The days of telephone betting via Macau VIP rooms – also known as “proxy betting” – could be numbered, says a new report.
“We believe that given continued concerns over anti-money laundering compliance, other casino operators may soon follow with banning this practice (in particular MGM China and potentially Melco Crown) or the government may intervene and force phone betting to stop,” said the report issued on Tuesday by Sanford C. Bernstein Ltd in Hong Kong, and referring to a ban on VIP room proxy betting imposed last autumn by Macau operator Sands China Ltd
The brokerage said it estimates telephone betting – bets placed via telephone from gamblers not physically present in a casino property – accounts for approximately 5 percent of the Macau VIP market.
The problem with telephone betting, say several gaming lawyers spoken to by GGRAsia, is that it potentially breaks the “know your customer” protocol. Such a protocol is encouraged under best international practices for tackling the threat of money laundering.
Under Macau Law No. 16/2001 there is a prohibition on “interactive gaming,” which is defined as entering in and participating in a game using a telecommunications device. Technically however, if a junket representative is sitting at the table taking bets over the phone on behalf of a customer, that customer has been deemed for Macau regulatory purposes not to be “participating” in a game, said the gaming lawyers.
“Sands China and Wynn Macau had banned phone betting in their VIP rooms in autumn 2014 (however, Wynn has allowed phone betting to resume since first quarter of 2015),” said the Sanford Bernstein report on the Macau VIP market from analysts Vitaly Umansky, Simon Zhang and Bo Wen. They added that some of Macau’s telephone betting business appears to have migrated to the Philippines.
A report in March by Morgan Stanley Research Asia Pacific said proxy betting volumes had been growing rapidly in casinos in Manila, the capital of the Philippines.
Sanford Bernstein said in its Tuesday report: “Regional competition on the back of regulatory arbitrage could impact Macau in the near-term.” It cited lower gaming taxes in the Philippines that enable the casinos there to pay junkets higher incentives to bring their players over.
Tax on VIP play in the Philippines is equivalent to 15 percent of the gross. Macau’s effective tax rate on all gambling is 39 percent of the gross.
But Sanford Bernstein stated: “Long term, we expect the regulatory arbitrage to eventually diminish as Macau/Chinese government tightens up their control on online gaming and underground banking.”
Macau’s gaming regulator, the Gaming Inspection and Coordination Bureau (also known as DICJ), issued a statement on Friday warning the public of illegal gambling websites claiming to have been licensed by the Macau government.
Fewer VIP tables
The authors also said in their Tuesday report that since 2012, the total number of VIP gaming tables in Macau had fallen by more than 200.
“The casino operators have been shifting tables from VIP to mass for one key reason – per table profitability. EBITDA [earnings before interest, taxation, depreciation and amortisation] profitability (in terms of margin) is 3x to 4x greater in mass than VIP,” said Sanford Bernstein.
“This reduction in VIP tables has accelerated through 2014, at first driven by the operators’ desire to increase the supply of tables available for premium mass [customers], but later by decreased VIP demand and inability of junkets to meet monthly rolling volumes,” the authors added.
VIP baccarat gross gaming revenue (GGR) fell 42.1 percent year-on-year in the first quarter, according to Macau government data released in April.
Sanford Bernstein notes however that if mainland China’s anti-corruption drive does ease off, there are economic indicators in China that could aid some recovery in the Macau VIP gambling market.
“Both China M1 money supply growth (3-month leading indicator) and total social financing growth (6-month leading indicator) show strong correlation to [Macau] GGR growth,” they stated.
“Liquidity is crucial in the VIP segment as it allows easier and less expensive credit play by providing junkets with cheaper and more easily available capital and giving VIP players easier access to cash,” the analysts added.
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China