Lessons from the Junket Business in Macao 24 November 2015 Carlos Siu Macao Polytechnic Institute
Introduction Lessons from the Junket Business in Macao In Macao s total casino gaming revenue, revenue from VIP-rooms always occupied more than 60%. Table 1 Revenue from VIP rooms as a proportion of Macao s total casino gaming revenue Year Total casino gaming revenue (in billion USD) Total casino gaming revenue from VIP rooms (in billion USD) Revenue from VIP rooms as a percentage of total casino gaming revenue 2014 43.87 26.52 60.5 2013 45.02 29.77 66.1 2012 37.95 26.31 69.3 2011 33.43 24.47 73.2 2010 23.50 16.93 72.0 2009 14.90 9.96 66.8 2008 13.57 9.21 67.9 2007 10.36 6.96 67.2 2006 7.07 4.59 65.0 2005 5.75 3.60 62.7 2004 5.16 3.72 72.0 2003 3.58 2.77 77.4 2002 2.77 2.04 73.7 2001 2.26 1.59 70.4 Source: Data from Quarterly gaming statistics (DICJ, 2001 2014). Note. The exchange rate from Macau currency to USD is 8.0134 to 1.
Historical development of junkets in Macao 1984 STDM was the gaming monopolist and outsourced VIP-rooms to third parties STDM set the junket commission at 0.7% of the rolling chips. In other words, junket operators were entitled to about 25% of the baccarat theoretical win based on rolling-chips turnover. VIP room contractors had junket operators work for them under informal contracts Compensation determined as a percentage of the turnover of nonnegotiable chips, computed on a monthly basis VIP room contractors and junket operators were the only issuers of gaming credit Major customers were from Hong Kong and Taiwan and they primarily played baccarat
Junket operators and junket representatives utilize extensive social networks to recruit patrons to their junkets assume such value-added services as credit arrangement and collection receive commissions based on rolling-chip sales junket representatives typically affiliated with junkets through the recommendation of friends or employees
Table 2 Lessons from the Junket Business in Macao List of Gaming Concessionaires/Subconcessionaires in Macao before and after Macao s Gaming Liberalization Gaming concessionaire before Macao s gaming liberalization in 2001 1) Sociedade de Turismo e Diversões de Macau (STDM) Gaming concessionaires immediately after gaming liberalization in 2001 1) Galaxy Casino 2) Sociedade de Jogos de Macau (SJM) 3) Wynn Resorts (Macau) Gaming concessionaires in 2006 1) Galaxy Casino (1) 2) Sociedade de Jogos de Macau (SJM) (2) 3) Wynn Resorts (Macau) (3) Gaming subconcessionaires in 2006 1) Venetian Macau (1) 2) MGM Grand Paradise (2) 3) Melco Crown Jogos (3) Note Data from Concession contracts (DICJ, 2013). (1) Galaxy Casino signed a subconcession contract with Venetian Macau on 21 June 2002. (2) Sociedade de Jogos de Macau awarded a subconcession to MGM Grand Paradise on 19 April 2005. (3) Wynn Resorts (Macau) sold its subconcession to Melco Crown Jogos on 10 May 2006.
Table 3 Number of Casinos Operated by Gaming Franchisees in Macao as of year-end 2014 Gaming franchisees Number of casinos Sociedade de Jogos de Macau 20 Galaxy Casino 6 Venetian Macau 4 Melco Crown Jogos 3 Wynn Resorts (Macau) 1 MGM Grand Paradise 1 Total 35 Source: Data from Quarterly gaming statistics (DICJ, 2014).
Table 4 Number of Licenses issued in Macao Year Companies Individuals Total 2014 189 28 217 2013 202 33 235 2012 248 40 288 2011 218 44 262 2010 177 47 224 2009 171 55 226 2008 160 75 235 2007 147 82 229 2006 81 70 151 2005 39 33 72 Source: Boletim Oficial de Macau (various issues)
Table 5 Number of VIP-rooms in Macao Year Number 2014 185 2013 220 2012 243 2011 222 2010 198 2009 69 2008 121 2007 143 Source: Data were compiled from a private source.
Table 6 Visitor Arrivals by Country of Origin in Percentage Country of Origin 2014 2013 2012 2010 2008 2006 2004 2002 2000 1999 * PRC 67.4 63.5 60.2 53.0 50.6 54.5 57.2 36.8 24.8 22.1 Hong Kong 20.4 23.1 25.2 29.9 30.6 31.6 30.3 44.2 54.1 56.8 Taiwan 3.0 3.4 3.8 5.2 5.7 6.5 7.7 13.3 14.3 13.2 Other Asian Countries including India 6.7 7.3 8.0 9.2 9.5 5.1 2.9 3.3 3.9 4.2 America 0.8 0.9 1.0 1.2 1.3 1.0 0.9 1.0 1.2 1.3 Europe including Russian Federation 0.7 0.8 0.8 1.0 0.9 0.9 0.8 1.0 1.3 1.8 Oceania 0.4 0.4 0.5 0.5 0.7 0.4 0.3 0.3 0.4 0.5 Others including South Africa Source: Tourism indicators (DSEC, 1999-2014) 0.6 0.6 0.6 0.1 0.6 0.1 0.1 0.1 0.1 0.1 Note.* Figures before 1999 were not available as visitors were then categorized according to their nationality, instead of their country of origin.
With Macao s gaming liberalization and the increasing number of mainland Chinese tourists, Macao citizens do not want to be junket operators and reps Junket operators prefer to work with junket reps and collaborators with ethnic homogeneity Lots of business opportunities from mainland Chinese patrons Chinesification of the junket business
Figure 1 Lessons from the Junket Business in Macao Sample of Working Sheet of the Commission Paid to Junket Operators in Macao for the month of May Account No/ Name Commission % Rolling Chips Amount Commission Hotel Rooms Beverages Others Commission Outstanding Signed by Handled by A 1 0.5 million 5,000 1,500 500 100 2,900 Signed by: Handled by:
Figure 2 Lessons from the Junket Business in Macao
Figure 5 Daily Tips Record for ABC VIP-room
If a VIP table produces US$17,500/day while a mass market table US$3,750/day in Macao From a VIP table, a casino can get: US$17,500 15% = US$2,625 From a mass market table, it can get: US$3,750 (1-40%) = US$2,250 Under this situation, it means that the junket commission capped at 1.25% creates an area where a VIP table is not necessarily more profitable than a mass market table
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Thank You carlossiu@ipm.edu.mo Tel: (853)28839648 Fax: (853)28831746