Gaming promoters in Macau: current regulation and perspectives of reform

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Gaming promoters in Macau:

current regulation and

perspectives of reform

Jorge Godinho

Visiting Professor, University of Macau

([email protected]) ([email protected])

A presentation to the International Association of Gaming Regulators 2015 Conference, Lima, Peru, 14 October

2015, jointly located with the International Masters of Gaming Law 2015 Autumn conference

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Legislative history - summary

 1976 to 2001 – no regulation

 2001 - Law 16/2001 recognized gaming promoters

(GPs)

 2002 - Administrative Regulation 6/2002 regulated

GPs in detail

 2004 - Law 5/2004 allowed GPs to grant credit  2009 – cap on commissions paid to GPs

 2015 – September: major reforms announced

 Annual since 2005 - List of currently authorized

gaming promoters published in the Official Bulletin

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General points



Gaming promoters are in many places

essentially marketing

agents

(networks

of agents) that try to sell the gaming

product of a gaming

sub/concessionaire, against the

payment of a

commission



But…

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More than just agents..

•

In Macau they may be more than just

agents, and also:



grant credit



collect unpaid credit



help with money

transfers/arrangements



Sometimes share in the revenue

of gaming tables or rooms in

casinos (VIP rooms)



All this in relation to the VIP market..

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VIP market

 Gaming promoters are very important for the

baccarat VIP market

 brings in the majority of gaming revenue

 the scale of the Macau Baccarat VIP market is

huge since the 1970s, dwarfs all other games

 Main functions:

 GPs help to transfer the money out of China and

into the casinos: they move the money, issue credit and collect.

 They take the risk: junkets know who their

customers are, based on a personal relation

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Regulation basics



Administrative Regulation 6/2002, of 1

April 2002 (as amended in 2009)

regulates namely the following key

points:

licensing process

Not just a registration

Suitability requirements

Maximum commission rates (since 2009)

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Legal definition of gaming

promoters (unchanged since

2002)

agents for the promotion of casino

games of chance who exercise their

activity by granting facilities to players,

particularly regarding transport,

accommodation, food and

entertainment, receiving a commission

or other remuneration paid by a

concessionaire

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Legal definition vs business

models

 The legal definition of 2002 is essentially that of

a travel agent specialized in organizing

gambling trips (gaming tourism), assists with ‘comps’ and receives a commission

 There may be junkets who only do this

(‘mini-junkets’) and do not grant credit; but…

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Credit for gaming and

GP’s

 The Legal definition of article 2 of

Administrative Regulation 6/2002 did not mention the role of gaming promoters in granting credit for gaming

 Credit for gaming was regulated in 2004: the

law says from 2004 that gaming promoters can grant credit

 Today, the two laws (gaming promoters and

credit) should be seen together

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Market structure envisaged:

open market with

competition between

concessionaires for gaming

promoters

 Each gaming promoter must register at least

with one concessionaire, but

gaming promoters are free to work with more

than one concessionaire if they wish to

Gaming promoters may move from one

concessionaire to another

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GGR games of chance 2002-2014

50 000 100 000 150 000 200 000 250 000 300 000 350 000 400 000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 11

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The biggest expansion of gaming in world history?

Gross gaming revenue Casinos Table games Slot machines (103 MOP) (no.) (no.) (no.) 2002 22 842 627 11 339 808 2003 29 475 855 11 424 814 2004 42 305 640 15 1 092 2 254 2005 46 046 926 17 1 388 3 421 2006 56 623 468 24 2 762 6 546 2007 83 022 245 28 4 375 13 267 2008 108 772 000 31 4 017 11 856 2009 119 369 000 33 4 770 14 363 2010 188 343 000 33 4 791 14 050 2011 267 867 000 34 5 302 16 056 2012 304 139 000 35 5 485 16 585 2013 360 749 000 35 5 750 13 106 2014 351 521 000 35 5 711 13 018 12

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Licensing of gaming

promoters

 The procedure for granting gaming

promoter licenses has been regulated in 2002

 Many gaming promoters have been

licensed

 Annual list is published

Last count (Jan 2015): 183 promoters

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Licensing of gaming

promoters



done by means of administrative licenses



Not by means of concessions



The process is ongoing; anyone can

apply at anytime: there are no

application periods

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Business forms allowed



Gaming promoters may be:



Individuals



private companies



single shareholder private

companies



public companies

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Gaming promoter

companies

 If the GP is a company, all shareholders

must be individuals

 In addition, if the GP is a public company: all shares must be nominative

in 2015 bearer shares were banned by an

amendment to the Commercial Code

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Market evolution

 Large gaming promoters listed in the HK

stock market

 This structure worked well: commissions

paid to gaming promoters kept rising

 But commissions apparently rose too much…

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Amendments of 2009

 Legislation was passed to control the ‘war on

commissions’ that was taking place

 Announced in 2008, the laws were passed in

2009

 As a result, it is illegal for the concessionaires

to pay commissions which exceed the amount set by law

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The cap was set at 1,25%

of net rolling

comissions or any other forms of

remuneration of gaming promotion activity cannot exceed a limit

corresponding to 1,25% of the total

amount bet (net rolling), regardless of the respective basis of calculation

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Basis of calculation of the

cap

 The law stresses that the cap of 1,25% of the

total amount bet (net rolling) shall apply ‘regardless of the respective basis of

calculation’

 There are two main methods of remuneration

being applied

Fixed commission on the basis of net rolling win/loss split of the operation of the VIP

room or table

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Subsequent evolution

 From 2009 to 2013 the market grew

considerably and peaked in 2013

 But apparently some gaming promoters

started accepting deposits of funds, paying 1% interest

 breach of banking laws, with criminal

law potential implications

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Shrinking VIP market and

the Dore scandal

 After peaking in 2013, since 2014 the GGR of

the VIP sector has been slowing, due to a conjunction of factors including more AML controls from China

 In mid-2015 a scandal broke out after funds

were taken from one of the large junkets (Dore)

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Reforms in the pipeline

 In September 2015, immediately after the

Dore scandal, the regulator DICJ

announced legal reforms of the regulation on gaming promoters

 The reform shall focus on points relating

directly to the Dore case; but not only, and goes further

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Reforms in the pipeline

 Reform points mentioned by DICJ:

new requirements relating to capital and

shares, guarantee deposit, accounting and auditing

increase of public disclosure and

transparency, namely a list of directors, shareholders, key employees and

employees

To consider employees of gaming

promoters who exercise functions of a financial nature as key employees

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new requirements

 capital and shares

 Currently standard company law rules

apply to capital  guarantee deposit

 This sounds like a system like that in force

for travel agents: require a cash payment or a bank guarantee on first demand. This accommodates emergencies. What will be the amount?

 accounting and auditing

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Reforms in the pipeline

 This may amount to a major expansion of the

regulation

 Overall, this increase in the regulation is justified

and probably should have been done a few years ago already

 Gaming promoters are necessary and will

continue to be for the foreseeable future, so the way forward is to improve and expand the regulation.

 This goes together with stricter enforcement of

the AML laws, a point that DICJ also stresses.

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Reforms in the pipeline

 The legislative process should unfold in 2016  Some further questions I would like raise:

 Done by means of Law of the Legislative

Assembly or via Administrative Regulation of the Chief Executive?

 Revise the definition of gaming promoter?

 Have different categories of gaming promoters

(‘big’ vs ‘small’) or just a one-size-fits-all solution? Are they basically all the same?

 How are gaming promoters complying with the

AML legislation? Are adaptations needed?

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