Inside Asian Gaming

November 2010 | INSIDE ASIAN GAMING 31 American operators’viewpoint. The Chinese- owned companies, SJM and Galaxy, are no less focused on the balance sheet than the US gaming businesses. But the American companies are arguably more focused on analysing their business from the balance sheet up, rather than from the customer down. Squeezing ever more hands per hour out of players with the help of say tableside technology is fine, but such operational efficiencies alone don’t address the cultural and personal needs of players—especially Chineseplayerswith their communal culture, card squeezing and chatter between points. That’s where the ‘software’ of the junkets with their cultural insights is crucial to the Macau high roller trade. confronted with a share of Wynn Macau’s losses instead of its expected commission. It came as little surprise that International Club abruptly switched its business to Sands Macao and Galaxy Entertainment Group’s StarWorld. This sudden reversal by Wynn left a lot of experienced casino pundits shocked. The house will sometimes experience a significant loss, but given the odds, the customers will come and give it all back in the long run. That is unless the casino causes the customers to walk away, which means there is no chance of making back the loss. The second cardinal rule Wynn may have broken in the eyes of the Chinese back in 2006 is that you never go back on your agreement. Wynn appeared to do just that when it sought to share its loss retrospectively after developing a sudden dislike for the commission programme. This brings us to trying to understand the was the first foreign operated casino to open in Macau, in May 2004, and struggled to draw high rollers directly in its first year of operation, before acknowledging the need for junkets and beginning to offer up to 1.2% junket commission. Wynn Macau, which opened in September 2006, started out offering junket chip commission as well, but when confronted by a big loss at the hands of a few lucky players in its first week of operation (and faced with the prospect of having to pay commission on top of the loss), decided unilaterally to switch the basis of its agreements with its in-house junket operators to the profit share model, as used historically by Dr Ho’s SJM. The only problem was that Wynn decided to impose the profit share system retrospectively. One major junket operator (International Club)—whose customers happened during that period to have struck it lucky—was all of a sudden A VIP room at StarWorld Hotel & Casino, Macau The Multiplier Private side betting in the Macau VIP market G etting the VIP player to the table is half the battle. The other half is getting him to spend big, and doing so in such a way that everyone—including the player, the casino, the junket and ‘society’—gets a piece of the action in the form of public money raised from taxation. This is where the infamous ‘Multiplier’ comes into the story. Like sightings of the Yeti or the Loch Ness Monster, there are many as yet unconfirmed reports of ‘The Multiplier’ being employed at Macau VIP gaming tables. Just as with theYeti or Nessie, there are people—especially journalists— with a vested interest in keeping the story alive. Then there are those—such as the government and the local regulator— with an equally strong interest in playing down the tale of The Multiplier. If it exists on any scale at all in the high roller market other than sporadically here and there, The Multiplier could be depriving the government of large amounts of tax revenue. And there are many good, practical reasons for The Multiplier to exist and to thrive in the sometimes- dark waters of Macau’s VIP segment. The Multiplier is in essence a private arrangement between junket agents and their customers, governing the size of the bets placed. Most commonly, it occurs in two basic forms, with essentially the same outcome. The first is when the agent agrees with players that whatever the value of chips placed on the table, the real ante is multiplied by an agreed number. For example, if the customer placed a HK$1,000 bet and the agreed multiplier is 10, then the ‘real’ bet is HK$10,000. The second common form of Multiplier is when it’s agreed that the ‘real’ bet is denominated in a different currency to that of the actual chips placed. For example, the customer places a HK$1,000 chip on the table, but agrees with t h e junket operator that the bet is in reality denominated in US dollars, so the ‘real’ bet is US$1,000, which represents a multiplier of 7.8 times. Such arrangements are particularly convenient because the majority of junket customers in Macau hail from Mainland China and do not—and in any case cannot—bring money with them, but rather rely on credit extended by junket agents. When a customer requests HK$1 million credit, the junket agent merely requests the casino provide HK$100,000 worth of chips, with the implicit understanding between the junket agent and customer that a ten times Multiplier is in effect. In the first scenario, where The Multiplier is ten times, the result is that the government and casino licensee’s share of revenue is reduced to a tenth of what it should be. That means the government is getting only around 4% of the ‘real’ gross, rather than 40%. Under the 40:40:20 revenue sharing arrangement pioneered by Stanley Ho, the government and VIP room/junket operator each get 40% of gaming revenue, and the casino license holder the remaining 20%. When a ten times Multiplier is in effect on the nominal value of bets placed, the junket operator’s margin goes from 40% of revenue to 94%, while the government’s take is reduced from 40% to 4% and the casino license holder’s share from 20% to 2%. The Multiplier has been around for quite a while, even before the liberalisation of Macau’s casino industry. It is also fairly common in other countries, though the potential benefits to junket agents are obviously greater in Macau, given the city’s high gaming tax rate.