Unregulated junket business blamed for gaming revenue plunge

It is not mainland China’s anti-graft campaign that caused Macau’s gaming revenue downturn.  Instead, it is the risky operation model of Macau’s VIP gambling rooms that depend on the unregulated junket industry, asserted scholar Zeng Zhonglu.
The Macau Polytechnic Institute (IPM) professor told the audience last Monday during a Rui Cunha Foundation seminar on Macau gaming law that the disappearance of Huang Shan — a major junket operator — last April has directly caused a decline in casino rooms’ funds lent to gamblers, which in turn has led to a drop in gaming revenue.
“The capital Huang Shan swept away with him accounted for about ten percent of the junket operators’ yearly rolling loan funds. The bigger impact of the incident is that it has shaken other investors’ confidence,” he said. “Its impact on Macau’s junket industry is equivalent to the Lehman Brothers’ bankruptcy in the US’s financial market.”
The scholar explained that investments in VIP rooms are only made based on relationships of trust and do not result in mortgages being taken out over property. “Huang Shan’s disappearance made such trusting relationships disappear; it has put a stop to easily accessible loan funding, especially for the small and medium sized VIP rooms,” he indicated, adding that the number of junket operators declined year-on-year by 16 percent following the incident.
Professor Zeng further indicated that the business of VIP rooms is crucial to Macau’s gaming market, but their operation model has exposed the industry to risks, resulting in a bubble.
“VIP rooms’ loose loaning policy has led to many bad debts, which are estimated to be as high as HKD100billion. Therefore, the casinos’ profits are not only made through gamblers, but are also directly taken from the money of investors. The forming of Macau casinos’ debts was at its peak in 2012; that was also the year when junket agents disappeared the most often,” he said.
Over the years, the VIP rooms have received a large amount of investment from the mainland and overseas by offering investors fixed monthly dividends. Zeng revealed that mainland investors included Zhongshan’s lighting company owners, Shanxi’s coal bosses and Chongqing’s triad societies.
However, such investments and their practice of lending to gamblers are lacking protection and supervision, thus hindering the gaming industry’s sustainable development, suggested the scholar.
“The VIP rooms’ excessive and easy lending has also led to more problem-gamblers and pathological gamblers. It has caused great harm to both their home cities and Macau. In Macau, when a problem gambler has used up all of his available funds, he can still get more loans immediately. But no one can gamble forever, whether they’re a millionaire or a billionaire,” he stressed.
The scholar felt that the industry regulator should have taken measures long ago, such as banning lending to local citizens, encouraging more focus on the mass floor, and establishing a system to record credit shared between casino operators.
In response to the audience’s questions on how the casinos can collect their debts in the mainland or overseas, the scholar stressed that, “what’s more important is to strengthen the credit investigation on junket operators and their salesmen, as well as the borrowers. The key is to lend cautiously.”