The VIP-room contractual system and macao's traditional casino industry

China: An International Journal

Volumn 6, Issue 2, 2008, Pages 237-260

  Wang, Wuyi ^a   Eadington, William R ^a  

^a UNIVERSITY OF NEVADA   (United States)

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[No Author keywords available]

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EID: 77952357598     PISSN: 02197472     EISSN: None     Source Type: Journal    
DOI: 10.1142/S0219747208000150     Document Type: Article

References (32)

1. VIP stands for "very important person".
2. See for example, Deke Castleman, Whale Hunt in the Desert (Las Vegas: Huntington Press, 2004).
3. "Dead Chips" are non-negotiable chips sold or lent to the VIP room contactors by the casino.
4. For a detailed discussion of this evolution, see William R. Eadington and Ricardo Siu, "Between Law and Custom: Examining the Interaction between Legislative Change and the Evolution of Macao's Casino Industry", International Gambling Studies 7, no.1 (2007): 1-28.
5. In this period, some of Macao's gambling operations also became involved in the "coolie" trade business -using casino credit to allure and trap gamblers and then sell them into indentured servitude to European and American coolie recruiters.
6. See Eadington and Siu, ibid., p. 4.
7. The primary economic benefits from a casino industry occur when the customer base comes from outside the immediate area (i.e., when gamblers are tourists rather than locals). See William R. Eadington, "The Economics of Casino Gambling", Journal of Economic Perspectives (1999): 186-189
8. STDM is the acronym for the company, Sociedade de Turisme e Diversos de Macau. The company was headed by Dr. Stanley Ho, and held the monopoly concession for gaming in Macao from 1962 to 2002.
9. Tea money is the term used to describe a form of mandatory tipping imposed by dealers. A small portion of a winning wager would be taken by the dealer and put into their tip pool without the consent of the player. Protests by players against this practice would not be met with satisfaction.
10. As of 2002, slot machines accounted for only 1.04 per cent of the gross gaming revenues of the STDM casinos. A casual inspection of slot machines in the Casino Lisboa by one of the authors in 2001 indicated that the only slot machines in operation came from either IGT or Sigma, and were vintage 1990 to 1993.
11. See, for example, Diane Brady, "Mayhem in Macao: The Joint is Jumpin' at the Hotel Lisboa", Wall Street Journal (29 May 1998): 1.
12. The discussion on kin-je is drawn primarily from P. L. Liu, Aomen bocaiye zongheng (An Overview of Macao's Gaming Industry) [in Chinese] [Hong Kong, PRC: Joint Publishing (HK) Co., 2002], p. 406.
13. Liu, op. cit., p. 407.Aomen Bocaiye Zongheng
14. This would represent a commission of 0.7 per cent of the face value of the chip. In the early days of dead chip programmes, the rate for dead chip commissions was not so high. It gradually increased as the dead chip dealers' working radius became larger and costs to the dead chip dealers increased. The commission rate was typically at 0.7 per cent when Macao's VIP-room formal contractual system was established.
15. Mellet Brown, Celeste and Christopher R. Metli, "Macau Primer Update: More Bullish on Growth, but Watch for Bumps", Morgan Stanley Research, 22 Sept. 2006, p. 49.
16. Many players are undoubtedly aware of the VIP-room contractual system and understand the value dead chip transactions are creating for the junket operator. In such cases, a sharing of the dead chip dealer's commissions may be negotiated to allow for the continuation of the (mutually advantageous) chip rolling at the baccarat tables.
17. Limited insight on the relationship between initial buy-in and the amount of rolling dead chips to be resold can be gained by examining baccarat data from Nevada casinos to establish a relationship between buy-in and total amounts of money wagered. For the 12 months ended 31 May 2007, Nevada's baccarat tables generated total winnings of $900.9 million with a hold percentage of 11.54 per cent, where hold percentage is the ratio of win to "drop", and "drop" is the amount of cash or cash equivalents that go into the drop box at the table [or alternatively, the amount of (live) chips purchased at the baccarat table]. On average, baccarat is about a 1.35 per cent house advantage game, suggesting that the ratio of "handle" (total amount wagered) to win is approximately 75 to 1. Therefore, we can conclude that in Nevada, the