Macau Crackdown Could Threaten US Gambling

(Photo: Casino.org)

The Butterfly Effect, so elegantly demonstrated with water drops on the back of a hand in Jurassic Park, is the pop culture way of explaining the sensitivity to initial conditions of certain complex systems. The name stems from the idea that the course of a hurricane can be vastly different depending on whether or not a butterfly flapped its wings a few weeks earlier and many miles away. Or, to take another, more practical example, a Chinese anti-money laundering crackdown in Macau could have a knock on effect on the US elections in November.

A team of writers from the UK’s Guardian newspaper and the Investigative Journalism Programme published a fascinating article last year on the international moneyweb that ties the worlds of Chinese exchange controls and the Triads to casino junkets in Macau to the Vegas strip and to the shady individuals who pay the way for the presidential hopefuls.

To explain how these things are linked we need to introduce you to two major characters in the worldwide casino business. The first of which is Sheldon Adelson.

Las Vegas Sands Corp and The Vegas of the East

Sheldon Adelson seems a caricature of the villainous big businessman. His company, Las Vegas Sands, not only owns the Venetian, and the Palazzo on the Vegas strip, but Adelson, in true Citizen Kane style, also owns the Las Vegas Review-Journal, a fact which some of his journalists have complained about. One editor has been let go for failing to show ‘loyalty’, and another quit, claiming that he was not allowed to publish an article critical of Citizen Adelson. Classic moves from the evil movie mogul play-book.

The second character in this international drama is the city of Macau. Once a Portuguese colony under a similar sort of indenture as Hong Kong, Macau rejoined China as an autonomous territory in 1999. Its main source of revenue is tourism, including a massive gambling sector which, until 2002, was run entirely by a state authorised monopoly.

Here is where the two characters meet. Adelson was one of the first foreigners to get in on the newly opened casino market in Macau in 2004. It worked out for him: Adelson personally ended 2012 with a $1.2billion dollar dividend from his Macau holdings and, according to the Guardian, he was raking in $33million per day over the course of 2013. In 2014 Macau was generating seven times the revenue of the Vegas Strip of which about a third was going to US owned companies.

Adelson Versus / For Trump

So perhaps, when it is reported that Adelson donates tens to hundred of millions to PACs in the US (including a rumoured $150million dollar donation to opponents of Obama in the last election cycle), he comes across as a touch Scrooge-like; a fact that we can all be glad about because he’s a big time Republican and that means Donald J. Trump is getting his cash this year, a fact about which Trump, with his usual Trumpery, seems a tad confused as to his position.

Sheldon Adelson is looking to give big dollars to Rubio because he feels he can mold him into his perfect little puppet. I agree!

— Donald J. Trump (realDonaldTrump) October 13, 2015

An incredible honor to receive the endorsement of a person I
have such tremendous respect for. Thank you, Sheldon! https://t.co/nW0N3OO4mw

— Donald J. Trump (@realDonaldTrump) May 13, 2016

China’s Money Movers

Unlike Vegas where sheer quantity of punters is the key to turning a profit, Macau’s main revenues came, in the past, from what are known as junkets: a sort of organised holiday for the ultra-rich. The junket operators tend to have deals with the casinos for a portion of the losses of the whales, sometimes they even assume the risk, having to pay out to the casino should the junket players make a profit. But the one thing that unites the junket players is massive stakes. These are what would be known in the US as whales, the highest rollers.

But the Chinese government has been somewhat wary of this sort of trip, not the least because gambling is illegal in China, and so the debts taken on by the junkets cannot be enforced under law once back on the mainland – leaving the door open to the underworld of organised crime who, one imagines, have their own means of enforcing a debt.

The Chinese government is also leery because currency exchange limits prevent large scale movement of Chinese renminbi (CNY) abroad. This means high stakes gamblers from the mainland have to go through some semi-shady dealings in order to get their Macanese pataca (MOP) for the tables.

Several interviewees, in the Guardian’s article link the junket trips to the Triads. So when, in May of last year, Adelson found himself in court testifying against charges brought against Las Vegas Sands for bribery overseas and ties to organised crime, his response that the allegations were delusion sounded somewhat naive to some ears. The case ended in his company paying $9million in fines to the SEC, and another $75million in May this year to settle a related wrongful dismissal case brought by a Las Vegas Sands former Macau chief executive on the grounds that he felt he had been fired for refusing to assist in the bribery and for warning against the Triad involvement in junkets.

The Turn In the Market

Last year, however, Macau’s gambling revenues were down around 50% from the year before as China made it harder to move money back and forth, and Macau, along with the casinos, started regulating the junkets themselves. The result has been that the American properties are ahead of the game. They already have a more retail gambling model available in their homeland and so Las Vegas Sands have been installing malls in their casinos, turning them into resorts rather than just casinos and taking a new tack on their publicity.

At one level, Adelson’s credibility as a moral arbiter whose money moves where his conscience takes him – a role he appears to have taken on himself as a selfless campaigner against online gambling – is somewhat shaken by the recent allegations. And if he finds himself having to pull back from politics, that may give legalization some breathing room in the States where Nevada, New Jersey, New York and Delaware sites are beginning to claw back some of the ground lost to UIGEA.

But the butterflies of Chinese currency crackdowns and Macau’s regulation may also have an effect on the direction of Hurricane Trump. With more problems abroad, more scrutiny of his actions, and perhaps a general aura of corruption about him from the SEC and wrongful termination settlements, Adelson’s dollars may not be as plentiful or carry as much weight as in previous years.

Then again, how big an effect a few tens of millions of dollars will make to the elections – when racism, dishonesty, violence, and incompetence have done nothing at all to damage the Republican campaign so far – remains to be seen. Still, to paraphrase A. A. Milne’s Piglet:

"From little acorns, thick and orange oaks grow."