Middlemen and Macau casinos: the $13 billion marriage

 Since legal gambling started in 2002, Macau has experienced a bumpy ride, but definitely seems to be seeing returns on investment. Today, the Macau gaming industry has far overtaken the Las Vegas strip in gambling revenues, taking in about $45billion in 2013, nearly seven times the amount of Vegas. A very large portion of this money comes from high-stakes gambling, so the casino industry in Macau is very interested in attracting and keeping high-rollers as clients. The way they have done this so far is through junkets. Junkets, otherwise known as VIP gaming room operators, found a way to make themselves instrumental in bringing gamblers with huge budgets to Macau.

In order to understand this development, one has to understand the junket system and their symbiotic relationship with licensed casinos. The rise of these intermediaries is largely due to Chinese law. The limit of the amount of cash a Chinese citizen can take to Macau is currently around 20,000 yuan (USD 3,300). Even ATM withdrawals are limited to 10,000 yuan per day. That’s not enough to be treated as a VIP, who by industry standards, would have to gamble at least $1 million each visit to Macau. This cash limit for mainland Chinese high-rollers has created a demand for a way to play without declaring the money they are betting. Many of them play on credit, provided by their junket facilitators. If they incur a gambling debt, it is payable on the mainland. 

Grand Lisboa and Lisboa. Photo Forbes
Grand Lisboa and Lisboa. Photo Forbes

 Money laundring

The obvious problem the junket system has brought with it is money laundering. Frequently, the money that ends up in Macau found its way there through illegal means; bribes, embezzlement and such. When the Chinese players are done gambling, they can take their winnings in U.S. or Hong Kong dollars and invest it in property or offshore tax havens, by-passing Chinese restrictions on the transportation of currency.This is a large problem for the clean reputations of Macau casinos, and may be the largest for the Chinese government 

Triads and organized crime

This all has another seedy side. Junkets are not only known for facilitating those who promise to gamble millions, providing them with luxury transportation, opulent accommodation and, presumably, other amenities. They are also responsible for collecting debts in mainland China. Junkets are seen as more or less mainstream businesses, but a large proportion of them are easily traceable to organized crime syndicates. With several Chinese triads involved in this business it is not a surprise that debt collection can sometimes turns bloody. Two mainland Chinese were stabbed to death in their luxury hotel after defaulting on their gambling debts one year ago. A Chinese woman carrying a Japanese passport was also found “bludgeoned to death” in a residential area of Macau. Though there have been no arrests in these cases, there is a high suspicion among law enforcement that it was related to junket operators.

 A compromised partnership?

Ironically, because of the great job junkets have done in attracting wealthy Chinese  to Macau, the casinos seem to have become wise to the game. Lately they have shown signs of wanting to get rid of the middlemen. Increasingly, the sumptuous suites reserved by junket operators for their patrons are being given directly to patrons casinos, who are trying to form their own relationships with high-rollers. Last year alone, casinos paid $13billion in commissions to junket operators. It is estimated that any given casino could make between 10% and 15% more from their high-stakes tables if junkets were eliminated. The real question is whether casinos will have the wherewithal to show the junkets the door, and whether the tough and tenacious junket operators will willingly leave. The Chinese government has also shown signs of impatience with the current system.

If Macau’s beginnings were unpredictable, its future may be just as much so, and if 20 years ago, few could have predicted Macau’s rise, who is willing to bet on the next 20 years?  


Read more about Macau on Somuchpoker : 

– Broken Teeth Fixed : Macau's New Facade

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