Diplomatic cables released by WikiLeaks have given the world an uncensored look at the secret dealings of the US Government. The cables have shown how the US has their hands in all areas of the World’s governments and economic affairs. The gambling industry is no different.
After much digging we have pulled some of the diplomatic cables concerning Macau and the gambling industry. While there is nothing earth shattering, like a secret prison camps deep inside the MGM but the cables give some insights into the rise of the top gambling region on the planet.
The cables expose a personal feud between local tycoon Stanley Ho and Las Vegas Casino executives and highlight some differing opinions over gambling junkets.
Consul General Joseph Donovan relays several points of concern in classified diplomatic cable 08HONGKONG1962. Donovan discusses visa restrictions placed by the Peoples Republic of China (PRC) and relays accusations from Casino executives that organized crime is benefiting most from the use of gambling junkets.
Visa restrictions placed on mainlanders travelling to Macau in September 08 caused a dip of 15% in the number of visitors to the region. This was a huge concern for gambling executives as mainlanders accounted for 58% of all visitors to Macau.
The Visa changes hit the publically traded companies hard. The S&P index had dipped 21% but over the same time period, Las Vegas Sands shares dropped 72%, the MGM Mirage and Wynn resorts dropped 60% and 45% respectively.
In the same cable Donovan discuses a conversation with an executive working for Stanley Ho. The exec asserted that “all of the junket operators are directly or indirectly involved with the triads.” He went on to criticize the Macau Government’s (MSARG) decision to raise the junket operator’s commission ceiling from 1% to 1.25% of the turnover.
The Stanley Ho Group executive claimed that the jump in commission will funnel more money into the hands of the Triads but as GC Donovan points out, the raise in junket commission “of course, hurts the casinos’ bottom lines.” In addition, the US Casino operators point out to the GC that they only deal with junket operators legally licensed by the MSARG.
The diplomatic cable states “Each of our American casino interlocutors stated they only deal with MSARG-licensed junket operators, and that their firms fully comply with U.S. and Macau gaming statutes and regulations.”
This complaining by Ho’s executive will raise the ire of more alarmist gaming media and public company apologists as they try to tie in the Triads with the Asian market. This is a mistake as it comes from a misunderstanding of the local rules.
When reporting on junkets, Western media glosses over the rules of what is and isn’t legal in the Macau Market and only compare it to American standards.
Western media highlights the organized manner in which the junkets operate. They assume it’s organized crime but unlike the US where these organized junkets would be illegal, these groups are fully legal and licensed by the Government of Macau.
Las Vegas Sands CEO Sheldon Adelson echoes the attitude of Ho. The WikiLeaks released diplomatic cables points out Adelson has taken a different approach. Confidential Diplomatic Cable 09HONGKONG1819 states that Adelson takes his complaints over the heads of the Macau Government.
Adelson prefers to deal directly with the PRC. The LVS runs an outreach program directed at senior PRC officials in Beijing. The program lobbies for beneficial rule changes, particularly in the area of visas and gaming oversight.
The Sands main competitor in the region, Wynn Resorts eschews this disrespectful practice of going over the heads of the local Macau Government.
We agree with Wynn’s approach. His group respects the fact he’s a guest, doing business in a foreign country. You can’t just move into a country and tell them how to run things. Of course as anyone who’s read many of the WikiLeaks releases, it’s far too common a practice for American companies and the US Government.
These public gaming companies need to understand they are guests in Macau. There is a way of doing business which isn’t what they’re used to but junkets are legal, licenses and common practice in Asia.
It’s those Asian market practices that are boosting up their share prices as Macau and Asia is booming; Las Vegas and America is not.
Another difference between Wynn and the LVS is that Steve Wynn’s group focuses almost exclusively with VIP Junkets so they are much less affected by Beijing’s visa rules. That of course doesn’t mean Wynn hasn’t benefited greatly from Adelson’s cosy relationship with Beijing.
Acting Consul General Christopher Marut called Steve Wynn a “free-rider” on Adelson’s lobbying program.
According to 09HONGKONG1819 Adelson’s lobbying led to the PRC loosening its Visa restrictions in September 2009. This loosening resulted in a 50% increase in visitors over the same period of 2008.
Wynn may be viewed as a “Free-Rider” but according to the cables, he has a much better relationship with the GOM than either the MGM or Las Vegas Sands.
Comments from an MGM executive highlight the sometimes rocky relationship with The Gaming Inspection and Coordination Bureau (known by its Portuguese acronym DICJ). A senior executive at MGM said, “There are some good people at DICJ, but if they’re not directed to take enforcement action by Macau’s political leadership, they won’t.”
Wynn executives defended the DICJ, “We have no complaints with the DICJ and have a great working relationship with them.” The Wynn executive pointed out how, along with the Macau Police department, the DICJ were quick to inform the Wynn about a plot to hit the Wynn with fake gaming chips during 2009 Chinese New Year.
With the MGM, LVS and the Wynn Resorts booming in Macau, not everyone is as elated as the Las Vegas casino executives.
Diplomatic cable 09HONGKONG283 titled “Macau Chief Executive Downplays Signs of Anti-Foreign Sentiment” GC Donovan discusses an increase anti-foreign sentiment with then Macau Chief Executive Lawrence Ho.
In the cable, Donovan writes of the conversation, “He said there had been no increase in anti-foreign or anti-American sentiment in Macau, and Stanley Ho’s comments reflected a personal dispute between Ho and LVS majority stakeholder Sheldon Adelson. The CE said, “Stanley can sometimes be a cry-baby. He isn’t against foreigners. He just dislikes Sheldon, and vice-versa.”
Stanley Ho may come across as a cry baby but these foreign operators who act as guests in another country need to accept they are just that, guests.
The PRC and Macau didn’t need to open up to the Americans, so for the Sands and MGM to come in to someone else’s home and try to tell people how to run their operations is disrespectful.
Sadly, the more we learn from the leaked diplomatic cables, it’s seems par for the course for the American Government and the American public companies.