China's anti-graft drive puts the squeeze on Macau junkets


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China's anti-graft drive puts the squeeze on Macau junkets


Macau's casino junket operators are feeling the squeeze as China's anti-corruption drive has blown a hole in the world's biggest gambling hub. Some are shifting players elsewhere, like the Philippines and Vietnam; others are quitting the business.
Chinese President Xi Jinping's near 2-year crackdown on corrupt officials and tycoons has hit revenues at Macau's high-rolling VIP lounges, and analysts predict this year could be the worst on record with, at best, low single-digit growth, though 'mass market' gamblers are taking up some of the slack.
The so-called 'big whale' gamblers, who don't blink at dropping HK$1 million ($129,000) on a single bet, are thinner on the ground as China's economy loses steam and eats away at their asset wealth. The junkets - on commission from the casinos to bring in the high-rollers, lend them money and settle their debts - are less willing to extend generous credit terms as it's tougher these days to chase those debts.
And local authorities and those with ties to Beijing are leaning on the junket operators - often informally over a quiet drink or hot pot dinner - to gather information on Chinese officials suspected of corruption who may be laundering money through Macau.
"I can't sleep at night. There are just too many problems," said one 54-year-old junket operator who didn't want to be named because of the sensitivity of the issue. "I'm not optimistic for the future of the VIP junket industry here."
"Beijing isn't directly controlling, but is putting subtle pressure on the authorities here. There's more information gathering, and it's harder now for even low-level (Chinese) officials to come here to gamble."
The Macau-born businessman, who manages VIP tables in Galaxy Entertainment Group's golden turreted Galaxy Macau resort, said he was trying to get out of the business after more than 20 years. He noted other junkets were luring customers to casinos overseas that have greater growth potential - and are further from Beijing's prying eyes.
Asking questions
Of Macau's 220 licensed junket firms, at least 15 have shut up shop in the big casinos this year, according to a recent Daiwa Capital Markets report. The VIP business has traditionally brought in close to two thirds of Macau's gaming revenues - of $45 billion last year, more than seven times those of Las Vegas - but analysts predict that will drop to nearer a half.
"Controlling corruption is part of the business. China wants to help Macau. Both the central and Macau governments are helping Macau grow," said Chien Lee, former chairman and CEO of Iao Kun Group, a junket that has applied to list shares on the Hong Kong stock exchange.
In June, a high-profile junket boss was interviewed in Hong Kong by Chinese investigators to provide information on Chinese officials gambling in Macau, said two people with direct knowledge of the matter.
In separate cases, more than half a dozen people operating in the junket business were detained in Wynn Resorts Wynn Macau casino late last year. In April of this year, the wife of Cheung Chi Tai, one of the owners of leading junket Neptune Group, was detained in Hong Kong along with HK$200 million ($25.8 million), local media reported. Cheung Chi Tai, named as an alleged triad member at the money laundering trial of Carson Yeung, the former owner of English soccer club Birmingham City, could not be reached for comment. Hong Kong police say they don't comment on individual cases.
Industry executives say Beijing doesn't want to stamp out the junket industry in Macau - the only place in China where gambling is legal - and is supportive of those operating within the rules and which are transparent about their business.
"The government wants to support Macau. It needs the junkets for Macau to work," said an operator at a leading junket.
Beauty parade
"They're just trying to put a collar on the junkets, not eliminate them," said Steve Vickers, a former commander of the Royal Hong Kong Police Force's criminal intelligence bureau and now CEO of Steve Vickers Associates, a Hong Kong-based risk consultancy. "They want the ability to pull financial levers, so junkets need to be acceptable and under supervision."
Vickers likened the situation to a junket beauty parade, "where some are paraded as winners, and some as losers."
Dore, a former top-10 junket operator, said in June it was quitting the business, stating it "provides limited room for long-term growth development for the group."
The Macau government is encouraging the gambling industry, which brings in over 80 percent of the Special Administrative Region's tax revenues, to diversify. Suncity, a leading junket with interests from property and finance to entertainment and media, was chosen as the official sponsor for the annual Macau Grand Prix, which features Formula Three motor-racing.
The company, led by 40-year-old Alvin Chau, a member of a Chinese parliamentary advisory body, is listing part of its business on the Hong Kong stock exchange through a deal with International Entertainment Corp, a company owned by the family of Hong Kong tycoon Cheng Yu-tung.
An executive at Heng Sheng, another leading Macau junket, said Beijing's anti-corruption campaign was lasting longer and going deeper than expected, and was adding to the pressure from tight liquidity and fragile trust in the industry after one junket agent fled with up to $1.3 billion in April.
The flow of VIP-room revenue in August, at HK$40 billion, was half of June's levels, and Heng Sheng may close its VIP tables at Sands China Ltd's Cotai Central and Venetian casinos, according to an internal sales note made at an investor meeting where the executive spoke earlier this month. A Heng Sheng investor last month announced plans to build a $3 billion casino resort complex on the western Pacific island of Saipan.
While analysts predict VIP revenues could drop by up to a fifth over the rest of this year, casino and junket executives hope a visit by Xi to Macau in December will bolster support.
"Beijing knows it needs to support Macau because if the gaming industry doesn't do well there will be a lot of trouble here. At the same time, Beijing is the one that suffers all the social costs," said the locally-born junket operator.

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