Challenging times ahead for Macau?


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The Macau Palace above was one of Stanley Ho’s bustling casinos when Ho had a monopoly on gambling in Macau; but for years he has had to compete with other operators, Wynn, Sands, MGM and Crown.  The old floating palaces were not good enough and so they float vacant and deserted awaiting a new fate.  Ho’s other casinos still have the largest market share, but are slowly losing ground to the newer, bigger and glitzier casinos operated by outsiders.  The competition is pretty fierce, especially for the big players, the high-rollers, the famous whales who bet more in on one turn of the cards than 1000 day-trippers bet in a whole day.

The Motley Fool had a piece today speculating on the future of gambling in Macau.  Now, to most people, the future of gambling in Macau is without limit and will ever be expanding, this year it is on track for a 40-50 percent growth in gaming revenues from last year; and last year was nearly double the year before.  The reason for Macau’s success is simple, 1.3 billion people live next door and Macau is the closest casino for anyone with a few extra dollars to throw around.  So what could go wrong?

The Fool wonders what will happen with new currency regulation in China that may lead the gamblers to take their money some place outside of the Chinese government’s sphere of influence.  The Fool sees two reasons for concern about Macau’s future; the government wants the winnings to come back to China and is tightening the noose; second it is thought that most of really big players are playing with stolen money – much of it stolen from government sources – the rest from major corporations. Both of which would like to stop the thefts and put the thieves in jail.

Unlike other gaming jurisdictions where the bulk of gaming revenues comes from slot machines, the majority of the gaming revenue in Macau comes from high-rollers – Chinese high-rollers.  If something happens to stop the flow of those “whales” it would get ugly in Macau.  However the sources of the funds is not the only weak link in cash flow chain in Macau.

Besides the suspicion of stolen money, there is also a strong believe among observers that the junket operators are themselves part of “organized crime” – using loansharking, extortion and even kidnapping as every day tools of business.  Not a good foundation for a sustainable future is it?  Players playing with stolen money being manipulated and exploited by organized crime figures – it makes the old days in Las Vegas look like Disneyland.  I ran across a story, although not from Macau, but from Cambodia, that illustrates the kind of tactics that are reportedly being used in Macau.  A 13-year old girl was kidnapped and held hostage for a month until her father, a degenerate gambler from Vietnam, paid his gambling debt – $4,700.

In Macau it is said the gangster/collectors kidnap the gambler instead and hold him hostage until his family comes up with the money and no one, it seems, cares where they get it.  The gambler is locked in a room, barely fed. given a cell phone and told to get the money.  The Fool may be right, it was just too good to last.

Gambling is not inherently evil nor corrupt, but it does attract some pretty sleazy people at times; and they are not always from Chicago with names that end in a vowel.  Every time I think that gaming regulation is overdone and based on fears that are 50-years old something like the girl in Cambodia and the funds from China surfaces.  To make gaming – the game of gambling – secure, sustainable and legitimate requires strict regulation as annoying as that may be.

 

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