The Macau government’s decision to forbid the use of telephones at VIP gaming tables is likely to hit the city’s smaller junkets, says a note from Daiwa Securities Group Inc.
The authorities in Macau have clarified that with effect from May 9, the use of phones at gaming tables will not be permitted. In practise, that means an end to proxy betting. Prior to that date, VIP clients could use their phones while gambling, provided they had registered for that purpose.
Macau’s casino regulator, the Gaming Inspection and Coordination Bureau – known by its Portuguese acronym DICJ – announced the ban on May 6.
In a note on Monday, Daiwa said it estimates – based on conversations with junkets and other industry participants – that phone betting grew about 15 percent year-on-year in 2015, to account for approximately 20 percent of junket gaming volume in Macau, compared to 8 percent to 10 percent in 2014.
“More alarming is that among some junkets, telephone betting has purportedly grown to account for as much as half of their revenue bases,” said Hong Kong-based Daiwa analysts Jamie Soo and Adrian Chan.
Based on current run rates, Daiwa said it estimates that the phone betting business accounted for approximately MOP21 billion (US$2.63 billion) of gross gaming revenue (GGR) in 2015.
Market wide in Macau, casino GGR in 2015 declined 34.3 percent compared to the previous year, according to official data.
“In our view, the ban will further hit debt-laden junkets that are still operating and struggling. Within days of the announcement of the ban, we heard that more small- [and] mid-sized junkets are planning to cut their operational presence in Macau,” wrote the Daiwa team in Monday’s note.
Proxy betting was not a permitted activity in Macau casinos even prior to the instruction that became effective on May 9. But because some VIP players could use their phone at the gaming tables, that generated a loophole in the system and informal proxy betting was still taking place, say industry sources, adding that this was only happening in the high-roller segment.
Kwok Chi Chung, president of the Association of Gaming and Entertainment Promoters, on Tuesday confirmed that the ban on proxy betting seems to be having “quite a big impact” on the operations of junkets. The impact “is not so much felt by the bigger [junket] operators, it’s the smaller operators that tend to suffer more,” Mr Kwok told GGRAsia.
Mr Kwok had already said that the Macau junket sector was caught by surprise by the government’s decision to forbid phone betting.
In Monday’s note, the Daiwa analysts said the tightening by the Macau gaming regulator “is a rational move”.
The phone betting activity “is arguably the segment that presents some of the highest risk within the junket business model,” said Mr Soo and Mr Chan.
They explained: “The actual player does not have to be physically on the casino premises; it adds an additional layer of obscurity around the source and ownership of the money, and the identities of the players; and thus, it potentially makes it more difficult for junkets and/or casino operators to conduct the necessary regulatory and compliance procedures.”
The Daiwa team said Macau’s policy direction is likely to focus on strengthening regulations for the gaming sector, especially following the release last week of the “mid-term” review report of the local casino industry.
“It is clear that the DICJ is taking steps to understand and strengthen the regulations governing the previously (arguably) under-regulated areas of the gaming businesses,” said the Daiwa analysts.
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"The MSAR [Macau Special Administrative Region] Government is always maintaining its policy not to have imported labour to work as dealers. This position has not changed"
Lionel Leong Vai Tac
Macau’s Secretary for Economy and Finance