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the Mainland] is slowing, Mainlanders don’t have much money to gamble here. It’s also quite normal to see an adjustment in the gaming revenue, which has grown exponentially for a decade following market liberalisation [in the early 2000’s].”

Since Beijing imposes strict

currency control upon its citizens – no more than RMB20,000 [US$3,129.16] may be taken across the border in a single trip – junkets help Mainland punters splurge on the gaming tables by lending them money and settling subsequent debts. The hitherto successful business model, however, has come under increasing pressure as gamblers increasingly fail to meet repayment deadlines.

Merging trend

Describing the current situation of the junket business as “a cold winter”, Mr. Kwok said the junkets with a big capital flow could withstand the chill winds. “With a slowing Mainland economy, it’s more difficult for us to chase the debts. A surge in outstanding debts has hindered the capital flow of the gaming promoters. Some of them just simply could not sustain the operation over the soaring operating costs.” “For example, a small VIP room of four to five

tables requires at least 50 employees, including cleaners, drivers, cashiers, administrators, hosts and receptionists. As the median monthly salary level here is MOP15,000-16,000 nowadays, the basic operating cost is at least MOP1 million a month so a slowing cash flow will endanger the business.” There are constant reports this year about

VIP room closures – both small and large players in the market - like David Group, Hengsheng Group, Neptune Guangdong Group and Gold Moon Group. Government figures reveal 183 companies or individuals held a gaming promoters’ licence in January 2015 vis-a-vis 235 licensed promoters in January 2013. The Labour Affairs Bureau also confided that 61 employees laid off by nine VIP rooms here had sought government assistance, primarily for employment, since December. Mr. Kwok estimates that the number of VIP

rooms in Macau stood at 140 in mid-August, down 34.6 per cent from the 214 rooms of 2013. He expects the number to fall in the near future amid the ongoing restructuring within the sector. “After closing down the VIP rooms, some small players now work with the large-scale gaming promoters and run business in the


venues [of the latter]. The large companies have resources and they [the small player] only need to assign a few staff to run the business while being able to maintain their licences,” said the junket association president. “This has become a trend that those who have abundant capital and control over lending will gradually absorb some small VIP room operators, which cannot sustain independent operations.” Embracing the headwinds in the sector, the

junkets anticipate the predicament will last for at least two more years. Mr. Kwok said: “Based on the conditions of the Mainland economy, the consensus in the industry is that [the recovery] will take at least one to two years. However, many things still depend on the policies of the central government.”

Risk-taking business As Mainland gamblers shun the tables in

private casino lounges, local gaming operators have strived to enrich their non-gaming offerings to entice family visitors and the Mainland middle class while focusing on the so-called premium mass segment on the gaming floor.

MGM China Holdings Ltd. reported in its

interim results published in August that they have continued to shift gaming tables to the main floor, which have a higher margin than VIP rooms as they don’t have to pay junket commissions. ‘Our mix shift towards the higher margin main floor business continued in the second quarter, with a record high of over 80 per cent of MGM China’s profit coming from the mass segment,’ it said in a statement.

Thus, the dominance of the junket business in the city’s gaming market has subsequently dwindled. Compared with a share of some 70 per cent of the territory’s gaming revenue in early 2010, the revenue generated by VIP rooms only accounted for 55.5 per cent of the total in this year’s second quarter, the lowest on record since such data was made available in 2005. Nonetheless, Mr. Kwok

believes that junkets will not be squeezed out as long as high-end gamblers exist. “The junket business is a risk- taking business as the level of bad debts is not low,” he said. “Many patrons still don’t gamble here with a lot of cash on hand. The casino revenue is about MOP20 billion a month but it’s merely a figure – much of it

has to wait for the promoters to chase the debts.”

“The promoters have their network and

partners on the Mainland, as well as their own rules on how to get back the money. This is the value of the gaming promoters,” he remarked. But the opaque network of the junkets has been highly scrutinised since the disappearance of a Macau junket figure, Huang Shan, with HK$10 billion (US$1.3 billion) last year. Jason Ader, founder of a US-based hedge fund and investor in Macau’s gaming industry, even called the incident Macau’s “Lehman Brothers moment”, referring to the US financial firm whose bankruptcy was widely considered to have triggered the global financial crisis in 2008.

“Before the handover [in 1999] VIP room

operators were generally locals or Hong Kongers but the sector has undergone huge changes with many now coming from the Mainland, who often co-operate with local promoters,” Mr. Kwok explained. “That’s why some [Mainland junket figures] ran away and absconded with money because their roots are not in Macau. The local promoters are committed to fulfilling their pledges.” A study published in 2013 by Carlos Siu Lam,

associate professor at the Gaming Teaching and Research Centre of Macau Polytechnic Institute, also came to a similar conclusion. The research found that the junket business here was increasingly run by Mainlanders after the handover due to the change in the demographics of gamblers, who were now mostly Mainlanders.

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