Inside Asian Gaming

INSIDE ASIAN GAMING | August 2012 6 Cover Story The triads have done little to disturb the relative calm. If anything they’ve probably been among its guardians—and one of the principal beneficiaries of the prosperity that has ensued by virtue of the intricate ties they enjoy to the junkets and VIP room promoters. As a former police officer familiar with the industry told Inside Asian Gaming last May, “If you look down the list of licensed junket operators in Macau, sure, you will not find one known triad among them. But I can assure you, none of the big junket operators in Macau could operate unless they were connected to the triads.” In turn, the junkets have provided the triads with “access to capital,” as one investment analyst has suggested, “and the ability to make money in a manner not previously available to them.” So they haven’t gone away, they’ve merely availed themselves of the opportunities presented by the new order of things. And with the casinos pumping out cash at levels no gambling market has ever seen, with the government reaping the tax windfall, and the economy humming at full employment, there is little political will to try to root them out “Everyone has enough rice to eat,” as Stanley Ho once put it—which to the Chinese mindset conveys something very close to an ideal state of affairs. The same analyst said, “I expect that they will evolve into good corporate citizens. There is a lot at stake if they don’t.” The Grand Lapa, where the two mainland men were killed, is a former Mandarin Oriental hotel, a five-star property whose current owner, Jimei Group, is a Macau-based holding company controlled by junketeer extraordinaire Jack Lam. Jimei has a hand in everything from real estate to financial management to hospitality and tour and travel, cruise ships and casinos in the Philippines and Macau, where it is also a major VIP room operator. Whoever may or may not be connected to these enterprises at various points along the line, certainly the last thing Jimei would want is blood on the carpeting. “No one wants to crash the party,” Ko Lin Chin, a U.S. university professor who specializes in the study of Asian organized crime, told Reuters . “This is a feel-good story.” The Pending Shake-Out What then of the crisis in casino revenues? In the anxiety that accompanied May’s numbers, which showed growth of only 7% year on year, few in the investment community were willing to consider that year-on-year comparisons were bound to pale at some point, given the sheer size of the market, and this seems largely to have obscured the fact that May was actually the second-highest-grossing month on record. The gain in June was 12%, but it was below analysts’ estimates and cold comfort for shareholders spoiled by the ethereal gains that have characterized much of the last two years, like the 52% growth posted in June 2011. Not surprisingly, analysts have lowered their projections for this year. A sampling has Fitch at the low end at 10-12% (down from 15%), Macquarie at 13% (down from 15%), CLSA at 16% (down from 21%). What we do know is that total GGR is up 19.8% year to date through June. VIP baccarat revenue, the cause of most of the concern, is up 15%. But there are wealth indicators pointing in the opposite direction as well. May retail sales in Hong Kong grew at their weakest pace since 2009, according to government figures. Luxe brands like Burberry and Prada posted lower gains. Chow Tai Fook, the world’s largest jewelry retailer and a bellwether of how the well-off in China are feeling about life, posted a 16% increase in second-quarter sales, way off the 61% increase recorded in the fiscal year ended in March. Same-store sales were up only 4%. In Macau and Hong Kong, which together account for almost half of Chow Tai Fook’s business, they were about flat at 1%. VIP turnover was down 2.1% year-on- year in June, although some junkets did quite well over that period. To the degree the turnover decline in June is indicative of a downward trend, it’s one the larger networks should be able to ride out. They can reduce their exposure and shore up their books by lending less and tightening up on terms— which they’re doing, according to reports. They can cast a wider net for high-value players. They have the leverage with the casinos to tweak the rules of engagement in terms of the revenue-split and other areas of mutual interest. Others may not be so fortunate— those at the “lower end,” as Steve Vickers describes them. [The triads] haven’t gone away, they’ve merely availed themselves of the opportunities presented by the new order of things. And with the casinos pumping out cash at levels no gambling market has ever seen, with the government reaping the tax windfall, and the economy humming at full employment, there is little political will to try to root them out. Annual Number of Homicides in Macau, 1990 to 2009 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 5 10 15 20 25 30 35 40 45 Source: Macau Statistics and Census Bureau