VIP player junkets: Macau and Singapore

There’s been a bit in the news lately about the role VIP junket operators play, or should play in two of the world’s biggest casino markets…Macau and Singapore.

Over in Singapore, where no VIP operator (junket operator) licenses have yet been issued by Singapore’s Casino Regulatory Authority (“CRA”), Sands CEO Sheldon Adelson has accused competing casino Resorts World Sentosa of getting the jump on the VIP market by employing unlicensed, illegal VIP operators.

CRA have responded by initiating an investigation…or at least requested further details/evidence from Adelson and Marina Bay Sands.

The Singaporean authorities’ swift response to suggestions of impropriety in this area is telling.  They want to maintain tight control over how their casino junket industry evolves.

The Singapore’s Regulations on VIP operators

The importance of on the one hand fostering, but on the other tightly controlling how junkets will operate in the Singapore casino market was recognised by authorities there from the outset.

When introducing the Casino Control Bill 2006 in February, Wong Kan Seng, Singapore’s Minister of Home Affairs told the country’s parliament that,

“Organising junkets is a specialised and highly lucrative business that is important to the casinos’ viability. Because of the large sums of money transacted between the junket promoters, their clients and the casinos, it is important that junket promoters are well regulated to ensure that the junkets do not provide a cover for crime syndicates to engage in criminal activities, such as money laundering. For this reason, Section 110 of the Bill shall require junket operators to be licensed before they can work with our casinos.”

Early in 2010 the VIP operator regulations were unveiled and it became apparent that  Wong Kan Seng’s words back in 2006 weren’t just rhetoric. Very rigid oversight of this industry is to take place, with provisions including:

• Full licensing for junket operators and their employees/representatives
• Junket operators must provide the authorities with documentation and any information on their background on demand.
• A list of licensed representatives employed by junket operators must be submitted to the authorities annually and their departure noted within seven days.
• Casinos must endorse a junket operator’s license application by signing an agreement, stipulating the commission to be paid as well as other details of the agreement. Junket operators need this agreement to apply for a license.
• Casinos must issue identification cards for junket operators and representatives who will then need to wear them at all times while in the casino.

Penalties for non-compliance include a $400,000 fine, with an additional $10,000 for each violation. Both the casino and the operator could also be subject to a loss of license for a serious violation.

CRA has said that it has received junket applications endorsed by Resorts World Sentosa and is in the process of assessing them, but as yet, a full year after the opening of both Singapore casinos, a junket operator license is yet to be issued.

Why so cautious?

The very slow and cautious approach from Singaporean authorities may well be due in part to developments in Macau where an estimated 70% of all revenues generated by Macau’s casinos comes via the junket operators. Putting this number in perspective, Macau’s junket market alone is around 3 times the size of Las Vegas.

Junket operators are required to be licensed and there are regulations governing their conduct but the extent of  adherence to regulations is often called into question.

One of the more flattering assessments I read of how junket operator regulations are followed reasoned that regional custom and practice allows for a more permissive interpretation of regulations.  The less flattering assessments assert that corruption and criminal activity are rife and the junket operators act with near impunity due to the enormous revenues they generate.

They have made themselves indispensable to the casino concessionaires, regulators and local government.  Steve Jacobs, former head of the Sands Macau operations described them as having, “significant economic and political influence in Macau.”

US diplomat assessments revealed in cables recently published by Wikileaks echoed Jacob’s views:

“The government and all the concessionaires rely heavily on the junket operators for the bulk of their revenue streams…They won’t make any big moves against the junkets…Macau’s Gaming Inspection and Coordination Bureau, which goes by DICJ for its Portuguese acronym, barely enforces its own rules”

Then there’s the junket industry’s connections with the triads.  I don’t think anyone argues that there is no triad involvement in junket operations…it’s only the extent of this involvement that is debated.  Even Manuel Joaquim das Neves, the chief of DICJ conceded to Reuters recently, “I cannot say that in Macau we don’t have triads, but things are under control.”

Who are Macau’s junket operators and what is their role?

The DICJ lists all junket license holders at their website .  The list includes corporations, both private and Hong Kong Stock Exchange listed, as well as individuals.

Amax holdings Limited, one of the largest operators has a market capitalisation of over $500 million.  It’s annual report describes its business activities as follows:

“Amax holdings is an investment holding company, engages in gaming and entertainment related business. The company involves in the promotion, sales and advertising, client development, co-ordination, and operation of high rolling gaming area”

In simple terms the junket operators cultivate relationships with VIP players, facilitate their play in the casinos’ high roller rooms (baccarat usually) and take an agreed commission from the casinos for their efforts.

The mechanics of the arrangement goes something like this:

• The junket operator stakes the VIP player with what are known as ‘dead’ or ‘non-negotiable’ playing chips.  These chips can be wagered at the baccarat table but not cashed out. They form the basis of commission and player rebate calculations.
• All winnings by the VIP player are paid out in normal cashable chips.  If for example a VIP player begins with an initial dead chip stake of $100,000, and is running break even after turning over $100,000, they then have $100,000 in cashable chips.
• The junket operator commission from the casino is based on the dead chip played amounts and usually around 1.25%.
• The junket operator provides a rebate to the VIP player on dead chips wagered – usually around 0.5%.  It’s this rebate that encourages the player to continually re-purchase dead chips and play with these rather than cashable chips. It also encourages them to play via the junket operator.

The casino gets a constant flow of high stakes players to their tables, the junket operator gets a nice commission and the player, win or lose gets an agreed rebate on all dead chips wagered.

One thing I’ve always wondered is where do the junket operators find these VIP players?   Irrespective of size, they are all notoriously low profile operations that don’t advertise or promote their services through traditional commercial channels.  Yet they manage to find and build lasting relationships with individuals who generate considerable commission income from trips to the casinos.  They are understandably both guarded and protective of these relationships.

Back to Singapore

Even without a (licensed) junket industry Singapore’s casinos have been very successful to date.  If junket operators ever grow to represent 70% of casino revenue there, then Singapore will be well on its way to doubling Las Vegas in revenue terms.  But I suspect Singaporean authorities will be doing there best to ensure that it never gets to that.