In its most common mainstream application, a "junket" tends to denote an extravagant trip or celebration, in particular one enjoyed by a government official at public expense -- the kind of "perk" that President Obama was referencing back in 2009 when he landed himself in some hot water with then Vegas mayor Oscar Goodman, among others, by calling out executives at companies who'd received bailout money during the Great Recession, stating "You can't take a trip to Las Vegas or down to the Super Bowl on the taxpayers' dime."
However, when it comes to the casino industry itself and the type of junket referenced in LVA's esteemed Stiffs & Georges business blog, authored by David McKee, the concept has a very specific application and evolution. To quote Max Rubin's 2001 classic, Comp City, "In 1961, a new Flamingo stockholder threw a party and flew in a planeload of wealthy friends from Florida to show off the hotel. While his guests were there, the hotel recorded its biggest 'drop' (buy-ins at the tables) ever and decided to pick up the tab (room, food, entertainment, even the chartered jet) for the whole group. This inaugurated the era of the junket—a plainload of gamblers who qualified for free airfare, room, food, and beverage by putting up a required amount of front money. The junkets were run by junket masters, who were paid by the casino for every gambler they brought in."
Rubin continues, "The first customers to come out on these junkets were mostly criminals … Not just mobsters, but also small-time bookies, numbers runners, knee breakers, con men, land swindlers, and the usual assortment of all-around bad guys. But by far the most common type of 'criminals' were good-guy legitimate businessmen, who were deft at handling cash-register receipts, but somewhat lax in their civic duty when it came time to remember their silent partner, the IRS."
Fast forward to 2016 and Las Vegas and its casino operations have changed a great deal since the earliest days of the Strip, but while a corporate clampdown on the loose accounting practices and discretionary comping of yore may have pretty much put paid to the junket in the Nevada gaming market, not so in the "Wild Wild East" of Macau, thanks to the enclave's status as a semi-autonomous Special Administrative Region of the People's Republic of China, in charge of its own legal and monetary systems, public security force, and customs policy, and the only domestic location where wealthy Chinese can gamble legally.
Typically, a junket operator will sign a contract with one of Macao’s nearly three-dozen casinos. In return for use of some of the casino’s private high-roller rooms, the junket operator steers its VIP players – at peak, responsible for 70 percent of gambling revenue -- to that casino. High rollers are plied with promises of comped rooms and free travel, much as in Las Vegas today, only here junket operators have been replace by casino hosts like Steve Cyr, of Whale Hunt in the Desert notoriety. Macau's junket operators pay the house either a 1.25 percent commission or split the gaming win.
Also, since there is a limit on the amount of money one can bring into Macao, junketeers extend credit to players, a system that is referred to as "rolling chips." (Financial reports on Macao frequently measure "rolling chip volume" as a metric of casino performance.) "It's a specialized form of shadow banking. I can’t think of an industry that's directly comparable," Hong Kong economist Stephen Green told the Wall Street Journal. The paper wrote of junket agents, "It is easy to spot them roving the casinos with their man-purses stuffed with cash and chips for quick loans. Agents may carry tens of thousands of dollars, turning to investors … when they need even more to make a loan."
Gambling debts are not enforceable in China. Furthermore, Wynn Resorts, Las Vegas Sands, and MGM Resorts International are forbidden by Nevada law from extending credit to players in Macao. Casinos there rely on junket operators to collect debts in mainland China. This is where the junket operator's reputation gets murky, as some have been alleged to use Triads to do the dirty work of debt collection. Conversely, lucky players are obliged to pay the junket a commission drawn from their winnings.
Sands experienced some public embarrassment when a Triad figure was revealed to have a hidden ownership in one of its many VIP rooms. (The ownership was structured in such a way that Sands couldn't have known and reflected no discredit on the company.) As Nevada Gaming Control Board Chairman A.G. Burnett noted, speaking in general, untoward ownership could be concealed behind "a façade of 'legitimate' public corporations, complex corporate structures, financial guarantees, and third-party assignments." Such was the case with Sands.
A more serious concern with junket operators lately is the prospect, given the amounts of money they handle, of an employee absconding with the goods. This is what happened recently at Wynn Macau, when Dore Entertainment, operator of three VIP rooms, had at least $64.5 million embezzled from it last September. That brouhaha was still brewing when L’Arc casino came up $13 million short in monies from its VIP rooms.
Incidents like these have made junket investors – crucial sources of cash – skittish about putting their money into the industry. Combine that with a crackdown on corruption by the Chinese government, which has put a fear of god into VIP players, and the junket business now finds itself between a rock and a hard place. Operators are either closing up shop or shifting their focus to more-stable markets, like Singapore. Although gambling revenues in Macao continue to sink like a stone, it’s still a $30 billion/year market and the junket operators who survive will continue to be an integral part of it for the foreseeable future, if possibly in more attenuated form.
