Casino Junkets – Part Art, Part Science and Part Voodoo

Casino junkets are a very interesting subject. Casino junkets, junket reps and independent reps who organize individual ‘splinter junkets’ exist all around the world today. Splinter junkets or “splinters” is a slang casino term for individual players as opposed to a large group of players. There are approximately 2,500 – 3,000 legitimate licensed casino operations located around the world. Not all but many of these casinos either have a junket program in one form or another or employ or engage junket reps or independent reps to bring qualified players to their casinos. Junket programs and Rep commission programs vary drastically depending upon which part of the world the casino is located in. For example, almost all casinos in Asia use the Non-Negotiable Chip Rolling Program where commissions are based upon turn-over of the chips. However, in other parts of the world Non-Negotiable Chip Rolling Programs are almost non-existent. One has to wonder why?
First, we have to understand that Junkets in any form represent a Risk / Reward type of situation for the casino. The risk side of the equation translates into dealing with unknown players, unknown sub-junkets or Independent Reps and they are usually very expensive programs for the casino. Non-Negotiable Rolling Chip commission programs in Asia normally pay anywhere from 1.0% to 1.8% commission on a hold percentage of 2.7% for Baccarat. This means that on the higher side of the commission spectrum that casinos will actually pay out 50% to 70% of their hold percentage on the game. Or in other words, the junkets are actually earning more than the casino on this business despite the fact that the casinos have invested hundreds of millions and even billions of dollars in building these magnificent casinos. So one naturally has to ask how the casinos make money and why they would even consider paying such high commissions. The junkets in Asia are quite different from the rest of the world and the players are also different in their propensity for risk, their propensity for gaming and their access to large amounts of money for gaming purposes. Asian players without question represent some of the largest players in the world. One additional factor is volume of business. Despite the casinos ability to only keep a small percentage of revenue based upon turnover, the turnover volume of this business is huge in comparison to business volumes in Western casinos. Simply stated, a small percentage of huge volume still translates into more revenue for the casinos in Asia than a high percentage of a much smaller volume of turnover. Therefore the law of economics kicks in and Asian casinos continue to promote Non-Negotiable Chip turn-over commission programs.
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We mention some of the risks above but we also have to consider the rewards or benefits for the casinos. There are actually many benefits. The casinos do not have to intimately know their customers but their Junkets now have to assume this responsibility because the business model for Junkets in Asia is predicated upon the Junket issuing casino credit to their players as well as being responsible for the collection of any credit issued. The casinos primary concern is settlement with the Junket at the end of each month on any money owed to the casino. Casinos often hedge the risk by obtaining a security deposit or some type of collateral or assurance from their Junkets. Most casinos and junkets in Asia understand Regulatory Compliance and understand that laws are either black or white but not gray in color. However some of the areas that Junkets actually operate in are gray areas. The largest gray area involves movement of funds. Many countries in Asia have currency control regulations. Never-the-less, junkets still seem to find ways to collect their debts from their players once they arrive back in their home countries after a gaming trip and the Junkets also still manage to pay off any obligations to the casino at the end of each month. The title of this article is, “Casino Junkets – Part Art, Part Science and Part Voodoo”. This is the Voodoo part. Trying to trace the flow of money or movement of funds seems to resemble black magic in many ways but that subject is better left to another article or a book.
Business in Macau has been on the decline for the past two years with substantial drops in casino revenue for a variety of different reasons. One reason has been purported to be the result of the China government’s crackdown on corruption in China which has caused a ripple effect with casinos, with both Junkets and with Chinese players. In effect, the old Junket business model that existed previously in Macau is now broken. Nobody has a crystal ball and nobody can accurately forecast the future but most of the knowledgeable casino industry analysts do not see this changing in the near future. In addition, one can see subtle messages being issued by China.
A senior level Beijing government official recently commented that Macau should diversify its tourism offerings in order to attract higher quality visitors including more business and family travelers. There was no mention of casino players or the VIP segment of the market. In addition, Macau is now facing fierce competition from several existing markets in Asia such as Singapore, Australia, Korea, the Philippines, Cambodia, etc. as well as from several new markets where we are seeing proposals for multi-billion dollar new casino resorts. The proposed new Australian mega-casino project named Aquis will be a US $8 billion resort with 8 hotels, 7,500 rooms, two large casinos, a golf course, lagoons, nearby beach, etc. We also see Saipan developing a new US $7 billion casino resort. In addition, Las Vegas Sands has publicly stated that they would spend up to US $10 billion for a new casino resort in Asia in the right location. What does all of this mean for Macau?
