Inside Asian Gaming

August 2010 | INSIDE ASIAN GAMING 43 same terms and commissions. “Having scale in this business is advantageous as the smaller-scale junkets will be less able to offer decent rebates to their customers over time. To achieve higher commissions, junket operators need to increase volumes, and higher volumes require greater working capital to prepay casinos for chips. This will favour the bigger junkets that have better access to capital,” says CLSA. Junket Licences (No.) Legal Entity Individuals 100 120 140 80 60 40 20 0 2006 2007 2008 2010 2009 Source: DICJ, CLSA Asia-Pacific Markets “Junket sources we talked to do not see drastic changes in players’ debt-repayment pattern, with the credit cycle remaining at around 10 days with the players.” In current junket trading conditions with huge year on year growth in VIP play, the junkets are also able to generate significant internal cash flow, suggests CLSA. The report states: “Internally generated funds (junkets receive 1.25% of rolling chip wagered) have increased as a result [of VIP market growth]. Therefore, lending to players should increase.” From IAG ’s perspective, internal cash flow could also enable junkets to absorb some bad debt. That was much harder during more challenging trading conditions, such as the near two-year commission price war of 2008 and 2009. That only ended with the imposition by the Macau government of a 1.25% commission cap in September 2009. “A junket operator’s monthly working capital is affected if debt is not collectible,” states CLSA. “For example, we understand that during the Asian financial crisis [of 1997], 70% of the junkets got wiped out. And during 2009, the number of licences fell 18%.” Despite the better margins theoretically available to casinos when they issue credit direct to VIPs, in reality the junket system is likely to be around for some time to come, says CLSA. “While the direct-VIP segment is more profitable, casinos have limited expertise in collecting debts from mainland players.” The authors add, however, that further consolidation of the Macau junket sector is likely. “Consolidation of junket operators and agents is inevitable, although the process will be gradual. As more casinos rebate junkets based on rolling-chips turnover, lower-volume operators will not enjoy the Parking your money in a junket for a month here or there, with none of the punitively high charges for early withdrawal or punitively low interest rates associated with short term bank deposits, must seem like an attractive option for those local entrepreneurs