A Junket ride to Macau – sponsored by the Times of London; an update

Several times in the last year, I have written about Macau, about the challenges for any non-Chinese company trying to operate there; essentially there are two major unresolved issues in my mind.  Those issues, the uncertainty of Chinese policy making and the relatively small group of people that generate the vast majority of the gaming revenue, make Macau a house of cards, a very fragile operating environment indeed. Any strong wind out of Mainland China could blow it all down.

This week the Chinese government is treating us to a sample of that uncertainty – or is they?  On February 6th the Times of London published a report saying that a major crack-down on Macau junket operators was coming after Chinese New Year – sometime after the 14th of February.  The impact of the story was immediate, gaming stock prices fell and the story rushed around the world, carried by every major new agency.  Well, one day later a series of reports from Macau debunked the Times story – or did they?  Was the Times wrong?  It is being reported that no government official spoke of a crack-down, no casino operator has even heard a rumor of a crack-down and even the junket operators are in the dark.  “No crack-down here, Man, just good clean baccarat fun.”

It is not that no official has spoken, they have; in fact in the last week or so there have been several statements about the need for a crime free environment in Macau.  On another subject, an official said he wondered if Macau needed any more customers. He thinks there were already too many and something to calm the growth should be done.  But there was also an official comment on the Times story.  The Secretary for Economy and Finance, Francis Tam had an official comment; Of course there is no crack-down, but wait listen to his words:

 The Secretary for Economy and Finance, Francis Tam, said that the government is stepping up its inspection on the gaming industry and imposing stricter examination on the backgrounds of the casino junkets in order to “purify” the industry…“The junket system has been operating in Macau for many years, during which we have been optimizing the system with all kinds of adjustments, and reinforcing our supervision of the system.”  “Junket operators need to register with the authority and get a license before they can do business here and we’re planning to exercise stricter examination of their registration. The government is reviewing its current practice in this respect in order to have a closer check on their qualifications, particularly whether or not they have criminal records. Macau Daily Times, 2-7-13

See what I mean?  What did he say?  Did he say there was to be no crack-down?  Did he say everything was fine, honest, clean and jolly good fun?  Or do you hear a threat in his voice?  If one combines the seemingly innocuous statement about too many gamblers coming to Macau with Tam’s comment about stricter examination of license registrations you just might have a policy switch.  Not a crack-down mine you, merely a slight tweaking of policy.

And that in a nutshell is one of my concerns. It is impossible to tell what the Chinese government is thinking or planning to do.  What are cracking-down on?  What crimes are being committed, what regulations violated? The laws and regulations are a bit vague on some subjects; like those junket guys and the way they “befriend” gamblers in their home town, bring them to Macau, lend or sell them chips and encourage them to churn their money so that the junket reps, room operators and the casinos make money.  The gambler may not be cheated, but he is treated in a very strange and one might argue unfriendly manner.  There are other point of vague policy that might lead to a crack-down, money laundering, possibly fraudulent losses used to “export” money, not to mention questionable collection practices.

Whatever it is that is to be strengthened, enforced and cleaned-up, it adds up to uncertainty.  It is a very uncertain environment for those every expensive casinos and much to uncertain to bet the future of your company on – at least in my mind.

 Beijing is planning a crackdown on Triad-linked “junket” operators who bring high-rolling gamblers into Macau from across China and smooth a money-laundering route that processes billions of dollars every year.  The move, which law enforcement sources say will begin after Chinese new year in late February and will involve police operations in more than six big Chinese cities, is part of an anti-corruption campaign led by Xi Jinping, the country’s president-in-waiting.  “The squeeze has already started on a small scale, but the operators themselves believe that something bigger is coming within the next few weeks,” a Macau gaming industry source with ties to a junket operator told The Times. “There is a feeling that too much money has left China and the new administration will try to rein some of that in.” Leo Lewis, The Times of London, 2-6-13

Share prices of most Las Vegas gaming companies with ties to Macau fell Wednesday after the Times of London reported China may be preparing to target junket operators with links to organized crime. China’s government is expected to clamp down later this month on the operators, who bring gamblers from the mainland to Macau, the Times reported. By acting as middlemen, junket operators help drive VIP business to casinos located in the world’s largest gambling center. It is estimated that VIP business accounts for two-thirds of casino revenue in Macau. The former Portuguese colony posted $3.36 billion in gaming revenues in November. Chris Sieroty, Las Vegas Review-Journal, 2-7-13

 Several sources have yesterday slammed a report by British newspaper The Times saying that the central government was set to crack down on Macau’s junket operators.  Commenting on the report, which yesterday pushed down Macau-gaming related stocks on the Hong Kong Stock Exchange, most analysts say it actually created a good ‘buy’ opportunity for investors.  Lawrence Ho Yau Lung, the co-chairman and chief executive of Melco Crown Entertainment Ltd, said “we haven’t heard anything like that [a junket crackdown].” Macau Business, 2-7-13


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