General audit could lead to greater scrutiny
As Macau enjoys its 15th straight month of revenue gains—this following the crippling decline that lasted more than two years—the government has announced plans to increase its oversight of the city’s VIP junkets. A crackdown on the city’s VIP sector was also behind the historic downturn that began in mid-2014 and ended in August 2016.
Macau’s 126 existing junket promoters, who cater mostly to high rollers from the Chinese mainland, are currently under general audit in a process expected to be complete by the end of the year. In the government’s policy address for 2018 presented November 13, Macau’s Chief Executive Fernando Chui Sai On said officials will draft “guidelines to hold specific audits” on any problems found during the current audit. Under review are “minimum internal control requirements in terms of information technology” and “temporary deposits” accepted by junket operators, among other factors, according to GGRAsia.
Macau junket operators typically raise capital for their rolling chip programs by offering private investors above-market-interest rates. Those deposits are then used to extend credit to VIP players. But in the past, internal fraud involving some junket operators have led to big losses for some private investors. In October, the government pledged to implement stricter regulations to curb illicit practices.
“The government will review and strengthen the gaming rules,” Chui said. “The government will also regulate junket operations, promote responsible gaming and boost the Macau casino industry’s competitiveness.”
“When the market gets better, more people are eager to come back and do business,” said Paulo Martins Chan, director of the Gaming Inspection and Coordination Bureau. “But Macau regulators will be more cautious during the junket approval process.”
In other efforts to combat money laundering as well as excessive capital outflows, Macau recently limited daily ATM withdrawal limits for China UnionPay cardholders; installed facial-recognition technology on ATMs; and banned proxy betting, in which wagers are accepted by phone in Macau’s VIP rooms.
According to Bloomberg News, the tighter measures come as business in the world’s biggest gaming destination is once again thriving, with VIP gamblers who laid low during the slump now back on the scene.
On order from Chinese President Ji Xinping, the local government has demanded that Macau gaming operators expand their non-gaming attractions to appeal to more tourists and ensure that the market is not reliant on a single industry.
“Clearly there is a focus on non-gaming on the part of the government, but I think the operators were going to get there anyway,” Grant Govertsen of Union Gaming Securities Asia Ltd. told Bloomberg. He said operators like Galaxy Entertainment and the Las Vegas Sands Corp., which offer more non-gaming amenities, tend to corner most of the revenue.
The latest call for greater government scrutiny is taking place as the current casino concessions and sub-concessions are about to expire. The first will be SJM Holdings Ltd. and MGM China Holdings Ltd. in March 2020, followed in June 2022 by the remaining four: Sands China Ltd., Wynn Macau Ltd., Galaxy Entertainment and Melco Resorts & Entertainment Ltd.
Bloomberg Intelligence analyst Margaret Huang says improved junket practices would only benefit the enterprises and allow them to draw higher-value players from China. “Operators would also strive to better compete in this market by delivering higher quality, luxury facilities and amenities to cater to this business segment,” Huang said.
Chui has already set his estimates for gross gaming revenue for 2018, predicting the GGR will reach MOP230 billion (US$28.6 billion) for the year. The government forecast for 2017 was MOP200 billion; for the first 10 months of 2017, GGR was nearly MOP220 billion, up 19.2 percent from the prior-year period, according to official data.
An analysis in the Washington Post by “Bloomberg Gadfly” Shelly Banjo advised Macau casino operators not to take lightly their pledges to bring in more non-gaming elements, although the VIP sector is once again going strong.
“The talk of diversification is still there,” Banjo wrote, “but actions and data tell a different story. Take MGM China Holdings Ltd., which engaged five junket operators to bring high rollers to the MGM Cotai resort to launch next year, and will open a new VIP room at its existing Macau resort in response to strong VIP growth. Sands, too, is spending $1.1 billion to transform its Sands Cotai property into a London-themed resort, another way to attract higher-end customers.
“A more important deadline is the expiration of the gaming licenses, without which casinos can’t operate,” Banjo continued. “It wouldn’t be surprising if Beijing became less accommodating of the headache-inducing foreign-run casino operators.”
Meanwhile, the Asia Gaming Brief reports that the local government has also promised to more closely control growth in the non-resident workforce. “The government would strive to maintain the percentage of local employees holding middle or senior management positions in the six gaming operators at not fewer than 85 percent,” Chui said.
Asked about concession renewals and limits on the number of licenses issued, Chui said the government will factor in its five-year master plan as well as looking into the results of the mid-term review and public consultations.
