Lots of silence over leaks on Macau

Reaction within the gaming community ranged from muted to nonexistent over revelations that an aspect of Macau’s lucrative casino industry was influenced by Chinese organized crime elements.

The three Nevada companies that operate casinos in Macau went radio silent. Wall Street analysts ignored the news in daily research notes to investors.

Privately, analysts said the disclosures, which surfaced in some 600 confidential U.S. State Department documents obtained by whistle-blower group Wikileaks, weren’t a surprise.

Observers have long suspected that Chinese organized crime triads still had sway in the market. For years, international law enforcement organizations said the triads ran roughshod over the Macau casinos controlled by Hong Kong billionaire Stanley Ho during his 40-year monopoly.

According to the cables, the U.S. consulate in Hong Kong told the State Department that nothing had changed. In private communications between 2006 and 2010, consulate officials said Chinese junket operators, the middlemen that bring gamblers to Macau casinos, were controlled by organized crime.

Economist Jonathan Galaviz, whose independent consulting firm advises U.S. and foreign companies on doing business in Asia, said junket operators have always had “nefarious affiliations.”

“Many junket operators essentially, as a part of their core business, bypass Chinese and international law by engaging in loan sharking, money laundering, bypassing currency-exchange rules and engaging in improper debt-collection methods,” Galaviz said.

For these reasons, regulators overseeing Singapore’s 19-month-old gaming market have been hesitant to allow junket operators to bring customers into the island nation’s two casinos. Singapore has a process in place for licensing junket operators, but regulators haven’t granted any approvals.

“This is something that the Singapore government has been very concerned about and has actively guarded against,” Galaviz said.

In Macau, there was little reaction to the junket operator revelations. Union Gaming Group principal Grant Govertsen said much of the commentary focused on other disclosures, such as the U.S. government’s speculation over the eventual replacement for Macau’s chief executive when the position opened in 2009.

Gaming Control Board Chairman Mark Lipparelli said the regulatory staff was reviewing the cables as part of its overall and ongoing review when Nevada gaming companies have business interests in a foreign jurisdiction.

Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Resorts International have government-granted concessions to operate Macau casinos. The top slot machine manufacturers and other gaming equipment suppliers also do business in Macau.

Macau is the No. 1 casino destination in the world, producing $23.5 billion in gaming revenues in 2010 — five times the amount produced by casinos on the Strip. Through August, the market is up 47 percent, even with the addition of a new multibillion-dollar resort that opened in May.

Las Vegas Sands, which has three Macau casinos, is expected to open another 6,000 hotel rooms on the Cotai Strip next year. Last week, Wynn Resorts touted its government approval to begin building a resort on Cotai that will be open by 2015. MGM Resorts is also seeking approval for a Cotai resort.

Insiders speculated that the State Department documents made too much out of the organized crime influence on the junkets. A few junket operators might have some bad associations, but don’t paint the whole industry with one brush, they said.

The junket operators, which are licensed by Macau regulators, and the casinos have strong ties. At least one junket operator is a publicly traded company on the Hong Kong Stock Exchange.

“The junket programs have been critical to the growth of Macau,” Govertsen said.

Galaviz said the majority of Macau’s gaming revenue is associated with the junket business.

“All those spectacular record-breaking casino revenue numbers coming out of Macau by U.S. casino companies are really very much tied to the operations of junkets,” Galaviz said.

The cables also divulged little respect for Macau’s leadership amongst the casino community.

Analysts believe China’s central government has more than just a passing interest in Macau.

“Beijing is watching Macau very closely nowadays,” Galaviz said.

Howard Stutz’s Inside Gaming column appears Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. He blogs at lvrj.com/blogs/stutz. Follow @howardstutz on Twitter.

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