Macau Casinos

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#1
Junkets that fuel Macau casinos are on a losing streak
DOW JONES SEPTEMBER 29, 2014 10:00AM

MACAU—Fueling the glittering casinos of the world's largest gambling center is an informal and largely unregulated financial system known as junkets.

Junket operators tap personal relationships reaching deep inside China to recruit gamblers, bring them to Macau, lend them money to bet with—and later handle the sometimes-messy business of debt collection. Junkets accounted for nearly two-thirds, or US$30 billion, of Macau's casino revenue last year, government figures show, feeding high rollers into a city that generated seven times the gambling revenue of the Las Vegas Strip.

Now, the Macau junket system is under pressure. After annual growth as fast as 70 per cent over the past decade, gambling revenue from junkets' high-roller customers has fallen in recent months as government corruption and money-laundering crackdowns slow the business and casinos fight for a bigger share of the gambling dollar.

Some junket companies—known simply as junkets here—are trying to adapt by becoming more transparent and businesslike, but they struggle against an image problem based in the junket business's historic ties to organized crime.

Macau has long relied on junkets to bring in VIP clients. China limits how much money people can take out of the mainland. The credit that junkets give those arriving in Macau is a way around that.

China also doesn't recognize gambling debts, making them legally unenforceable and undergirding an alternative loan system that relies on personal relationships for repayment.

Junkets act like banks in some ways—taking deposits and lending out their cash—but with special features. They arrange travel to and lodging in Macau, which is part of China but has its own laws. They have agents who both provide capital for the business and bring in customers. Inside casinos, junkets maintain their own tables and VIP rooms, earning commissions from casinos based on how much junket clients wager.

"It's a specialized form of shadow banking. I can't think of an industry that's directly comparable," says Stephen Green, a Hong Kong-based economist.

Charlie Choi says he started working for a junket in 1991 when he was 18 years old. He prowled the betting floors of the Lisboa casino with other middlemen, lending to gamblers, giving them tactical advice and partying with them till dawn in smoky casino VIP rooms rented by the junkets.

It was a dangerous business. Rival criminal organizations known as triads had bloody fights for control of the VIP rooms in the late 1990s. Mr. Choi says he fled to escape the violence in 1997 and returned to his hometown in southeast China. Triad violence involving junkets is less common now, with far fewer incidents reported, but alleged triad connections continue to turn up at times in court cases and government investigations.

Mr. Choi, who says he has never had anything to do with triads, returned to Macau in 2006 and found the business booming. The city had let in foreign casino operators such as American companies. The foreign companies were initially uncomfortable dealing with partners with checkered histories, say casino executives. But many eventually began to support junkets by lending to them. The result was to turbocharge the high-roller business.

Mr. Choi recalls a Shanghai man who made five or six trips a year to Macau and played three times a day for just one hour each session. He says he helped bankroll a US$13 million, three-year winning streak by the gambler in the late 2000s, until one week he lost it all.

"Before, he was so talkative. That week, he didn't talk much," Mr. Choi says. The gambler dropped Mr. Choi as his junket agent, convinced he was unlucky.

Mr. Choi now is mainly an investor in junkets rather than an agent roaming the casino floor. He turned a US$1.3 million investment made in a junket in February 2013 into US$2.5 million by this July, records of the investment show.

Dressing in jeans by Dsquared2 and tailor-made shirts, he manages about 20 agents, all friends of his. Each has a credit line from Mr. Choi and uses it to bankroll about five gamblers. Mr. Choi trusts that his agents have vetted the clients and can collect any debts they run up.

His agents are among about 20,000 in Macau, according to Billy Ng, an analyst at Bank of America Merrill Lynch. It is easy to spot them roving the casinos with their man-purses stuffed with cash and chips for quick loans. Agents may carry tens of thousands of dollars, turning to investors such as Mr. Choi when they need even more to make a loan. Mr. Choi says the largest such quick loan he has financed was US$13 million, which was repaid.

Those in the business say personal relationships are the best defense against bad debt—in fact, the only defense. Like informal lenders, some junkets use "physical force" at times to get paid back, says Sara Hsu of the State University of New York at New Paltz, who has studied Chinese informal financial networks. It is pointless to do formal asset checks or to ask gamblers to guarantee loans with property in China, junket operators say, because players can fake the paperwork or pledge the collateral more than once.

Anyway, the lightning pace of business leaves no time for formalities. After someone in China sends a text message alerting a junket of plans to come to Macau, "you might only have 10 minutes to make a decision" on whether to extend credit, one junket investor says.

