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China – Macau casinos look to claw back junket commission

By - 4 March 2014

Macau casino operators are considering launching their own junkets rather than rely on private operators as they look to hold on to more of their profits.

Junket operators are believed to have taken US$13bn in commission from the casinos last year. Deutsche Bank Analyst Karen Tang said casino operators could make 10 per cent to 15 per cent more profit from VIP play by offering their own junkets and hosting VIPs in their own facilities rather than in leasing the junkets the tables.

When the Macau market opened up in 2002, the incumbent operators had no player databases and no means of chasing debts from players gambling on credit. VIP play makes up about two-thirds of Macau’s casino revenue. The market’s dependency on mainland Chinese playing on credit is caused by border controls that limit the amount that can be taken over the border to $3,300 (20,000 yuan).

Times have changed though with Hong Kong analyst Richard Huang explaining that nowadays, the international casino groups in Macau have access to a much more in-depth database. He explained that with many Chinese VIPs now having offshore bank accounts and properties, the casinos have more collateral in extending them credit.

MGM China’s CEO Grant Bowie confirmed that working directly with VIPs would provide the operators with ‘considerably higher profit margins.’

Lawrence Ho, Chairman of Melco Crown believes the influence of junkets is ‘decreasing’ due to the growth of the mass and premium mass segments.

There are over 200 junket operators working out of Macau. However, D.S. Kim, a Hong Kong-based analyst at BNP Paribas Securities Asia, explained that junkets would never be wholly owned by the casinos and that any move to take over control of the sector would have to be administered with extreme care as VIps were generally loyal to the junkets rather than the casino.

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