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Macau is a great destination with many incredible casino resorts that in the past were very dependent upon Junkets as a critical part of their business model. That model is currently broken and nobody can tell if or when it will return. Therefore, Macau now needs to reinvent itself. Macau needs to become more creative and look for new opportunities to develop business both from existing markets but also from new markets. In the past, Macau was largely dependent on China and Junkets from China as its primary source of business. As was mentioned in the beginning of this article, there are approximately 2,500 to 3,000 casinos around the world that currently service millions and millions of players from many different countries. Unfortunately in the past, players from other parts of the world were viewed as small players by Macau casino operators and not necessarily welcomed to Macau with open arms and a warm reception. Most of the foreign players that did visit Macau had to fend for themselves. They did not understand the language, the rules of games, how commission programs or casino comps worked, etc. Consequently, many of these foreign visitors who ventured to Macau to try to see it and experience it were disappointed and returned to their home countries only to recount negative experiences. Macau is not alone here and we have seen this in other countries as well. Cultural awareness is important in the casino business.
However, times have changed and one can see a new opportunity today to learn from the past in order to turn a negative experience into a positive experience possibly with the help of new Junket Reps or Independent Reps located around the world. Casinos in Macau can easily reinvent themselves and their way of doing business if they want to. It would be fairly easy to convert an area inside of the casino or in one of their larger VIP rooms into a ‘casino within a casino’ that offers more Western style casino games such as Blackjack, Roulette, Craps, Pai Poker along with Baccarat. It would also be fairly easy to staff this new area that we may call the International Room with bilingual and even trilingual staff along with new customer service training focused towards foreign players. The gaming staff could also be trained or retrained in a Western style casino rating system where the objective is to now focus on table game ratings to calculate the Theoretical Win for each player. Casinos in the West normally rebate a percentage of Theo Win back to the players for them to use in the casino resort to help pay for their room, food, beverage, airfare reimbursement, spa, salon or even retail shopping. Theo Win is normally automatically calculated by the computer CMS (Casino Management Software) based upon manual rating inputs. It is the same formula used by casinos around the world which is Average Bet x Number of Hours Played x Number of Decision per Hour for that game x House Advantage for the game being rated. Western Casinos depending upon location and gaming tax may rebate 20% to 35% of Theo Win back to the player in Points. Each Point has a dollar value. So, 1,000 points may be equal to $1,000 worth of comp dollars that the player may redeem at the casino depending upon the Complementary Program on offer.
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Junket Reps or Independent Reps are either paid a percentage of Theo Win or they are paid a percentage of actual rated loss in the casino such as 10% of the players rated loss. One should note that Rolling Chip commission programs based upon Turnover are actually 100% accurate as opposed to a manual Rating System where there may be some errors based upon visual observations. Therefore it is very important to properly train casino management as well as empower them to make executive level decisions quickly on the casino floor to help avoid customer disputes. Once again this type of rating system is in use in thousands of different casinos all around the world so it would be possible to train staff quickly. One additional point is that most of these new players will either be cash deposit players who bank transfer their funds to the casino in advance or they will already be established casino credit customers with a good history or track record in Central Credit with good “play and pay” credit history. Many casinos set a minimum amount for the cash deposit or approved credit line for a player to be rated on such a program. That minimum amount could be US $25k with total deposits or credit up to US $100K or more. Players with less money are still welcome to play in the International Room but casino comps may be quite limited based upon management discretion. There are many creative ways to attract international junket reps or independent reps as well as attract players directly. Casino alliances are quite common in other parts of the world were casinos develop reciprocal promotions for certain higher rated players and share the hosting of such players when they visit each other’s properties. This same concept is now being employed by many of the casino cruise ships. These programs are not really competitive since time and distance, as well as expense are factors that limit such long distance trips to once or twice a year as opposed to weekly visits to their local or home casino.
As the words of a famous song by Bob Dylan go, “The Times They Are A-Changin”. The time for change in Macau is now. Opportunity is out there. It is time to rethink Junkets and to consider ‘…Part Art, Part Science and Part Voodoo’. The bottom-line is that international junkets or new international players will not replace lost VIP business in Macau but they may offer a new cost effective way to mitigate some of that loss. Good luck.