While junkets are still a robust business, revenue from gamblers at Macau's VIP tables — most of whom are junket clients—was down an average of 16 per cent in June, July and August from a year before, according to Daiwa Capital Markets. Overall gambling revenue in Macau also declined, but less, an average of 4.5 per cent.

Junkets are getting squeezed by three forces: the U.S. and the Chinese governments, and the casinos themselves.

In China, a crackdown on corruption has made the rich wary of being seen betting millions at the baccarat tables and made it riskier for junkets to move money across the border for them. The pressure began in late 2012 when Chinese police detained backers of one of Macau's then-largest junkets on suspicion they had ties to Bo Xilai, a politician arrested in a high-profile case that year and later convicted of corruption and sentenced to life in prison.

"The anticorruption campaign has caused a lot tighter governance on the large amount of money leaving China," and "investors are hesitating to invest in the junket industry due to the situation," says Hoffman Ma, deputy chief executive of Macau's Ponte 16 casino.

American-based casino operators in Macau are also feeling pressure from U.S. law enforcement to prevent money laundering and in turn are pushing the Macau junkets for greater transparency.

And casinos have their own reasons for squeezing the junkets. Increasingly, casinos and junkets are both competing for the same clients. The commissions that casinos pay the junkets to bring in VIP gamblers are so high that the casinos clear only about a quarter as much profit on junket clients' bets, per dollar wagered, as on bets made by walk-in gamblers.

Some casinos are asking junkets for more information about their operations and clients, a move that casinos link to regulatory pressure but that junkets see as a way for casinos to build their own ties to affluent Chinese gamblers.

Getting as much profit as possible from each customer is important to casinos because Macau limits the number of gambling tables. At the start of this year, many casinos raised the minimum amount of business that junkets must bring in to retain their dedicated tables and VIP rooms, according to Kwok Chi Chung, president of a junket trade group. He says the minimum value of wagers rose 50 per cent to HK$300 million (US$38.7 million) a month for each gambling table. "It's quite difficult to maintain that," he says.


In a sign of a stricter regulatory climate, Las Vegas Sands Corp. last year paid US$47 million to the U.S. government as part of a money-laundering settlement. Although the case was related to the U.S., not Macau, casino executives say they tried afterward to strengthen compliance globally. The Treasury's Financial Crimes Enforcement Network, or FinCEN, has also told casinos to improve their anti-money-laundering policies with respect to Macau junkets specifically.

One concern of regulators is that junkets don't do the same due diligence to screen out sketchy customers as U.S. rules require of banks and casinos. "The whole world has bought into the 'know your customer' requirement except Macau junkets," says Fred Gushin, a former New Jersey casino regulator now at consulting firm Spectrum Gaming Group.

Las Vegas Sands told junkets operating in its Macau casino to provide personal information about their clients earlier this year, according to Mr. Kwok and others familiar with the matter. Mr. Kwok says junkets refused because giving it away would hurt their businesses and violate a local data-privacy law. A spokesman for Sands says it didn't ask junkets to give it patron information but just to make sure they were collecting the data themselves.

Some casinos are trying to cut official ties with junket operatives who can't pass due-diligence reviews. MGM Resorts International recently demanded that junket executives produce their Hong Kong police records, which are used by casinos for vetting their own staffs.

When Charles Heung, one of the most powerful figures in the junket business, didn't do so, MGM asked junket Suncity Group to remove him as a guarantor of MGM's loans to it, say people familiar with the matter. The junket did so, according to these people.

Suncity, Macau's largest junket, didn't respond to requests for comment. Neither did Mr. Heung, who has been identified by U.S. regulators, by Hong Kong police and in a 1992 U.S. Senate subcommittee report as a triad leader. He has denied being involved in organized crime.

In April, Las Vegas Sands blocked a company controlled by Mr. Heung from lending to a junket operating in one of Sands' Macau casinos, according to people familiar with the matter.

As for the third U.S. casino company in Macau, Wynn, it says Mr. Heung "isn't an identified principal in any Wynn junket."

Junkets aren't always helping themselves with their image. In April, a junket operator vanished while believed to owe various parties US$1.3 billion. As the news spread, investors in his business rushed to casino counters hoping to get their money back. The incident caused a cash squeeze that forced some junkets to scale back or merge, and it discouraged investment in junkets, operators say.

