Inside Asian Gaming

INSIDE ASIAN GAMING | November 2011 2 Editorial Inside Asian Gaming is published by Must Read Publications Ltd 8J Ed. Comercial Si Toi 619 Avenida da Praia Grande Macau Tel: (853) 2832 9980 For subscription enquiries, please email [email protected] For advertising enquiries, please email [email protected] or call: (853) 6680 9419 www.asgam.com Inside Asian Gaming is an official media partner of: http://www.gamingstandards.com Publisher Kareem Jalal Director João Costeira Varela Editor Michael Grimes Business Development Manager José Ho Operations Manager Sarih Leng Contributors Desmond Lam, Steve Karoul I. Nelson Rose, Richard Marcus James Rutherford, Sudhir Kale James J. Hodl, Jack Regan William R. Eadington Graphic Designer Brenda Chao Photography Ike, Alice Kok, James Leong, Wong Kei Cheong Michael Grimes We crave your feedback. Please email your comments [email protected] The Case of the Nervous Investor Only a fool or a liar would pretend there isn’t a dark side to the Asian casino business. Inside Asian Gaming is aware of at least two documented cases in the past few years where ruined Chinese gamblers jumped to their deaths on the premises of Macau casinos. But similar things have happened in Las Vegas. That’s why most of the casino hotels in Las Vegas don’t have room balconies or room terraces. Some locals expressed surprise that the recently-opened Cosmopolitan in Las Vegas decided to reinstate bedroom balconies in its design. Speaking of the dark side brings us to the Macau junket trade. It has something of an image problem—especially among Westerners. And that image problem may have come home to haunt Macau now that some investors apparently have the jitters about the state of VIP credit in Macau—both in terms of issuance levels and risk of default. In theory, junket risk can be assessed and managed by the market. Junkets do make contractual deals with Macau casinos guaranteeing them a certain amount of ‘roll’ from VIP players, with specific incentives for beating targets. But these deals have to be managed very carefully so that the casino retains control of the VIP gaming operation. The prospect of having a casino inside a casino is too rich a sauce for the average Anglo-Saxon regulator’s stomach to digest. Unfortunately, such regulatory niceties help to create the informational equivalent of the Bermuda Triangle in the books of those Macau operators. In other words, an activity (VIP baccarat) that can account for as much as 75% of their Macau revenue is usually reduced to just a few lines on the company balance sheet and in the company discussion of the financial results issued to its home stock market. Nature hates a vacuum. Into that empty space, something must inevitably flow. And what tends to flow into that space from the Western media side is lurid tales of Chinese gangsters. But then stories about goons with meat cleavers are far more likely to sell newspapers than a story about a polite man in a suit sending a representative to a district court in some second-tier city in China to collect—by roundabout methods—what is really a gambling debt. Perhaps we shouldn’t be surprised if the gangster narrative is far more appealing to the public mind than the business narrative. A survey two years ago of 1,000 Britons on behalf of the Internet search engine Ask Jeeves found that a fifth of those polled thought Sherlock Holmes was a real person. Sceptics will probably point out that Mexican drug lords like to present themselves as businessmen simply providing North America with a service, or that Hitler was often kind to animals and children. But the Macau junket trade is a legal business licensed by the Macau government in a legal casino jurisdiction. If Western investors and regulators think Macau’s regulatory system isn’t up to scratch, then they should agitate for the Western operators to withdraw from the market. We don’t see that happening any time soon. Another factor to take into consideration is that at some point in a researcher’s encounter with a junket it’s likely that a new person will enter the room. This new person is generally never introduced and doesn’t appear to have a business card. He (and it’s almost always a man) may or may not be absolutely pivotal to the business venture. The chances are you will never know. And if you ask a direct question on the topic you may find the encounter swiftly closed down. This is not specific to the Macau junket trade. This is the reality of doing business in China. If as an investor you don’t have an appetite for this kind of opacity, then you would be better taking your money somewhere else.