MACAU, CRIME, AND REGULATION

TWENTY-FIFTH LECTURENovember 27, 2012

William R. Eadington, Ph.D.Professor of Economics, College of Business

Director, Institute for the Study of Gambling and Commercial GamingUniversity of Nevada, Reno

www.unr.edu/gaming

http://www.youtube.com/watch?v=IJMdPb0iMM4

THE GOD OF GAMBLERS (excerpt)

OPERATING CHARACTERISTICS OF VIP ROOMS IN MACAU

• Junket operators bring customers from Mainland China– Initially Hong Kong and Taiwan, but China since 2003– Junket operators are outside regulatory structure

• Revenue share based on Rolling Chip sales– Mechanics similar to non-negotiable chips in the US

• Under monopoly, roughly 1/3, 1/3, 1/3 revenue split• Under competition, it has moved to 50%, 40% and 10%

– Bargaining Power, Cutthroat Competition; the role of AMAX– Revenue rich, profit poor => Financial challenge especially for

Las Vegas Sands– Revenue growth has made the market profitable in spite of the

split

THE VIP SEGMENT AS A PROPORTION OFMACAU’S TOTAL CASINO GAMING REVENUE

Year Total Casino Gaming Revenue

(billion, US$)

Total Casino Gaming Revenue from VIP

segment (billion, US$)

Ratio of VIP Revenue to

Total Gaming Revenue

2001 2.26 1.59 70.4%

2002 2.77 2.04 73.7%

2003 3.58 2.77 77.4%

2004 5.16 3.72 72.0%

2005 5.75 3.60 62.7%

2006 7.07 4.59 65.0%

2007 10.36 6.96 67.2%

Gross revenue from different game types of games of fortune in 2007-2012

Game Types

2007 2008 2009 2010 20112012

1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total

Roulette 370 693 693 672 783 147 318 193 - 658

Black Jack 1,917 2,247 1,903 2,290 2,712 696 735 746 - 2,177

VIP Baccarat

55,762 73,772 79,834 135,648 196,126 52,678 52,175 51,166 - 156,019

Baccarat 16,515 21,264 25,498 34,917 48,669 15,130 15,553 16,805 - 47,488

Fantan 164 190 174 183 211 65 56 56 - 177

Cussec 2,755 3,043 2,826 3,555 4,774 1,354 1,328 1,398 - 4,080

Paikao 77 54 43 86 114 26 22 20 - 68

Mahjong - 9 27 34 70 51 57 52 - 160

Slot Machines

3,594 5,653 6,503 8,618 11,425 3,306 3,285 3,149 - 9,740

MACAU GROSS GAMING REVENUES (HK$)

Note: US$1 = HK$7.75

Number of gaming tables and slot machines in 2007-2012

Items 2007 2008 2009 2010 2011

2012

1st Qtr.2nd Qtr.

3rd Qtr.

4th Qtr.

Gaming Tables

4,375 4,017 4,770 4,791 5,302 5,242 5,498 5,497 -

Slot Machines

13,267 11,856 14,363 14,050 16,056 16,102 17,035 17,029 -

Quantity as at period end

Number of casinos in Macao in 2007-2012

CONCESSIONAIRES 2007 2008 2009 2010 2011

2012

1st Qtr.2nd Qtr.

3rd Qtr.

4th Qtr.

S.J.M. 18 19 20 20 20 20 20 20 -

Galaxy Casino, S.A. 5 5 5 5 6 6 6 6 -

Venetian Macau, S.A. 2 3 3 3 3 3 4 4 -

Wynn Resorts (Macau) S.A.

1 1 1 1 1 1 1 1 -

Melco Crown Jogos (Macau) S.A.

1 2 3 3 3 3 3 3 -

MGM Grand Paradise, S.A.

1 1 1 1 1 1 1 1 -

MACAO VISITOR ARRIVALS BY COUNTRY OF ORIGIN

Country of Origin 2007 2006 2005 2004 2003 2002 2001 2000 1999

PRC 55.1% 54.5%

55.9% 57.2% 48.3% 36.8%

29.2%

24.8%

22.1%

Hong Kong 30.3% 31.6%

30.0% 30.3% 38.9% 44.2%

50.6%

54.1%

56.8%

Taiwan 5.3% 6.5% 7.9% 7.7% 8.6% 13.3%

14.1%

14.3%

13.2%

Southeast Asian Countries

6.5% 5.2% 3.9% 2.9% 2.4% 3.4% 3.6% 3.9% 4.3%

America 1.1% 1.0% 1.0% 0.9% 0.7% 1.0% 1.1% 1.2% 1.3%

Europe 1.0% 0.9% 0.9% 0.8% 0.7% 1.0% 1.1% 1.3% 1.9%

Others 0.6% 0.5% 0.5% 0.3% 0.4% 0.4% 0.5% 0.5% 0.6%

Total number in million

27.0 22.0 18.7 16.7 11.9 11.5 10.3 9.2 7.4

• Importance of the Individual Visitor Scheme from China, 2003

COMMERCIAL SEX IN MACAU

• http://www.youtube.com/watch?feature=fvwp&v=8Buq74tLo3Y&NR=1

• http://www.youtube.com/watch?v=WPe9SXxEz6I&NR=1

LOAN SHARKING

• http://www.youtube.com/watch?v=Uixz214-Cok

• http://www.youtube.com/watch?v=CDMZH6WZV98&feature=related

UNUSUAL DIMENSIONS OF MACAU GAMING

• Side Betting: Could increase the volume of actual gaming revenues by a factor of 3 to 6

• Credit and debt collection in Mainland China– “Black Box”: Very opaque– Casino operations highly dependent on VIP play

and therefore Junket Operators

• Registration and licensing of Junket Operators

ORGANIZED CRIME ISSUES

• 1997-1998: The Triad Wars and “Broken Tooth” Kwok (Wan Kwok-Koi)– To be released from prison on Saturday 12-1-12

• 2000: Garrison (battalion) of the Peoples’ Liberation Army in Macau

• 2005 and after: Increasing reliance on Junket Operators– Distinction between SJM and Galaxy v. Wynn,

LVS, MGM and Crown Melco

ALLEGATIONS AGAINST LVS

• Associated with Junket Operators convicted of “conspiracy to conduct murder for hire” (Cheung)

• Money laundering and illegal transfers of electronic funds– Casinos are treated as banks with CTRs

and Suspicious Activities Reports

• Bribery of public officials in Macau