Two months after this disappearance, a major shareholder in another junket was arrested in Macau for allegedly running an illegal sports-book operation. He posted bail and within weeks turned up in Las Vegas—where he was arrested on similar charges. In a complaint filed in U.S. District Court in Nevada, an FBI agent says the man, Phua Wei Seng, is known by law enforcement to be a high-ranking triad leader. His lawyer, David Chesnoff, denies he is. Mr. Phua has pleaded not guilty to the U.S. charges.

After the arrests, MGM asked the junket where Mr. Phua is a major shareholder, called Star888 Ltd., to vacate its VIP room in MGM's Macau casino, says a person familiar with the matter. No one at Star888 could be reached for comment.

While junket companies are licensed by Macau, the junket investors and middlemen such as Mr. Choi aren't vetted by the city's casino regulator, an agency known as the DICJ.

Massachusetts recently explored the junket system in the course of reviewing casino-company applications for a license. State documents quoted Wynn CEO Steve Wynn as saying that junkets are structured "like a tree with branches that keep growing out wider and wider," and that keeping track of the middlemen is "almost impossible because they multiply like rabbits."

Though the minimal regulation may have benefitted junkets in years past, this now is seen as a reputation handicap as some try to become more professional.

"In a lot of ways they're becoming more like us," the CEO of MGM Resorts' China unit, Grant Bowie, said last month.

Some junket executives fret that casinos have used junkets as a stopgap until the casinos can establish their own VIP networks in China. Junkets are "tired of being a wedding dress"—used once and set aside—says Tony Tong, a junket investor and consultant.

Now, some are trying to get into the casino business themselves, if not in Macau then elsewhere.

The junkets Mr. Tong is involved with include one called HengSheng Group, which plans to invest in a casino—not in Macau but on the Pacific island of Saipan.
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#2
^^ this Mr Heung of Suncity was too public that he funded the hk movie 低俗喜剧. That's probably the peak.

He should watch the movie American Gangster. And learn from mistakes.


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#3
Corruption crackdown, China economy, hit Macau gaming revenue
THE AUSTRALIAN NOVEMBER 05, 2014 7:58AM

Damon Kitney

Victorian Business Editor
Melbourne
BEIJING’S crackdown on corruption and China’s slower economy pushed gaming revenue in Macau down almost 25 per cent in October, its fifth consecutive monthly fall.

Total casino revenue in the world’s biggest gambling hub fell 23.2 per cent to 28 billion patacas ($US3.5 billion) last month, according to Macau’s Gaming Inspection and Coordination Bureau, which is expected to put further pressure on the shares of Macau’s casino operators, including the James Packer-backed Melco Crown Entertainment.

Melco Crown shares have fallen almost 31 per cent this year in Hong Kong trading.

Melco Crown is a joint venture between Mr Packer’s Crown Resorts and gaming scion Lawrence Ho.

The group reports its quarterly results this week.

Analysts believe the Macau gaming industry could be further affected by Chinese President Xi Jinping’s expected visit to Macau next month, according to Union Gaming Research analyst Grant Govertsen.

“Our current expectations of December being down 24 per cent year-on-year include further disruption to the VIP segment because of Xi’s visit for the 15th anniversary celebration of the city’s handover to China, Mr Govertsen wrote in a note to clients yesterday.

He added that there was “no reason” trends will improve in the first quarter of 2015.

The latest decline is only matched by the disastrous aftermath of the GFC, when casino revenue fell for seven consecutive months from December 2008 to June 2009.
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#4
I notice something like this happen in sg too,

whenever a coming event like high level delegate visits or coming elections law enforcement will crackdown regardless whether related or not. You start to see clean ups of vice activities in geylang areas, even increases in handing out traffic fines.
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#5
Packer’s Melco earnings hit by Macau slowdown
THE AUSTRALIAN NOVEMBER 07, 2014 8:13AM

Damon Kitney

Victorian Business Editor
Melbourne
THE James Packer-backed Melco Crown Entertainment has posted lower than expected third-quarter results, reflecting the sudden slowdown in gaming revenues in Macau.

The company posted adjusted diluted earnings per American depositary share (ADS) of US24c on revenues of $US1.12 billion for the quarter, compared with Thomson Reuters consensus estimates for earnings per ADS of US31c and $US1.19 billion in revenues.

But it still managed to pay quarterly dividend of US23.9c per ordinary share and its Nasdaq listed shares closed US17c, or 0.7 per cent, higher in overnight trade.

“In the third quarter of 2014, we delivered solid operating and financial metrics, despite a challenging rolling chip environment in Macau, driven by a strong performance in our mass market operations at City of Dreams in Macau,” the company’s chief executive Lawrence Ho said.

