I just read the article below about a $258 million heist from a “junket” that is “operating inside the Wynn Macau casino.” The article suggests that the junket’s losses wouldn’t directly affect affect Wynn Macau but it doesn’t explain the relationship between the casino and the junket.
What is a junket as used in this article? Who are the investors in a junket? How does it raise money? How does it make more money?
The article says that “investors in junkets have come to expect returns of 1% to 2% on their investment in high rollers’ luck.” One to two percent of what and over what time period? Do junkets just lend high rollers money to gamble a take a piece of the winnings? Are they trying to make money betting against the house in a casino?
What does it mean for the junket to “operate inside” the casino? Why would Wynn Macau allow some third-party to set up shop inside the casino? And why would Wynn Macau lend these junkets money?
While I’m not sure I understand this correctly, I believe junkets are just independent resellers for services offered by the casinos to high rollers, maybe involving some short time money lending. It is not the same as the “staking” of talented poker players, since there is no skill involved in regular casino gambling.
Thanks Donnerwetter. That article helps me to understand it a bit better. It seems that these junkets are basically travel agents for wealthy high rollers which will also lend money to the gamblers. Interestingly, these junkets also appear to be public companies, presumably with shareholders who commit some permanent capital. I gather they also have some other sources of capital that are more temporary because some of those investors are withdrawing their capital.
It’s also clear from the article you found that they don’t stake players or bet on gamblers’ good fortune. That makes sense to me because as you said, there is no skill involved in casino gambling.
Junkets apparently either make money on the amount of gambling turnover or a percentage of the gamblers’ losses. They also owe the casinos money if the gamblers win, which is at least one reason that the junket could owe Wynn Macau money. It’s still unclear whether Wynn Macau would have otherwise loaned the junket money that could have been lost in the heist. Perhaps the casino lends money to junkets who then lend it to gamblers because the casino is prohibited from lending money to gamblers directly. That could mean that much of the money stolen was really Wynn Macau’s.
It’s also unclear to me why people who loaned money to/invested money with the junket would expect Wynn Macau to make up for their losses in any way.
The Macau junket system is quite baroque and almost entirely unregulated. Someone explained it to me once but his English wasn’t that great so I’m not sure if I got the whole story.
As I understand it:
A Chinese bigwig high-roller wants to do some gambling. So rather than contacting a host at his preferred casino like he might do in the US, he contacts his local junket operator which is almost always someone who is connected in the local community.
China’s currency controls strictly limit the amount of money that can be exported from the mainland, and Macau casinos are not allowed to issue markers. So the junket operators lend money to the gamblers. The other problem is that gambling debts are legally unenforceable on the mainland. Rather than changing the law (as common law jurisdictions did when casinos were legalized) the junket operators rely on gentle persuasion to make sure people pay.
The junket operator arranges travel to and from the casinos, often bundled with other gamblers (hence junket) unless you’re a super-duper high-roller and you get your own private plane. The junket companies operate their own high-roller rooms within the casinos, and the casinos gives them a kickback based on the total bets. If you’re a junket operator, the more money you bring into the casino, the more space, hotel rooms, and tables the casino will give you.
The junket operators make their money via the commissions from the casinos. AIUI they typically don’t charge interest as long as the gamblers pay quickly.
Thanks Friedo. I think this answers the last questions for me. Macau casinos can’t lend to gamblers but I assume they can lend to junket operators who can in turn lend to gamblers. This gives Wynn Macau a reason to lend to the junket operators and probably fuels speculation that they did, in fact, lend to the junket operator and will experience losses if the junket operator goes bust. It also suggests very close, if informal, ties between Wynn Macau and the junket operator, which would be why Wynn gamblers might expect the casino to make up their losses in the junket operator.
Any time business arrangements don’t appear to make sense, the reason is almost certainly legal loophole engineering. True in China just as it is in the rest of the world.
I learned about the junket system in a New Yorker article about a Chinese “God of Gamblers” who won (or scammed) big in the Macau casinos. Interesting story.
The thing I find most amazing about this case is not that they stole 258 giga bucks, but that last year someone eloped with 1.3 billion and this still happened.
The article talks about $258 million = 258 megabucks. 258 gigabucks would be $258 billion. That’d be some serious world-class heist.
The Macau currency (“pataca”) is pegged to the HK dollar which in turn is pegged to the US dollar, but neither are at 1:1. I wondered if somebody in the chain of news articles forgot a conversion since all three currencies use the "" symbol. The conversion factor from MOP to US$ is very *very *roughly 10 to 1. So if somebody screwed up the conversion this might be a roughly US$ 26 million event. I doubt that was the case, but worth mentioning.
That’s a great article, hogarth, and I appreciate you bringing it into the discussion. This paragraph just raises a whole bunch of new questions for me about Macau casino operations:
“The Las Vegas Sands was quick to issue a statement that Cheung was ‘not listed as a director or shareholder’ in any of its V.I.P. rooms, but, after it conducted an internal investigation, its lawyers stated that Cheung had indeed been found to be operating as a ‘guarantor’ of V.I.P. rooms at one of the company’s casinos. (A guarantor—who puts up money to lend to players—was not routinely subject to the background checks applied to directors and shareholders, according to a former Sands executive.)”
How is one a director or a shareholder of a V.I.P. room in a casino, distinct from the directors or shareholders in the casino (or its holding company)? How is gambling allowed in part of a casino that seems not to be run by the casino itself?
Can I ask a Macau-related question in this thread? I hear that Macau these days puts Vegas to shame in terms of opulence, but ISTR reading some time ago - say, 20 years or so - that Macau at the time was more like a second-rate Reno. Is that true; was there ever a time when Macau was not up to its current glory?
The vast majority of Macau’s construction is brand new - within the past 20 years. Basically things really started going nuts the moment the territory was returned to China from Portugal in 1999.