More bets, please

“Just as parents never refuse to help their children when they are in trouble, so the government should help us to get our money back.”

This appeal to the paternalistic instincts of Macau’s government was made last week in the wake of an alleged theft at Dore Entertainment. The junket firm operates three rooms for high roller gamblers at the Wynn Macau casino.

It follows a similar story last April when an agent from Kimren, another junket operator, fled the city with what was reported to be HK$10 billion ($1.28 billion) in assets.

In the latest case the investors claim that at least HK$440 million is missing but that Dore is refusing to pay them back. Dore disputes the demand for repayment, saying that a former manager called Mimi Chow used its name to attract deposits offering high interest rates. She is alleged to have run off with the cash.

Only authorised credit institutions can take deposits and other reimbursable funds in Macau, and Dore insists that it has never collected capital by offering high interest rates because it knows the practice is illegal.

Kwok Chi Chung, president of the Association of Gaming and Entertainment Promoters of Macau, acknowledges that it’s unlawful to raise funds in this way but says that it is still a common practice in the city. “We call these investors ‘shareholders’ that earn fixed monthly interest from their placed deposits with the junket firms,” he told Macau Business Daily. “In many firms, the monthly interest rate is 1%.”

Sympathy for the investor group in Macau seems limited, however. “Isn’t it funny that those who benefit from the legal loopholes now ask for legal support?” asked an editorial in the Macau Daily Times.

The case says something more about the meltdown in Macau’s gaming industry, after 15 consecutive months of falling revenues.

The junkets have played a crucial role in the city’s extraordinary success as a gambling centre. The Chinese government limits how much money its citizens can take out of the country and it doesn’t recognise gambling debts. So the junkets bring wealthy gamblers to Macau, lend them money to play, and then collect any debts back on the mainland.

Visitors from the junkets accounted for over 70% of monthly gaming revenues at the start of 2014, according to estimates from Reuters, but their share of business has now fallen to about half.

Macau’s casino boom has gone through two main phases. The initial surge began 10 years ago, when foreign firms invested in thousands of new gaming tables and hotel rooms. But the second explosion was fuelled by the easy credit conditions enabled by Beijing’s vast stimulus campaign following the global financial crisis in 2008.

Now those good times are gone. The junkets are suffering most, with fewer high rollers making the trip to Macau, and the tighter credit conditions making it tougher to finance their visits to the tables.

In fact, Macau’s government has been talking for years about encouraging larger numbers of ‘mass market’ visitors who bet less at the tables but spend more on food, shopping, leisure and entertainment in the city. This transition seems to be underway, spurred by Xi Jinping’s crackdown on corruption, which has hit the high-roller VIP gambling segment hardest.

But the more immediate danger is a disorderly collapse in the junket sector as the boom unravels. “The number of VIP rooms is shrinking and revenues are dropping like a stone, something has to give because without the huge cashflows they have become used to, the junket operators will not be able to meet their commitments to the casinos and somebody is going to have to pay,” a casino insider told the South China Morning Post.

The mood, already jittery, has not been helped by a surge in lawsuits by junket bosses chasing bad debts. Five-star hotels are also reported to be boosting their kidnap insurance after a rise in abductions of wealthy guests over unpaid gambling debts.

And the grim news for gaming bosses continued this week when shares in several casino operators fell to five-year-lows after Neptune Group, one of Macau’s biggest junkets, said it may have to wind down operations if the number of VIP gamers continues to plummet.

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