The November 27 arrest of Alvin Chau, head of Macau’s biggest junket operation, will have far-reaching implications for the city’s VIP sector and the larger gaming industry as well. It not only signals the end of junket promotions as they now exist, but warns gaming operators to toe the line when it comes to compliance with the mainland.
At this point, Macau’s once-mighty junket industry doesn’t have far to fall. At the start of 2021, the city hosted 85 licensed junkets, down from a high of 235 back in 2013. In an interview last year with Inside Asian Gaming, gaming consultant Alidad Tash said, “Macau’s VIP glory days are long gone. Macau in five to 10 years down the line will be far less reliant on VIP.”
With Chau’s arrest, that day has come sooner than anyone anticipated.
Analysts were quick to weigh in on the arrest and its meaning for casino operators in Macau, which all face the renewal of their gaming concessions in 2022.
“It’s probably reasonable to assume junket VIP revenue would go to near-zero levels ultimately,” wrote the team at Sanford Bernstein. The crackdown “will not only cripple junkets’ ability to bring VIP players (to any jurisdictions, including Macau), but also prompt casino operators to reconsider their relationship/association with junkets, especially into this critical license renewal period.”
JP Morgan analysts called the arrest “really bad” for the junket sector in Macau. “While the news is only directly related to junket/VIP, some investors may interpret this as a signal of a potentially broader clampdown on gambling itself, a view that we don’t agree with but cannot disprove,” they wrote.
They added that they “wouldn’t be surprised to see junket VIP revenues in Macau immediately contract in the coming weeks, perhaps by 30 percent to 50 percent from current run-rates.”
Macau-based gaming consultant Carlos Lobo told Reuters that Suncity accounts for “over 50 percent of junket revenue (in Macau), which accounts for roughly 50 percent of gaming revenues—so Suncity accounts for 25 percent of gaming revenues” in the world’s richest gaming hub.
“The impact on the gambling industry is huge,” said Lobo. “Suncity is no longer too big to fail.”
For decades, junkets have brought high-rolling gamblers to Macau casinos, arranging their travel and credit and collecting their debts. Chau allegedly crossed a bright line by employing mainland agents to facilitate offshore and cross-border gambling and help gamblers transfer funds across the border. Suncity VIP rooms at Macau casinos closed last week.
Investors are understandably jittery about the “watershed hardline stance” of authorities in Macau and Mainland China. According to CNN, shares in Suncity Group and its subsidiary Summit Ascent Holdings were suspended from trading last Monday after tumbling 165 percent so far this year. U.S.-based gaming stocks took a hit on the news, with Wynn Macau dropping 20 percent and Sands China and MGM China down 15 percent.
There’s a possible silver lining behind the clouds, according to Bernstein. “For Macau, the future remains in mass and premium mass recovery. A shrinking junket business, especially junkets with ties to overseas gambling and illicit online gambling, is good for the stability and future opportunity in Macau.”
JP Morgan agreed. “As junkets shrink, some players may well shift to premium mass, which will help drive that segment,” its team wrote.
Some premium mass players also do business with junkets, so the city’s gaming industry could forfeit those customers. On the upside, operators will be dealing with most players directly, for higher margins than they would realize under the junket model.
The Bernstein analysts said Chau’s “big sin” was “branching out into gambling activities overseas, much more so than activities in Macau casinos. The proliferation of overseas, lightly regulated casinos in places like Vietnam, Philippines and Russia, among others and the intense expansion of online gambling, targeting Mainland Chinese customers was the culprit.” The fallout will mean much tighter controls on money and credit.
In an interview with Asia Gaming Brief, NewPage Consulting principal David Green said the arrest “really does go to the heart of the traditional junket promotion model. And if it’s a portent of things to come, I think it augurs badly for the model and its longevity in the market.”
Eilo Yu Wing-Yat, political scientist at the University of Macau, told the South China Morning Post that Beijing’s crackdown has been simmering since 2012, “with the advent of the anti-corruption as well as anti-ostentation campaigns, along with strong suggestions that our gaming industry should not grow faster than China’s own GDP.
“From now on, you cannot and should not focus on Mainland China as a key gaming market, and you really need to diversify your industry,” he said. “Macau should also diversify its economy and reduce its reliance on gambling.”
Following his arrest, Chau reportedly was interrogated for 14 hours before being transferred to Macau’s Coloane prison, where he remains after being denied bail. The 47-year-old billionaire known as Asia’s “junket king” has resigned from his posts at Sun City and Summit Ascent.