VIP staff accused of stealing millions
At last count, an employee of Dore Holdings, a junket operator with a room at the Wynn Macau, reportedly absconded with millions in revenues from the resort’s VIP room. Wynn Resorts says the theft has nothing to do with the integrity of its operations or that of Dore Holdings. But Wynn shares have taken a hit from the widely publicized scandal.
In a note cited by the Financial Times, Daiwa Capital Markets said staff at Dore Holdings “allegedly fled with between HKD200 million and HKD2 billion (US$258 million).” The latter figured was later revised, and the missing funds apparently total about $43 million.
Wynn spokesman Michael Weaver said the “current reported concerns … have no direct financial impact on Wynn Macau.” But shares of the company dropped by 3.55 percent on the news, to their lowest level since mid-2010, according to the Macau Daily Times.
A similar incident took place in April 2014 when an agent with VIP room operator Kimren took off with between HKD8 billion and HKD10 billion, “creating a situation that allegedly scared away some of the investors who provided financing to junkets,” the Daily Times suggested.
Daiwa analyst Jamie Soo concurred, saying, “As a whole, the junket segment never recovered from this liquidity squeeze. We are already seeing signs of this today, with individuals purportedly rushing to the junket (Dore) in an attempt to withdraw funds.”
For more than a year, Macau’s casinos and VIP junkets have been reeling from a drop-off in business, due largely to the Chinese government’s ongoing crackdown on corruption and money laundering. According to official figures, in 2013 there were 235 registered junkets in Macau; in the past year, more than one-fifth of them have closed. And through June, VIP turnover at Wynn Macau has declined 47 percent to HKD254 billion (US$32.8 billion). Year-to-date gaming revenue is down 36.5 percent, according to official figures through August.
Several dozen Dore Group investors staged a protest outside Wynn Macau, demanding release of their investments from the junket group.
At one point after the revelations, Bloomberg News reported, Wynn stock was down 6.8 percent. But Dore continues to operate at the resort, Wynn has said, and any impact of the theft has no direct bearing on Wynn. “Any matters related to Dore’s failure to honor withdrawal of funds requests are related to Dore’s direct financial relationships with the parties requesting such withdrawals and accounts maintained directly between Dore and such parties,” Wynn said in a statement.
Several analysts agreed that Dore’s problems are unrelated to Wynn, adding that the junket operator is small potatoes in the market. Overall, said Sterne Agee analyst David Bain, “We believe the apparent theft at Dore Group will likely only have a minor negative impact on VIP market gross gaming revenue as we see VIP softness as demand-driven, not credit-driven.” And Kenneth Fong of Credit Suisse said there was “no financial risk” to Wynn Resorts.
But that does leave “two likely victims,” according to Barrons: the junket and its investors.
“The junket financial system is largely based on the Chinese system of ‘guanxi,’ which, simply put, is a relationship/trust system (i.e. somebody vouches for the trustworthiness of an individual or a company). As such, it becomes easier for fraud to be perpetrated,” the publication noted. A sell-off of shares is perhaps inevitable, according to Barrons.
According to CDC Gaming Reports, the incident prompted a call by the U.S.-based International Union of Operating Engineers for greater transparency in the junket business.
“Casinos don’t disclose to the public what junkets they’re doing business with. This lack of transparency makes it impossible right now for investors to adequately assess risk in Macau casinos,” said union representative Jeffrey Fiedler. “If the shareholding public had better information then there may not be these confused market panics like what we saw this past week.”
Meanwhile, Rob Goldstein, president and chief operating officer of Las Vegas Sands Corp., seems to have written off the whole junket industry, at least as it now operates. According to GGRAsia, Goldstein recently said the “junket model—for now—is broken. I can’t envision the VIP getting back to the full throttle of a year ago.”
He cited a number of reasons: “the AML (anti-money-laundering) situation, money movement, economics. It’s hard for me to see a catalyst to make VIP get strong again. It resides with consumer confidence and consumers’ ability to earn the cash. That’s going to take a while to rebuild.”