handle for that 12-month period was approximately $67.6 billion, the drop was approximately $7.8 billion, and the ratio of handle to drop was approximately 8.68. If only dead chips are used by the customer for bet-making in a VIP room, the expected handle generated by $1 of dead chip before it is lost is slightly less than $2. Assuming Macao VIP players buy in to baccarat games at the same rate as Nevada baccarat players, then a player loss of $1 million would represent a handle of $75 million and original chip purchases of $8.66 million. If all regular chips were rolled into dead chips, this would imply total dead chip sales of $37.5 million (approximately half of handle), and subsequent commissions to chip dealers of $262,500, or a rate of about 26 per cent of total player losses. This rate is approximately equal to the ratio of the rate of commission divided by two times the house advantage, where the denominator in this ratio is the house advantage at baccarat times the expected handle generated per dead chip.
18. Note that this implies the casino should win about 2.7 per cent of total dead chip sales in gross gaming revenues. However, this win rate should not be confused with House Advantage, whose denominator is handle, not dead chip sales.
19. The Sands Macau opened in May 2004, but chose to cater exclusively to mass market customers in the months following their opening. They did not develop the VIP room business until some time in 2005.
20. VIP rooms have had a history of linkages to triads and activities that occur outside the protection of law and contract. See for example, Angela Veng Mei Leong, "The 'Bate-Ficha' Business and Triads in Macau Casinos", Queensland University of Technology Law and Justice Journal 2, no.1 (2002): 83-97.
21. Not all players are so naive about the underlying realities of the VIP room, as is suggested by the player in this example. Many players are fully aware of the terms and conditions under which they are invited to play, and therefore there is no element of "seduction" or "deceit" as implied in the illustration.
22. Macao Administrative Regulation 6 (2002), and Law 5 (2004).
23. See Karen Tang, Deutche Bank Macau Monthly Report, Deutche Bank Global Markets Research, Hong Kong, 5 May 2008.
24. Angela Veng Mei Leong, op. cit.Deutche Bank Macau Monthly Report
25. For a detailed discussion of the evolution of VIP rooms and the influence of triads in their operations under the monopoly concession,
26. see Angela Veng Mei Leong, op. cit.
27. Often there are no documented contracts between VIP promoters and junket operators, whose cooperation and transactions are based on convention and oral agreements, or sometimes, simple book-keeping. Furthermore, as of 2007 there was only limited regulatory requirement for the VIP contracts to be reviewed by regulatory authorities.
28. If a VIP promoter is unable to meet his minimum sales in a particular period, then other VIP promoters who have exceeded their targets may shift some of their sales to help them out. This is probably undertaken on an informal contractual basis to provide stability and "friendly competition" (and probably payments for such assistance) among VIP promoters.
29. Mellet Brown, Celeste and Christopher R. Metli, op. cit.
30. SJM is the acronym for the company Sociedade de Juegos de Macao, which is the successor company to STDM. (STDM was not allowed to hold a new gaming licence directly.)
31. Jorge A. Godhino, "Credit for Gaming in Macau", Working Paper, University of Macau, 2006.
32. After the STDM monopoly ended with the opening of the Sands Macao in 2004, one such variation emerged. This is the so-called "4025 room", which was introduced first by SJM and then copied by other casinos such as Wynn Macao which opened September 2006. This approach simplifies the contents of a VIP room contract and makes it considerably more straight-forward: the VIP room promoter takes a fixed percentage -say 40 per cent -of the actual casino win and the casino takes the balance -say 60 per cent. The casino is responsible for paying the tax and all operational costs, and the VIP room promoter decides how and how much to share with his junket operators. With this variation, the dead chip system is no longer relevant for revenue generation for VIP promoters. Responsibility for credit and debt collection could lie with either the casino or the VIP room promoter. (Competitive pressures have been pushing the fixed percentage for the VIP room promoter closer to 45 per cent in recent times.)