The real story of Macao is told not in the soaring median monthly wages of workers in the gaming industry, which have doubled since 2000, or the steadily rising occupancy rates in the city’s five-star hotels. It is told in the share prices of the 22 Macanese gaming stocks listed in Hong Kong. In spite of successive years of rising gross gaming revenues in the former Portuguese colony – last year they were up a record 58 per cent to US$23bn – the sector has lagged behind the Hang Seng by more than 100 percentage points over the past five years.
The main reason is the
ever-growing muscle of the “junket” promoters from mainland China, which round up groups of associates for VIP visits. Beijing’s currency restrictions mean that these licensed but shadowy groups – 127 of them, at last count – perform a vital function for Macao’s 33 casinos: no one else can collect renminbi deposits to convert into Hong Kong dollars, which the casinos then exchange for chips. Typical commissions paid to the junkets were 20-25 per cent of revenues in the mid-2000s, when gaming was opened to foreign competition. That share has now risen to between 44 and 48 per cent, by Credit Suisse’s reckoning.
Casinos would ignore the junkets if they could: operating profit margins in the mass-market segment are about three times higher. But even the more mass market-focused resorts depend on high-rollers for almost half of their operating earnings. The promoters’ only problem, meanwhile, is maintaining adequate working capital, which they do by keeping bad debts to a minimum, paying much higher interest rates than mainland banks to draw in funds, and tapping casinos for advance commissions. In Macao, it’s not the house that always wins but the doormen.