Macau’s gambling riches sparked bloody gun fights between triad gangsters two decades ago. Today, there’s a new conflict brewing, only this time it’s being waged with private jets, limousines and million-dollar loans.
The latest battle pits casinos against their long-time allies, so-called junket operators that for years have recruited rich gamblers from China, whisked them to Macau and given them interest-free loans to circumvent limits on cash they can take out of the mainland. Now companies such as Sheldon Adelson’s Sands China Ltd. offer the same services, aiming to cut out the middlemen. At stake are profits from the world’s biggest gambling market with $45.2 billion in revenue last year -- almost seven times the size of the Las Vegas Strip.
“Direct VIPs give us considerably higher profit margins,” MGM China Holdings Ltd. Chief Executive Officer Grant Bowie said over coffee at the Rossio restaurant near the company’s 25,000- square-meter (269,000-square-foot) gaming floor.
A casino can make 10 percent to 15 percent more off big- time Chinese players if it hosts them itself, instead of paying junkets to do the same job in exclusive VIP rooms it leases to them, according to Karen Tang, an analyst at Deutsche Bank AG in Hong Kong. Others put the potential at as much as 50 percent more. Either way, the casinos going it on their own could be a revolution for the world’s richest gambling hub.
Steady Grip
Junket operators, led by Suncity Group and Jimei Group, have a steady grip on the industry. Still, some are feeling the pressure. “We are being squeezed,” said Yu Yio Hung, who operates a single VIP room at Altira casino.
Suncity and Jimei, as well as Sands China, Galaxy Entertainment Group Ltd. and Wynn Macau Ltd., declined to comment for this article.
MGM China dropped 1.2 percent to close at HK$32.25 in Hong Kong trading. SJM Holdings Ltd. dropped 1.2 percent, Galaxy slid 0.5 percent while Melco Crown Entertainment Ltd. fell 0.2 percent. Sands China rose 0.8 percent. The city’s benchmark Hang Seng Index fell 0.8 percent.
VIPs account for about two-thirds of Macau’s casino revenue. The majority of them are mainland Chinese who bet on credit because of the country’s cash regulations. The laws restrict to 20,000 yuan ($3,300) the amount a citizen may take across the border, and a maximum of 10,000 yuan from a cash machine in a day.
That’s not enough for a VIP, who by the industry’s definition bets at least $1 million during every visit to the enclave, the only place in China where casinos are legal. So most big spenders from the mainland play with chips loaned to them, at no interest.