granting their favours to casinos—the gambling equivalent of strumpets or gigolos who will bed hop as soon as someone makes a better offer—is to raise a rather worrying proposition for investors in the Macau gaming industry. This is that the operators could have saved themselves the time, the trouble and more importantly the cost of recreating high roller rooms in the style of the French king Louis XIV’s Versailles palace, and put up cheap and cheerful traditional Macau VIP rooms instead. “The first Paiza [VIP] club at Sands [Macao] sat empty for the first twelve months, until the casino finally came to terms with the junkets,” states the insider. “Thosebeautifully decorated suites are nowbusy, but the funny thing is they now look more like traditional SJM VIP rooms. They have all the paraphernalia and detritus that seem to accompany the junket staff in any casino in Macau.” In other words, the Western operators’VIP offer has effectively been ‘Chinesified’. Culture Clash Chinese gambling agents have an advantage over foreign casinos It might be argued that VIP room- hopping is not just the logical conclusion of intense competition in a high volume, low margin market such as Macau VIP baccarat, but also a function of the local culture, which tends to put more faith in relationships between people (such as the relationship between an agent and player) rather than relationships between institutions (such as a casino brand) and people. For Chinese people, however, personal relationships don’t necessarily mean Western-style glad-handing and back slapping, but interpersonal trust over key issues such as money. The Western casino operators are to a certain extent hamstrung in this cultural dance because of their need to introduce relatively impersonal processes into their business such as formal credit checks on players. This is in order to exercise levels of due diligence acceptable to their institutional investors back home. Western casino operators, for example, tend to follow the sort of business model propounded by the management consultants McKinsey—i.e., ‘What you can measure you can manage’. The reality on the floor in Macau is that few people have the big picture. Opacity not only rules—it’s probably vital to the smooth running of the Macau VIP system. Many high rollers—especially those from the Chinese Mainland—may be either shy about making formal declarations of their wealth, or have assets in renminbi that are not easily liquidated nor transported across borders via formal channels such as the international banking system. Junkets well versed in serving Chinese players have more informal methods of measuring whether a player is good for the money, and it doesn’t all involve reliance on strong-arm tactics if things go bad. Chinese players care about their standing among their peers and in the community. Failure to pay a gambling debt could in the long term be as bad for their business career outside the casino as any failure to pay a supplier invoice. In those circumstances, peer pressure may be more effective than the formal credit agreements relied on by the Western operators and their corporate lawyers. For all the talk of globalisation, Macau is still a very localised market, with very culture-specific ground rules. Macau VIP Sector