What is a Casino Junket? We Explain.

Posted on September 24th, 2015

sands macauThere’s been a lot of press recently about the continuing decline of the gambling market from its heady highs in Macau. Casino revenue is down in the territory for the 15th straight month in a row, and this is after all the big players have laid huge bets on the territory, building bigger and bigger gambling palaces.

Some of the biggest news stories that are coming out of Macau concern the junkets that operate there, and in particular one called Dore Holdings, a VIP room operator in Macau, which has supposedly been the victim of an inside job theft to the tune of between HK$200m and HK$2bn. Dore plies it trade in Wynn Macau, one of the six big casino players in the former Portuguese territory.

So what exactly is a junket? What do they do and how do they work? Are they as murky as they sound or are they just another casino trick?

What Are Casino Junkets?
Macau is five times as big as Las Vegas these days (if we are talking gross gaming revenue).

While thousands of punters head over to Macau to sample the bright lights and huge gaming floors. But it’s the cordoned off High Roller VIP rooms that are where the serious money is made. And these are largely controlled by Macau’s secretive junket system.

Where do they get their funds? Well, the rumours are that they have close links to China’s grey banking sector- you know the one that no-one, including the analysts, really knows the size of.
This grey lending market is a key part of China’s economic success story over the last decade, providing liquidity to China’s hordes of SMEs.

Meanwhile in Macau, they have struggled to diversify their offering into entertainment like Las Vegas. 70% of the revenue is generated by the VIP high-rollers.

Junkets grease the wheels for  China’s big time gamblers who like to play bacarrat in the main, with free accommodation, travel and other goodies in Macau. (Try our free online bacarrat demo to see what all the fuss is about. The house edge is pretty low).
They make it possible to move big amounts of money in between the mainland and Macau. Mainlanders can legally bring in Rmb20,000 ($3,175) when crossing into Macau. VIP gamblers gamble on credit from junkets who target mainland Big Fish.
The junkets get a commission from the casinos or a slice of the action. They use grey banks to return the money they have collected as debt on the mainland to Macao. The junkets allegedly use criminal gangs from Fujian and Guangdong provinces  to smuggle cash across the border.

Another trick they use is to work with Hong Kong business people who own companies on the mainland. The junkets pay in renminbi debts,  who then use the money to pay staff wages. The owner pays the junket in Hong Kong dollars to their account in Macao. Everyone wins on the exchange rate.

Macau’s Big Six: Wynn Macau, Sands China, Galaxy Entertainment, SJM Holding, MGM China Holdings and Melco Crown Entertainment provide the junkets with VIP rooms, dealers, chips and a pay a fat commission to VIP junkets. The junkets guarantee a minimum gross gambling revenue every month.

Who are the Big Junkets?
The big boys and girls in this game are Sun City, Neptune Group, Dore Holdings (who recently were victim of a huge internal robbery) Asia Entertainment and Resources. These big players have sub-junkets or agents who lure the high rollers in with credit and casino offers. This is where it gets murky, as these sub-junkets get a commission from the VIP junkets when they extend credit to gamblers and they are in charge of collecting debts, often on the mainland.

Because China also doesn’t recognize gambling debts, the junkets rely on “personal relationships” for debt collection. It’s a niche form of shadow banking that is peculiar to Macau.

One thing is for sure- it’s a shadowy business and one that looks like it needs an overhaul in light of the red numbers coming out of Macau over the last year or so.

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