Already facing considerable headwinds due to the COVID-19 pandemic and a focused crackdown on cross-border gambling activities by mainland Chinese authorities, Macau’s junket industry will contract even further under proposed changes to the gaming law, analysts say.
The draft law enters 45 days of public consultation from today (Wednesday), with proposed changes focusing on areas of social responsibility, non-gaming development, strengthening government supervision and strengthening penalties for violation.
The latter of those looms large for junkets, with the government looking to clamp down on the practice of VIP rooms accepting player deposits and to hold concessionaires more accountable for the actions of junkets operating under their roof.
“During the daily operation, it is common that players will deposit certain money they win as deposit with the casino (direct VIP) and junkets,” wrote Credit Suisse analysts in a Tuesday note.
“The regulation against such practice may not only shrink the working capital pool of the players, but also increase the transactional costs of the high end players as they would have to transfer money to Macau for gambling every time.”
The result, according to brokerage Bernstein, would be a “much smaller junket operation in Macau than in the past,” although they note that such restrictions have been coming for some time.
“Junkets have lacked proper oversight and regulation (although regulation has improved over the past 5+ years), and a key area will be reigning in junket activities,” the analysts said. “Junket deposits have been a problem in the past (recall the Dore scandal, among others) and the government has been vocal about the need to reform this system.”
JP Morgan said in a Wednesday morning note that a proposal to hold operators accountable for their junkets, alongside recent amendments to China’s Criminal Law in relation to gambling, “could make it complicated for concessionaires to continue in the junket business as the potential downside/penalty could outweigh expected economic benefits.”
Junkets aside, industry commentators remained largely neutral on Macau’s gaming draft law given the absence of important detail around many of the proposed changes.
However, Credit Suisse did raise some concerns around diminished attractiveness of the sector for investors with the government looking to pre-approve dividend payouts and place a representative into each of the concessionaires, presumably to ensure the public interest is given equal weight to profit motives.
Notably, Tuesday’s announcement by the Macau government did not shine any light on when the re-tendering process will take place or on the future of the city’s many satellite casinos operating under the licenses of concessionaires.
But absence of detail aside, Bernstein analysts said, “We do not view today’s events as negative for the Macau gaming industry. The process is largely progressing as we had anticipated.”
