Inside Asian Gaming

INSIDE ASIAN GAMING | November 2010 28 A s we reported in our September 2008 cover story, ‘The Secret Life of Agents’, the Asian commission system is in practice a marketing scheme based not so much on a pyramid, but more on a water wheel principle. It works from the top down, and from the bottom up. Looking at the top down part first, the play-based commission relationship isn’t directly between the player and the casino. The commission is paid by the casino to the junket and then the junket shares it with the sub-agents and their players. In reality, the player generally gets most of the commission because the junket and the sub-agents want to keep him or her in the fold. Turning to the ‘bottom up’ part of the VIP commission equation, it’s important to remember that junkets—whether they are big investors effectively consolidating and funding smaller VIP operations under a single branding; or small operations in their own right—rely on a network of sub-agents both to feed players to the VIP rooms and to collect on any player losses. As we explained in ‘The Secret Life of Agents’, money, in the form of credit, flows downhill from the gaming service provider via a principal agent (the junket). The junket passes that to sub-agents who in turn pass it to their players. The credit then flows back uphill in the form of player bets. Every time the player loses, liquidity flows back into the scheme, as long as the sub-agent system is successful in getting the player to pay up. The junket takes the bulk of the market risk, because it (via a business partner whose name is on the VIP room licence issued by the Macau government) is the entity that funds the pre-buying of VIP chips from the casinos in order to sell them on to the VIP players. Ultimately, what mitigates risk and reinforces the whole scheme is that agents at the bottom of the pyramid quite literally know where their customers live and what their personal circumstances are. As we reported in our story ‘Tough Love’ in July this year, junkets further insure against bad debt. They typically require a warming up period with new VIP players of up to six months and may ask them for a deposit before granting credit. Tom Hall, vice chairman of AsianLogic, one of the region’s largest online gaming companies, knows the Asian agent system well. While the system for online gaming agents is not precisely equivalent to that used by the casino VIP trade, it is close enough to be a useful illustration. Mr Hall speaks on the topic at industry conferences, and uses the flow chart below to show how it works. Mr Hall refers to the principal agent (the online equivalent of the casino junket) as a ‘super master affiliate.’ A series of sub agents (known in this example as master affiliates and affiliates) subdivide and pass down the cash. Each level expects a commission on the cash it passes on, as each layer is taking on a degree of commercial risk. The ‘affiliate’ is the sub agent in direct contact with the players (often known as ‘members’). In the non-VIP gaming market, the members are granted lines of credit typically ranging from US$5,000 downwards. It is not unknown for members themselves to further subdivide their credit allocation into parcels of micro credit for lower income players, again taking a commission for their trouble. With so many people in the chain taking a cut, the agent structure sucks up a good deal of the revenue. “The agent system is good, but it is very expensive. An online player may give as much as 50% of his win or loss to the person in contact with him, and so back on up. Everyone gets a share,” explains Hwa-Min Hsu, founder of iFaFa, a Philippines-based and -licensed provider of services to the online gaming industry. Agents of Fortune How the VIP marketing system works Asian Sportsbook Super Master Affiliate Master Affiliate Affiliate Member Source: Tom Hall, AsianLogic In Focus