Macau's gambling riches sparked bloody gun fights between triad gangsters two decades ago. Today, there's a new conflict brewing, only this time it's being waged with private jets, limousines and loans of up to US$1 million.
The latest battle pits casinos against their long-time allies, so-called junket operators that for years have recruited rich gamblers from the mainland, whisked them to Macau and given them interest-free loans to circumvent limits on cash they can take out of the mainland. Now companies such as Sheldon Adelson's Sands China offer the same services, aiming to cut out the middlemen. At stake are profits from the world's biggest gambling market with US$45.2 billion in revenue last year - almost seven times the size of the Las Vegas Strip's gaming earnings.
"Direct VIPs give us considerably higher profit margins," said Grant Bowie, MGM China Holdings CEO.
A casino can make up to 15 per cent more from big-betting mainland players if it hosts them itself, instead of paying junkets to do the same job in exclusive VIP rooms the casino leases to them, said Karen Tang, an analyst at Deutsche Bank in Hong Kong. Others analysts said the potential earnings may be up to 50 per cent more.
Junket operators, led by Suncity Group and Jimei Group, have a steady grip on the industry. But some are feeling the pressure. "We are being squeezed," said Yu Yio Hung, who operates a single VIP room at Altira casino.
Big-spending gamblers, known as VIPs, account for about two-thirds of Macau's casino revenue. The majority of them are mainlanders who bet on credit because of the country's cash regulations. The laws restrict to 20,000 yuan (HK$25,256) the amount a citizen may take across the border, and a maximum of 10,000 yuan from a cash machine in a day.
That's not enough for a VIP, who by the industry's definition bets at least US$1 million during each visit to Macau, the only place in China where casinos are legal. Most big spenders from the mainland play with chips loaned to them, at no interest.
Punters flock to private clubs like Sky 33 in Galaxy Entertainment's casino, where anybody who doesn't wager at least 5 million yuan isn't welcome. Sky 32 has a waterfall and a 10 million yuan minimum. Junkets scout for patrons across the mainland, and then arrange transport, hotels and lines of credit.
The system made sense when Macau opened up its gaming market in 2002, granting permits to five new operators - Sands China, MGM China, Galaxy Entertainment, Wynn Macau and Melco Crown - breaking a 40-year monopoly held by Stanley Ho Hung-sun's SJM Holdings. SJM, Asia's largest casino company by revenue, relies entirely on junkets to cater to its VIPs and said has no plan to change that.
The newcomers, barred from marketing on the mainland and having no legal way to collect debts, relied on promoters with agents who could lure VIPs and make sure they paid up. Now, after a decade, the casino companies know many of the mainland's well-heeled residents.
"Casinos have a much more in-depth database to tap," said Richard Huang, a Hong Kong-based analyst at CLSA. They have more opportunities to collect debts too. "With most of the rich Chinese having offshore bank accounts or properties, that gives casinos increased comfort in extending them credit."
A junket operator - also known as a VIP or gaming promoter - typically draws a commission for each high-stakes punter it delivers. The commission is equivalent to 1.25 per cent of the gambler's rolling chip turnover, or the amount of bets made, said Kenny Lau, a Credit Suisse analyst in Hong Kong.
Commissions total about 44 per cent of the gross revenue from high rollers, according to the brokerage. That means junkets earned about US$13 billion in commissions last year, or 29 per cent of the casinos' total revenue, according to data compiled by Bloomberg.
After government taxes of 39 per cent, casinos can be left with "rather thin" profits, said D.S. Kim, a Hong Kong-based analyst at BNP Paribas Securities Asia.
That's a relative assessment: Sands China, for instance, posted an 80 per cent gain in net income to US$2.2 billion on revenue of US$8.9 billion last year.
To reduce their dependence on the wealthy, casinos have also been adding glitzy shows and shopping malls to draw middle- class families.
While the junkets are still important partners of casino operators, companies including Sands are working to bypass the middlemen.
The Las Vegas-based company puts its fleet of private jets and limousines at high-rollers' disposal and offers complimentary stays in suites that run to 750 square metres and come with on-call concierges, according to its 2012 annual report.
Casinos are also setting up their own high-stakes gambling parlours in Macau, with sizeable minimum bets.
A few years ago, most of these sorts of clubs operated in what a report from the US-China Economic and Security Review Commission, a group created by the US Congress to monitor China, called "a grey financial market." They were run only by junkets, as independent contractors renting space inside the casino operators' buildings and outside the direct oversight of Macau's gaming regulator, the report said.
In the 1990s, loan sharks were often on the lookout for marks in gaming halls, and gangs battled for control of high-stakes rooms.