The deal is being done via an intermediary; an IKG officer named Lou Kan Kuong. Earlier this week, IKG inked a memorandum of understanding in which officer Lou acts as a junket operator at Crown’s Perth and Melbourne properties while IKG gets 100% of his profits. IKG called the purchase price “nominal” and said it hopes to conclude the deal by mid-May.
The degree of separation seems silly, since IKG and Crown aren’t strangers. IKG funnels VIPs to City of Dreams, the Macau casino operated by Crown’s joint venture Melco Crown Entertainment. But Australia can be very picky about who does what with Crown, so…
IKG currently has stakes in five VIP gaming rooms spread across four different Macau casino operators but Macau’s VIP market is in the dumps, IKG chairman Man Pou Lam was therefore justifiably giddy over the firm’s “first step toward expanding our operations and presence internationally and beginning to diversify our sources of revenue.”
With Beijing eyeing Macau like a narc, junket operators are increasingly steering VIPs to other casino jurisdictions. IKG vowed that the Crown deal would not be its last, saying it will seek “additional opportunities to expand our presence overseas.” IKG filed its annual report last week, reporting a loss of $60.1m, largely due to a writedown on three VIP rooms it acquired last year.
FIRST, JUNKET AGENTS GET THE MONEY, THEN THEY GET THE POWER…
IKG also warned that junket agent commissions were going to rise. IKG believes junket consolidation over the past few years has given agents “significant leverage and bargaining power.” IKG warned this could lead to higher commissions, “the loss of business to a competitor or the loss of our relationships with our junket agents.”
Junket agents are the scouts of the VIP gaming industry. They find the high-rollers and verify their assets as a way to gauge who’s actually capable of making good on his or her gambling losses. Late last year, Macau gaming regulators told junket operators that their agents couldn’t have criminal records.
JUNKET INDUSTRY PLAGUED BY MISTRUST
The entire junket industry is suffering from a lack of trust, according to a Macau Polytechnic Institute professor. Zeng Zhonglu recently blamed Macau’s nearly year-long decline on last year’s heist of $1.3b in junket investor funds by Kimren Group investor Huang Shan. Zeng said the sum represented around 10% of junket operators’ annual loan volume but the fallout has had far wider effects.
Zeng said Huang Shan’s homage to Oceans 11 had “shaken other investors’ confidence.” The junket industry is based on personal relationships and trust and Huang Shan’s disappearance “made such trusting relationships disappear.” The incident is believed to have played a significant role in Macau’s net loss of 34 junket operators last year.
Zeng would like to see Macau impose stricter regulation of the junket industry, saying the “loose loaning policy” of the pre-Huang Shan period had resulted in too many bad debts, creating a bubble that was doomed to pop. Zeng said the new mantra ought to be “lend cautiously.” And carry a big stick…