The tighter regulation of VIP gaming promoters as suggested in the Macau government’s “mid-term” review report of the local casino industry – including potentially the use of undercover investigators to combat what the report referred to as “side betting” – should be a positive for the VIP segment in the long term, several representatives from the sector told GGRAsia.
“The content of the mid-term review as a whole is a positive for the [junket] industry because it can be better regulated. And we also agree to the part when the review mentions exploring the introduction of undercover agents to combat side betting: basically we are supportive of government initiatives to combat unlawful practices,” said Kwok Chi Chung, president of the Association of Gaming and Entertainment Promoters.
Within the global gaming industry, a “side bet” is typically a reference to a perfectly legal secondary bet authorised for certain types of game. In the Macau context, “side bet” has become conflated with “the multiplier”, which is certainly not legal, as it is not only unauthorised from the gaming regulator’s perspective, but the secretly multiplied amount of the bet also evades the effective 40 percent tax on gambling in Macau.
The mid-term review document – issued on Wednesday – defined side betting in the Macau context as “the VIP room operator’s secret arrangement with the client that both parties will agree to magnify by a few times – for instance ten times – the bet on the table”. The review document noted that with the multiplier, not only could a player’s ‘under the table’ winnings be magnified relative to the amount officially declared as staked at the table, but so also could any actual losses incurred by the player. The review report described the multiplier as “greatly restricting government taxation and seriously disruptive to social order”.
The multiplier had been particularly common in the city’s VIP gaming rooms in 2013 and 2014, remarked Mr Kwok. His view was echoed by Macau Gaming Information Association vice chairman, Tony Tong, in comments to GGRAsia. In the review report, the government noted the difficulty it faced in identifying such unauthorised betting activity.
Undercover checks
“I’d support the practice of using undercover investigators to combat side betting, because it will be beneficial for the [junket] industry for the long term and can also help safeguard the gaming tax revenue for the government,” Mr Tong told us. He also recalled an April 2014 incident involving a junket called Kimren, where Huang Shan, one of the principals, allegedly accepted a lot of under the table bets and also a large amount of cash deposits from would-be investors in junket operations, before absconding with as much as HKD10 billion (US$1.29 billion).
Mr Tong additionally remarked that his association also agrees with an idea mooted by the government to raise the entry threshold in relation to the amount of capital that must be held in order to engage on VIP gambling promotion business in Macau. But he noted some of his association’s members were opposed to the idea that the amount of capital any newly-registered VIP promoters must lodge with the authorities might have to rise a hundredfold, to MOP10 million, from the current MOP100,000 requirement.
“Some of our members… smaller junket firms, suggest that instead of raising the threshold to as high as MOP10 million, the authorities should actually consider raising the capital deposit in accordance to the firm’s number of [VIP gaming] tables operated and turnover size,” Mr Tong said.
Brokerage Daiwa Securities Group Inc said in a note on Thursday that while the Macau government’s casino industry reforms – including of the junket sector – were “much needed”, they were “coming at a time of an already declining GGR [gross gaming revenue], lower productivity of invested capital, growing indebtedness, a spate of new property openings, and declining margins”.
“With the Street’s high expectation for the sector, we believe that this policy direction induces an increasing potential for share price disappointments,” the brokerage’s analysts Jamie Soo, Adrian Chan and Jennifer Wu stated.
