Inside Asian Gaming

INSIDE ASIAN GAMING | February 2010 38 Credit Risk executive in Macau neatly sums up a disconnect between Eastern and Western belief systems. As the executive put it: “Chinese people understand the scientific principles of mathematics. Fortunately for us in the casino industry, they don’t believe in them.” The relationship between Chinese gamblers and Western casinos is further complicated by the tendency of theWestern operators to stress in their marketing and public relations that they are part of an ‘entertainment’industry. By selling gambling as‘entertainment,’the operators are arguably presenting the relationship with the individual gamblers as transactional rather than as cultural. The message seems to be: ‘We’ve entertained you, now pay your bill, there’s a good fellow’. That’s showbiz Presenting casino gambling as ‘entertainment’may in part be the industry’s defensive response to Western politicians opposed to the gaming industry in general, but by playing down the cultural significance of gambling to many Chinese players, it risks encouraging a mismanagement of the credit risk to the operator posed by those players. Such appears to be the pathology of the Chinese gambler (and by pathology we mean divergence from Western attitudes toward the pursuit) that many Chinese players appear willing to sign just about anything and promise just about anything to anyone once they have the scent of victory in their nostrils and the warm glow of good fortune gently simmering their brains. That doesn’t matter so much when the players are getting their credit fromshadowy third parties, as appears to happen with some Mainland VIP players in Macau. Even if the players come to regret their largesse at the table, the creditors reportedly have some interestingways of getting their clients to pay up—and their methodology won’t be found in any legal text book. There’s no room for any ‘dog ate my credit agreement’ excuses with those gentlemen. That’s what’s meant by the euphemistic term ‘credit risk mitigation’ in relation to the role of third party agents in Macau high roller gambling. To share or not It’s a different matter, however, when casinos seek to extend credit directly to Chinese gamblers in pursuit of a better profit margin on their play. By relying on a legal contract and litigation rather than peer pressure and ‘home visits’ to any defaulting gambler, theoperators are themselves taking a gamble that has nothing to do with the efficacy of the courts. Rather, it’s a cultural gamble that the Western business model will trump the Chinese one—in China. In theWestern tradition of rationalisation and maximisation of opportunity and of profit, however, it makes perfect sense for operators such asWynn and Las Vegas Sands Corp. to prefer dealing directly with players rather than having to share with middlemen agents. LVS said in a note to investors in June last year that its margin on so-called direct players was 1.0 to 1.2 times higher than for players brought in by agents. In the drive to recruit direct players, the ‘low hanging fruit’, to use modern management jargon, are ethnic Chinese gamblers with assets in internationally convertible currencies or assets held outside the People’s Republic—in other words, people like Henry Mong Hengli. Inside Asian Gaming makes no suggestion that Mr Mong will seek to avoid the judgement of the Hong Kong Court of Appeal. Rather, our point is that the psychological and cultural forces that push ethnic Chinese gamblers to take high-risk strategies at the tables are no respecters of jurisdictional boundaries. It’s not just the high rollers that are subject to the thrall of fate. Desmond Lam says in the mass-market segment, many Chinese players see gambling as an opportunity to ‘get rich quick’. “As prosperity spreads [in China], everyone wants to be rich and enjoy the material gains that they were deprived of for so many years; no one wants to lose out. The potential for earning quick wealth may explain why Chinese in the lower social classes engage in gambling activities,” he states. What seems to bind Chinese high rollers and Chinese low rollers together is a belief in fate and fortune. No amount of clever legal advice and theoretical credit risk analysis will protect an operator if a player believes his right to win is written in the heavens. In future, Western operators thinking about advancingdirect credit toChineseVIPplayers might be better to employ psychometric tests on their would-be clients rather than merely checking on their bank accounts and financial assets. Hong Kong’s Court of Final Appeal set the stage for Wynn Macau’s campaign to recover high roller Henry Mong Hengli’s gambling debts