The recent measures announced by Chinese central authorities targeting cross-border gambling will further compound the local junket sector but a hit to mass and premium mass business is not expected, analysts from Sanford C. Bernstein have assessed.
‘The area where Macau is impacted is via junkets that operate in both Macau and overseas and also when Chinese visitors in Macau are induced to join online gambling activity and/or approached to go to an overseas destination for future trips. These activities will be monitored and legal action taken in Macau,’ the brokerage state din a recently published note.
On February 5 China’s Ministry of Public Security issued a statement urging criminal suspects in cross-border gambling to ‘surrender’ and focused on overseas gambling groups that are attracting gambling during the Chinese New Year.
The notice highlighted that authorities would be taking action against individuals engaged in criminal activity tied to overseas gambling, with Bernstein believing it is also linked to the ‘rampant spread’ of illegal online gambling in China.
The announcement follows several legislative changes imposed by the Chinese central government to tackle cross-border gambling promotion.
China’s National People’s Congress recently passed an amendment to its criminal law that will, from 1 March 2021, create a new crime against cross-border casinos found to be organizing or soliciting Chinese citizens to gamble and increase penalties for those found guilty of serious breaches.
The amendment specifically targets anyone who ‘organizes mainland Chinese citizens to gamble outside the country (borders)’.
Last month China’s Ministry of Culture and Tourism also announced that it would extend its travel blacklist of overseas gambling jurisdictions or countries that promote gambling tourism for Chinese nationals.
‘We believe several countries are targeted, including The Philippines, Cambodia and Myanmar. In addition, there is likely to be scrutiny of Laos, Vietnam, and other foreign gambling destinations (we do not believe Singapore is a target in this action partly due to the gaming industry there having strong regulation with regard to junkets and anti-money laundering,’ Bernstein added.
According to numbers cited by Bernstein, last year Chinese authorities disclosed that they had pursued some 3,500 cases and detained about 75,000 suspects amid a sweeping crackdown on cross-border and online gambling.
‘Over 2,260 gambling platforms (we believe this refers to online gambling), as
well as around 1,960 illegal payment platforms and underground banking operations were also shut down in 2020. Further, 600 Chinese nationals wanted for illegal gambling and money laundering-related activity were repatriated from overseas back to China during the year,’ the brokerage added in a note.
As for the most recent Ministry of Public Security statement, Bernstein analysts consider that the ministry crackdown will focus on junkets and agents, funders of these operations, and channels for moving money overseas.
Aside from an extra hit in the already hurting local junket business, the brokerage does not expect a direct impact to mass and premium mass business we expect to have limited impact.
‘The bigger impact would be to junket VIP in Macau (~80%+ of rolling business in Macau), which is already under pressure due to liquidity concerns. Macau junket agents operate in China under the radar and their activity always fell into a shady grey area,’ Bernstein noted.
Int he last quarter of 2020 VIP baccarat contributed just MOP7.6 billion or about 34.5 per cent of the total MOP22 billion gambling operators generated in combined revenue, the first time VIP has slipped below a 40 per cent share.
The financial consultancy argued that with the current law changes and government actions, the junket system that has been in place, will undergo a fundamental change but it will not likely disappear completely.
‘A continued shift to premium direct (direct VIP) and premium mass occurring in Macau will continue to accelerate as we have written about at length. Mass remains the key driver of long-term value creation in Macau,’ the brokerage added.