“City of Dreams continued to gain market share in the mass table games segment in Macau, with the property’s mass market table games revenues in the third quarter of 2014 increasing 24 per cent on a year-over-year basis, outpacing the market which grew 16.2 per cent during the same period,” he said.

Total casino revenue in the world’s biggest gambling hub fell 23. 2 per cent to 28 billion patacas ($US3.5 billion) last month, according to Macau’s Gaming Inspection and Coordination Bureau, which is expected to put further pressure on the shares of Macau’s casino operators, including Melco Crown.
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#6
Macau gambling revenue slides
DECEMBER 02, 2014 2:45PM

Macau is poised for its first full-year decline in gambling revenue after China’s corruption crackdown sent November revenue tumbling 20 per cent.

Gambling revenue fell to 24.27 billion patacas (US$3.04 billion) last month from 30.18 billion patacas in November 2013, government data showed Monday. It was the sixth month in a row that gambling revenue fell in the Chinese gambling hub, which had previously enjoyed a five-year winning streak without even one down month. Analysts say November’s sharp fall also makes it a near certainty that Macau this year will suffer its first calendar-year drop in gambling revenue, at least since 2002, which is as far back as public data go.

November’s decline was also meaningful because it wiped out all gains made earlier in the year. For January through May, gambling revenue was up 16 per cent from a year earlier. But after six months of year-over-year declines, gambling revenue is now flat in the first 11 months of the year compared with last year.

“We all got this massively wrong,” said Standard Chartered Equity Research analyst Philip Tulk. “Nobody saw this coming,” he said of the sharp reversal in Macau’s fortunes. Mr. Tulk said that a year ago he had pegged Macau’s gambling revenue to rise 14 per cent in 2014 and that he had even raised his forecast by a few percentage points in early 2014 as money continued to pour in. In February, gambling revenue hit a record high, shooting up 40 per cent from the previous year.

Now Mr. Tulk and other analysts are predicting revenue in the territory will fall by at least 1 per cent in 2014.

The particularly sharp drop in Macau’s VIP gambling revenue in recent months has surprised executives, analysts and investors, and fueled declines in overall gambling revenue. The primary cause is a Beijing-led crackdown on corruption, which has led high rollers to shy away from the baccarat tables, they say. The April disappearance of a Macau junket figure believed to owe as much as 10 billion Hong Kong dollars (US$1.3 billion) also has taken a toll on the market, they said. The incident made investors wary of funding Macau junkets, whose high-rolling customers accounted for nearly two-thirds of Macau’s US$45 billion in gambling revenue last year.

Macau also faces a laundry list of other challenges, including a worsening Chinese economy, tighter visa policies for Chinese traveling to Macau, increased oversight on UnionPay cards many gamblers use to access funds in Macau, new smoking restrictions at casinos and pro-democracy protests in neighboring Hong Kong that are affecting players’ travel plans, according to executives and analysts.

Things aren’t expected to improve soon. Wells Fargo analyst Cameron McKnight warned in a Nov. 28 report that Macau’s December performance could disappoint even reduced expectations, with revenue possibly falling 25 per cent from a year earlier if a planned visit this month by China’s President Xi Jinping -the architect of the anticorruption campaign squeezing Macau-further deters high rollers from coming to gamble in the former Portuguese colony. Mr. Xi is to visit the Chinese gambling hub to celebrate the anniversary of Macau’s handover to China 15 years ago.

With many of the problems in Macau well-known by now, investors on Monday reacted to the weak November numbers with restraint. Shares of Las Vegas Sands Corp. ’s Hong Kong-listed unit Sands China Ltd. fell 2.1 per cent and MGM China Holdings slipped 1.3 per cent. Galaxy Entertainment Group fell 2.6 per cent. The declines occurred as the benchmark Hang Seng Index fell 2.6 per cent.
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#7
When China sneezes, the casino, the hotel and restaurants, the luxury jewellers all suffer.
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#8
(02-12-2014, 02:55 PM)Contrarian Wrote: When China sneezes, the casino, the hotel and restaurants, the luxury jewellers all suffer.
By the looks of it, most of the world suffers as well...

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#9
(02-12-2014, 02:09 PM)greengiraffe Wrote: “We all got this massively wrong,” said Standard Chartered Equity Research analyst Philip Tulk. “Nobody saw this coming,” he said of the sharp reversal in Macau’s fortunes. Mr. Tulk said that a year ago he had pegged Macau’s gambling revenue to rise 14 per cent in 2014 and that he had even raised his forecast by a few percentage points in early 2014 as money continued to pour in. In February, gambling revenue hit a record high, shooting up 40 per cent from the previous year.

