Inside Asian Gaming

INSIDE ASIAN GAMING | November 2010 26 in the chain that delivers those high rollers to casino VIP rooms in the first place, and in what proportion for each supplier. US casino operators prefer, where possible, to develop a direct relationship with high rollers via the operator’s own in-house casino hosts, rather than using a licensed middleman outsider. A crucial difference between these independent middlemen agents in say Las Vegas and those in Macau is that that the Macau agents are also allowed by law to oversee the issuance of credit for gambling independent of the casino, thus absorbing credit risk. In the US, only the casinos can legally issue credit for gambling. Credit issuance by junkets in Macau has come about partly as a result of the challenges of moving money out of the People’s Republic of China. Under rules issued by China’s central bank in 2004, travellers are officially only allowed to take RMB20,000 (just under US$3,000) in or out of the country. Unless a Chinese citizen has an account denominated in foreign currency or in renminbi outside the People’s Republic (only Hong Kong- and Macau- licensed banks currently have the right to offer RMB accounts outside the PRC), then it’s hard for Macau casinos to create a direct credit relationship with a player. Even if the player meets the criterion of having a relevant bank account outside the PRC, there’s no guarantee that the casino will be able to execute on its credit arrangement if the player defaults—especially if the player disappears back to China, where gambling debts are not legally recognised by the courts. The difficulty of cross-border money transfer is only part of the reason why the current junket system has come about in Macau. Over time, necessity has become the mother of a very Asian invention. Asian players have got into the habit of expecting credit for gambling and can be quite choosy where they get it, frequently shopping around among the sub-agents or among the junkets, looking for the best deal. To the American casino operator, ‘junket’ also means credit—but in the form of markers issued by the house. It also means rebates from the house to the player on his or her losses. The latter keeps the player locked in to that property and into high stakes play, while addressing to some extent the political and social issue of problem gambling. Rebates on losses have never been very popular with Asian high rollers. Under the junket commission programme prevailing in Asia, customers receive commission payments based on the amount of turnover generated. There are various ways to look at this concept, but the easiest is to consider it a volume discount. That means Asian junket players get something back from the house regardless of whether they win or lose. If an Asian player happens to be on a losing streak (and inevitably at some point he will be), US-style rebates on losses are hardly going to make him feel more at peace with the world. The Asian junket commission programme works as follows: Commission (a current government-stipulated maximum of 1.25% in Macau) is paid when junket chips (alternatively known as NN—non- negotiable or dead chips) are purchased. These junket chips cannot be redeemed for cash—they must be played. When a junket chip is played, all winnings will be given to the player in cash chips. Eventually, the player who started off with a pile of junket chips ends up with a pile of cash chips. The player can then either cash out, or if he wants to continue playing, exchange the cash chips for an equal value of junket chips, earning 1.25% commission once again. The blended average house advantage on baccarat is around 1.3% (with house advantage on cash play determined by dividing house win by handle). The win rate using NN chips in Asian VIP rooms is calculated according to a slightly different metric: house win divided by NN chip sales (with NN chip sales used as a proxy for turnover). Since the Player and Banker bets on baccarat are close enough to evenmoney wagers, each NN chip has an expected life of just under two bets. Thus, the win rate on VIP baccarat is a little over twice the house advantage on baccarat. Although casino operators have varying win rate assumptions on VIP baccarat, a generally accepted figure is about 2.75%. V IP rooms are often mentioned in reports about gaming revenue in Macau, but most people don’t really know how they operate. The VIP room is essentially a symbiotic and highly specialised marketing operation that exists within a host casino operation, providing a pipeline of high rolling players to the property. Although the table game operations within the rooms are run by the casino operator, all the other action inside is controlled by the VIP room operator (who is either a junket himself and brings his own players to the room, and/or allows one or more other junkets to operate in the room). The VIP room operation recruits players, provides them credit to play with, then collects all gambling debts, and does so independently of the casino operator, who can disavow knowledge of any questionable methods used to transfer funds or collect debts. VIP rooms are owned by the casino in which they reside. Independent VIP room operators can either lease out a room at a fixed rental, or be allowed to operate within a room by the casino if they can meet certain turnover targets. The VIP room usually has its own junket cage or cashier counter, where a set or sets Behind Closed Doors We shed some light on what goes on inside Macau’s gilded VIP rooms, beyond the prying eyes of the main floor public In Focus