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Tuesday, July 2, 2013

The Evolution of Organized Crime and Triads




Macau's gambling junket operators branch out

July 2, 2013

Macau — When junket operator Suncity opened its first high roller baccarat table at Steve Wynn's Macau casino in 2007 to lure China's wealthiest punters, the firm had fewer than 30 employees and no computers or equipment other than pen and paper.
Five years later, Suncity has emerged as the dominant junket in the Chinese territory. It is planning to open its own resort, independent of casino stalwarts such as Las Vegas Sands, and is expanding into everything from mining to films.
Macau's booming revenues that totaled $38 billion last year—six times that of the Las Vegas strip—are indebted to its unique VIP junket system, where licensed middlemen act on behalf of the casinos to attract "big whale" spenders by arranging their travel and accommodation and handle their gambling credit.
Now the transformation of the former Portuguese colony from a hotbed of crime into a playground for China's nouveau riche has spawned a new breed of junkets, eager to shed the industry's shady image and establish themselves as multinational conglomerates.
"Suncity is a young and very energetic corporate. There is a need to be diversified," said YM Choong, a senior executive at the company, in an interview with Reuters.
"For future investments we would look to expand in different areas, particularly property, finance and media. We would look to list other parts of the business."
The evolution of the junkets is welcomed by the authorities, who are eager to re-position Macau as an all-round international travel destination, but could shake-up the dynamics of the world's largest gambling market.
The junkets have traditionally worked for the casinos, which rely on them for more than two-thirds of their revenue. Now, leveraging their extensive customer databases and sophisticated resources, they could one day start competing with them.
"Macau's junket operators are fully aware that their network and database of high net worth VIPs is valuable," said Edmund Lee, a partner at PwC in Hong Kong who focuses on the gaming sector.
Suncity, headed by 39-year-old Alvin Chau, is one of more than 200 junket operators licensed in Macau, on China's southern coast, the only place in the country where locals are allowed to gamble in casinos.
The biggest operators, which include Neptune, Golden Group, Jimei and Dore, account for more than half the monthly junket turnover of $75 billion.
Despite robust mass market demand, a crackdown on corruption and pervasive graft has seen the supply of millionaire VIP players to Macau decline over the past year, prompting junkets to seek to diversify their income streams.
Suncity, which makes around HK$135 billion ($17 billion) in monthly gaming turnover, according to Choong, has expanded into mining with iron ore operations in Indonesia.
It has also branched out into financial services in Hong Kong with 24-hour securities, forex and commodities trading, real estate in China, food and beverage, film and media. The company has two listed arms, Sun International Resources Limited and Sun Century Group Limited.
Golden Resorts Group, headed by Hong Kong billionaire Pollyanna Chu, has been invested in financial services through listed arm Kingston Financial Group since 2011.
But the trend for larger junkets, flush with cash from the gambling boom over the past decade, to diversify as a hedge against the volatile VIP gaming sector has accelerated over the last year.
New image?
Large junkets such as Jimei, which operates casinos in the Philippines and hosts golf tournaments, have moved into wealth management and securities, which complement their VIP clientele base.
Neptune, which also uses the name Guangdong Group, sponsored a high profile poker tournament this month, while Dore Holdings announced it was buying a majority stake in a Chinese pawn loan business.
Macau's junket system was created in the 1970s with the rise of Stanley Ho, an influential local businessman who opened the gaudy egg shaped Casino Lisboa.
Ho gave the junkets control of the casinos' VIP rooms, sparking a turf war in the late 1990s as rival gangs fought to dominate.
Since the liberalization of Macau's casino market in 2002, which marked the entry of foreign players such as Las Vegas moguls Steve Wynn and Sheldon Adelson, the junket industry has been a subject of scrutiny from US regulators, who allege the operators have ties to organized crime and facilitate illicit money flows.
To combat this image, Emilie Tran, a professor at the University of Saint Joseph Macau, says junkets are trying to associate with more wholesome activities, such as organizing community and youth events.
"Working for a junket is now seen as respectable and a job like any other," said Tran.
The shift to sophisticated corporate entities with sizable business development, accounting and marketing teams is clearly visible. Shabby junket storefronts at the Hong Kong-Macau ferry terminal have been replaced with marble offices in prime business districts, while customized Hummer limousines owned by the operators are frequently seen parked outside Macau's newest casinos.
Big ambitions
Politics is the next phase of the junkets' makeover, says Tran, who cites the example of Suncity's Chau, who joined the Guangdong provincial committee of the Chinese People's Political Consultative Conference (CPPCC), China's parliamentary advisory body, this year.
Chau, with his dapper appearance is often likened as a famous Hong Kong movie star. An avid tennis player and gym-goer, he is frequently pictured in the local tabloids at parties.
Pollyanna Chu of Golden Resorts Group, ranked by Forbes as the 35th richest billionaire in Hong Kong, sits on the CPPCC national committee, while Hoffman Ma, deputy chairman of Success Universe Group sits on the Chongqing Committee of the CPPCC.
Manuel Neves, head of Macau's gaming body the DICJ, said junkets diversifying into other industries fitted into the government's attempts to wean the territory, home to 600,000 people, off the gambling industry that accounted for more than 80 percent of government revenues last year.
"For the government, when people talk about Macau, we want them to not talk about gaming. We are doing a very big effort to push the diversification. It's not an easy task," said Neves.
Despite the move to diversify, the role of the junket is likely to remain critical to Macau gaming sector over the coming years, as gambling debts are not legally enforceable in China. Junkets bring in gamblers from the mainland and then find their own ways to collect debts.
Suncity is massively expanding its gaming division, doubling its workforce to 1,200 over the past year and is still short staffed.
But as major junkets move from operating one or two VIP rooms in Macau's flashy casinos to owning their own properties, Macau's licensed concessionaires Sands, Wynn, MGM, Melco Crown and Galaxy may have to find new ways to lure the customer.
"I think everybody is fighting for the customer," said Francis Lui, head of Galaxy Entertainment. "We are doing the same thing, I am sure the junket would be thinking the same thing. We just have to offer more, a bit extra something new, something more creative to get them to come back again." — Reuters
 
 
 
 

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