Now Mr. Tulk and other analysts are predicting revenue in the territory will fall by at least 1 per cent in 2014.

This is a joke that nobody saw it coming. Those who follow knows they refused to believe the government is serious and these revenue is not driven by illicit activities.

Deja vu Chinese property market. People like to second guess a top-down Chinese government.
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#10
Macau casinos’ chips are down
KATE O’KEEFFE THE WALL STREET JOURNAL JANUARY 04, 2015 1:15PM


Beijing’s crackdown on graft has led to Macau’s first decline in gambling revenue. Source: Supplied

MACAU’S prospects as the world’s casino capital depend on policymakers in Beijing, a reality that — if ever in doubt — was made clear last year as China’s antigraft crusade dealt the coastal city its first annual decline in gambling revenue.

Last year gambling revenue in Macau fell 2.6 per cent to 351.5 billion patacas ($54.3bn), government data showed on Friday. It was the first decline since a public accounting of such data began in 2002. December gambling revenue plunged a record 30 per cent from a year earlier to 23.29 billion patacas, extending a seven-month losing streak in the casino hub.

The slide has pummelled ­casino stocks. Shares of Macau’s six licensed casino operators fell an average 40 per cent last year. Las Vegas Sands Corporation unit Sands China and Galaxy Entertainment Group — the two operators included in Hong Kong’s blue-chip Hang Seng index — were among the worst-performing stocks on the index last year, weighing down the entire market. Galaxy shares dropped 37 per cent, and Sands China shares fell 40 per cent, compared with the Hang Seng’s 0.4 per cent rise for the year. By contrast, in 2013 when Macau gambling revenue rose 19 per cent, prices more than doubled for shares of Nasdaq-listed Melco Crown Entertainment and Hong Kong-listed MGM China Holdings and Galaxy.

That year, Macau, which for some time had been growing annually by the size of the Las Vegas strip, raked in seven times the gambling revenue as its US counterpart. So the sharp revenue reversal for the Chinese casino hub in 2014, even as visitors continued to pour in, was a shock to many executives, analysts and ­investors.

The China-wide crackdown on corruption had driven the sudden downturn, they said. While netting many top officials on the mainland, the sweeping campaign also prompted highrollers to shy away from Macau’s baccarat ­tables, industry watchers said. Other government policies also have hurt gambling revenue, including tighter visa policies for Chinese travelling to Macau and increased oversight of the UnionPay cards many gamblers use to access funds there.

Many associated with the industry said they had no idea when things in Macau would improve, though they said the casino hub would eventually right itself.

Wynn Resorts chief Steve Wynn, who has long lauded what he deemed predictable government policies in China, said last year that the anti-graft campaign had “put a lot of the wealthy businessmen in the foxholes” and that he was unsure how long the policies would affect Macau.

Beijing has also been intensifying its calls for Macau to diversify its economy away from gambling, which accounted for more than 80 per cent of the local government’s revenue in 2013, according to official data.

Chinese President Xi Jinping reiterated the message during a rare visit to Macau last month.

A once desolate Chinese island called Hengqin is the linchpin of the diversification plan, according to a Macau government adviser. China wanted land-strapped Macau to use its riches from gambling to develop non-gambling ventures on the island, the person said.

Hengqin is three times the size of Macau and part of the economic powerhouse known as the Pearl River Delta, which includes major cities in southern China as well as the special administrative regions of Macau and Hong Kong.

But Beijing has been frustrated with the slow pace of development on Hengqin and complained that many Macau investors were just sitting on island property with no plans to develop it soon, said an executive involved in discussions about Hengqin.

Now, however, the central government was no longer just suggesting changes, said the Macau government adviser. The call had become “an order”.

Macau casino operators, including Galaxy and MGM China, have said they planned to invest in non-gambling projects in the area. Casino companies could also participate in the diversification plan by offering more non-gambling activities at their casino resorts, said Ambrose So, chief executive of SJM Holdings, Macau’s oldest casino operator.

“Integrated resorts offer a diverse mix of activities for patrons — including lodging, dining, shopping, entertainment” and meetings and convention facilities, he said in an email.

“This requires hiring and training local employees with a diverse set of skills.”

While China’s policies had hurt casino investors, many in Macau welcomed the fresh direction, said Eric Sautede, a political commentator and part-time university professor in Macau.
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