Inside Asian Gaming

INSIDE ASIAN GAMING | July 2010 20 A nalysts and investors have for some time pondered the question of whether there is a correlation—either positive or negative—between the rise of mainland China’s economy and the growth of the VIP gambling market in Macau. One assumption behind the positive correlation thesis is that China’s economic success must have delivered new high rollers from China into the Macau VIP market. Still, only the junkets and casino operators (and possibly the local regulator) know exactly fromwhere the VIP customers hail, and they’re not exactly lining up to divulge that information to the market as a whole. Given, however, that 54.1% of Macau’s visitors in May came from the People’s Republic, according to DSEC, Macau’s Statistics and Census Service, it seems reasonable to assume that a similar percentageofMacau’shighrollersalsooriginatefromthatjurisdiction. Even if that assumption is misguided, and mainland high rollers are making a proportionally smaller contribution to Macau’s VIP gross than indicated by the raw visitor statistics, then it’s still likely that Greater China’s economic success is at the very least boosting the wealth of Macau’s traditional VIP customers—high net worth players from Hong Kong. Many of that cohort have direct investment in manufacturing companies in Guangdong, the heavily industrialised province next door to Macau, or have investment in mainland assets such as property. A third assumption behind the correlation/ non-correlation debate is that because junket- supplied VIP players are commonly extended credit, this must mean access to ready liquidity on the mainland side of the border equals a bonanza of gambling credit on the Macau side of the fence. An adjunct to that assumption is that such credit must be arranged on a one-for-one basis: i.e., one Hong Kong Dollar of credit for every Hong Kong Dollar wagered. Inside view A junket insider tells Inside Asian Gaming that set against these assumptions, the reality of the Macau VIP market is often quite different. The insider says that junkets are in fact less inclined to jump on the bandwagon of China’s economic boom than many outsiders assume and are typically more selective in their credit issuance policies than commercial banks. By that reading, the 95% growth in gross gaming revenue seen year on year in May could be more a function of a relatively small number of proven VIP customers rolling greater amounts on the back of a strong economy, than of large numbers of new customers piling into the high roller market. “It’s true there are some new players coming into the Macau VIP segment as a result of the economic development of China,” says the junket source. “But we are careful about who gets credit. In our case it takes six months from the introduction of a new player to our organisation to that player being issued with credit.” The insider adds the junkets typically shy away from chasing customers and prefer to work on the basis of networking and recommendation. The stance appears to give credence to the business saying—often repeated privately by Macau junket operators—‘Know your customer.’ Macau’s VIP credit market hasn’t always been so orderly. The due diligence strategy was effectively thrown out of the window by some junkets for nearly two years between December 2007 and late 2009. That was because of cutthroat competition for players after an extremely aggressive (some analysts said at the time irrational) deal sealed just before Christmas 2007. Under the deal, Melco PBL Entertainment (now Melco Crown Entertainment), operator of the then struggling Crown Macau (now Altira), agreed to pay a record 1.35% commission on rolling chip volume to junket consolidator AMA International in order to bring much needed VIP Market View Tough Love Macau’s junket operators aren’t throwing money at new customers, despite China’s economic boom “A bank is a place that will lend you money if you can prove that you don’t need it.” Bob Hope, American comedian and actor