Macau is the largest casino centre in the world, and has had a reputation in the past for making more money than even Las Vegas. Last year the island’s casino industry was estimated to be worth $45 Billion which is seven times that of Las Vegas. However, following a business model where gamblers are able to borrow billions of dollars, late debt is crippling this business. Casino owners do not extend credit directly to patrons, junkets provide this service, and firms on the island are seemingly waiting for as long as a year before many debts are repaid. They are experiencing a general surge of bad debt from players who frequent their private gambling rooms.
In normal circumstances the deal on a loan is collected within 30 days, and 3 percent interest charged on balances overdue. Chinese players are limited in the amount of money they are able to take from the mainland, hence the growth of the junket industry. According to one Macau-based junket consultant, the money simply is not flowing in from China as it once was. Currently China is in the grip of an economic slow-down, and corruption crack-downs are keeping high-rolling players from the mainland away from the tables.
Repayment of debt is slow, and there is little access to credit, so that giant money-spinner that was Macau’s junket business model appears to have had its back broken. Reports are coming in that one of the biggest junket operators has a debtors book where 30 percent of this debt is more than a year old. Gamblers are not paying in full, and many are opting to pay off their debt in monthly installments, but it is still unclear how much credit has been extended by junkets.
As one might expect, much of this lending is informal, and it has been estimated by a Hong Kong-based bank analyst – that there is as much as $12.9 billion of debt outstanding. However, without this industry in Macau, casino operations would need to rely for their income on the mass market. There is also the option of offering credit to VIP’s but this practice has been found to not be a great way to do business, as the practice gives rise to massive debt write-offs.
Collection of debt has been further complicated by the fact that gambling debt is illegal in mainland China. Therefore seizure of assets by debt collectors is more difficult. Naming and shaming is becoming a popular way to pressure debtors, and a website dedicated to this names 700 gamblers. However, what is clearly needed is better more enforceable rules. If junkets are going to support the casino industry, Macau law needs to offer them some sort of protection.