Amid Macau’s gaming revenue slump, a first-of-its kind VIP slots room has opened. Grand Prize VIP Club operator Zhang Zheng told Business Daily that there is opportunity in times of crisis and that he believes in Macau’s long-term future. He says the novelty will be a game changer and that more transparency and regulation need to be implemented to manage the gaming promoter industry, with better recognition and benefits for junkets the trade-off What’s so special about a VIP slot parlour? What are the differences between this and the slots seen on the mass gaming floor? The mass market mainly consist of tourists who come to Macau without a specific purpose of gambling. They may play a few hands on the mass gaming floor when they check in to a hotel where there’s a casino. In the VIP model, there are gaming promoters, gaming agents. It’s like a tour agency charging commissions to guide tour groups. We can guide the clients to the places we want them to see. The gaming promoters will take a share of the profit as their commission. This doesn’t exist in the mass market. On mass market gaming floors, slot machines have a minimum bet of 50 cents Hong Kong dollars, HK$0.1, HK$0.2. Our minimum bet is priced at HK$1 for some machines with the highest HK$10 for other machines. What’s the idea behind opening a VIP slot parlour when traditionally a VIP room is filled with baccarat tables? The baccarat VIP junket model once achieved an 80 per cent market share in terms of gaming revenues. The VIP junket model for baccarat has proven to be a great success. It’s presumed that the VIP junket model to be adopted in other types of games can be successful. We highly encourage the gaming promoter model to be adopted in other kinds of gaming activities. In Western gaming markets, gross revenues from slot machines can take up to 50 to 60 per cent of market share. However, the number is as low as five per cent in Macau. There is a huge potential for this game to be developed. Five per cent per year means roughly HK$15 billion in a year. I believe that number can be as high as HK$125 billion per year. Adopting the junket model for other types of games can also develop the possibility of diversifying customer sources. Slot machines are very popular in Western countries. With VIP slot parlours, we may lure customers from those regions as well. What are the requirements for a client to join a VIP slot club? It’s similar to other baccarat VIP club membership terms. The minimum charge to enter is HK$100,000. They have to play at least HK$100,000 to join our club to play the slot machines here. What’s the level of agent commission? We have our own calculation method to share the profits with gaming promoters. It’s similar to the ones for baccarat and probably higher than for baccarat. In terms of business model, can revenues generated by a VIP slot club match a VIP baccarat room? VIP slots has a better revenue than mass slots, just like VIP baccarat has a better performance than mass baccarat. Customers can play millions at slot machines as well. The biggest charm of slot machines for the customer lies in that they can use a little money to win a big prize. For example, on the HK$10 minimum betting machines, you can place the highest of HK$8,800 for one bet, but the biggest reward can be as high as HK$8 million. They can press the button to put down a bet every few seconds on a slot machine, while a run of game of baccarat may take some time. Why do you choose slots, in particular, when Chinese gamblers are known to favour baccarat? Slot machines first became very popular in Australia. They had a history there for more than 60 years and a history of around 50 years in some other Western countries. They are very well accepted and recognised in those markets. The reason why baccarat has such a huge share of the market while slots have a relatively small one here in Macau is because baccarat has a junket model but slot didn’t used to have. It doesn’t mean that players themselves have a preference for baccarat. You believe that a junket model for slots will work . . . ? Junkets know that when taking their clients to baccarat VIP clubs they will have a share of the commission so they will convince their clients to play baccarat even when the client prefers slots. Now that we have VIP slot parlours and the junket model, junkets can share the profit either way. For gamblers that used to play on mass market slots, the junkets can now take them to join the VIPs and share the profit. The preference for a certain game is dominated by junkets, not necessarily by the customer. I’ve known a lot of gamblers that have a passion for slots. They only go to play baccarat when they don’t have the money and they can borrow from the junkets when playing baccarat. All they were thinking about was winning some money at baccarat as soon as possible so that they could have the money to play the slots. The guidance of the junkets in the earlier stage played a decisive part. Macau has now seen a slowing gaming industry with dozens of VIP rooms closing recently. Why choose now to open a VIP room? As the Chinese saying goes: ‘every crisis comes with an opportunity’. I have faith in the development of the Macau gaming market. Macau has achieved what it is today, with the gaming industry its cornerstone. And globally, among all the gaming brands, Macau has an established reputation already. No other country or region can replace that. For the time being, Macau’s gaming market is experiencing some setbacks with a 20-month consecutive gaming revenue slump. But look at it from a broader perspective; it’s a result of many other factors. I don’t think it’s because of anti-corruption or the economy slowdown. From my point of view, the nation thinks about competition from America or Japan and strategic containment of China. It should also take into account who the neighbouring regions are who have been containing Macau and China’s gaming industry so to speak. A lot of countries in the region have been putting a lot of effort into developing their gaming industry, with many beneficial terms, such as low tax. They are targeting Chinese clients as well. And some places have launched, for example, online gaming and tele-gaming. Despite that, gambling in Mainland China is illegal, but with the Internet and means of [manipulating] IP, it’s hard to stop it. All these [factors] have made a great impact on the gaming industry in Macau. How do you think Macau can overcome these challenges you’ve mentioned? With regard to actual casinos, those actual environments, other countries in the region don’t stand a chance when competing with Macau. We have all the casinos, provide all sorts of food and beverage, entertainment, and shopping, all these great supporting facilities. The other countries cannot easily match the kind of investment that has been made here in Macau. However, online gaming has posed a huge threat. Both the SAR Government and the Central Government seem to be struggling about whether to grant online gaming licences or not. Even under the ‘One Country, Two Systems’ policy, this can be very tricky. But there is one possibility, I think, is worth exploring. Macau can grant an online gaming licence to a directly-managed social welfare organisation rather than any of the existing six gaming operators. It will be something like the social welfare lottery in Mainland China. I suggest the SAR Government consider the possibility of the DICJ (Gaming Inspection and Co-ordination Bureau) co-operating with the local social welfare organisations to develop the online gaming sector with a positive tone so that it can offset the negative impact as well as contribute to society. The profit can be designated for social welfare or other charitable organisations. DICJ can even operate with charitable organisations in Mainland China or other countries and regions to open up the gaming market on the Internet and have it legalised and supervised properly. This will eventually benefit society, like supporting the cash hand-out programme conducted by the government or even the establishment of social welfare and people’s livelihood. The SAR Government has been talking about tightening up regulations for the junket operators. What’s your take on this? Despite making great contributions to Macau society, the position of gaming promoters is still a bit awkward in Macau society. They cannot promote themselves straightforwardly; some individual promoters are not properly recognised by the government, and for those coming from Mainland China the visa can be a big problem. It’s really unfair when you think about it. Gaming has been the pillar industry of Macau society. It has contributed a great deal to the economy. The VIP sector, which was brought by gaming promoters, has so far been the biggest contributor. But the government has been trying to diminish its significant achievements by all sorts of means. We see visa restrictions. We see smoking bans being implemented. We have always seen the government trying to control and manage these people that have made great contributions to Macau society, but they’ve never mentioned any sort of reward. All they talk about is how to regulate, how to supervise, and how to enhance transparency. But what do we have in return? There should also be incentives and more beneficiary policies from the government for the junkets who have made special contributions, such as tax deduction, personal and family medical care, and education for their children, so that more junket operators can consider coming to Macau and investing here. So far, junket promoters have different agreements with all other relevant parties, such as gaming operators or casinos. There’s no centralised standard. I suggest that all relevant documents in relation to licensed gaming promoters be standardised, such as contracts, agreements, accounting documents. The format of the documents have to be approved by government authorised organisations or other professional institutions, so that a data base of relevant data can be established, and recognised, supervised and protected by Macau laws. Coming from Mainland China, how did you get involved in Macau’s gaming industry in the first place? I first came to Macau in 2004. I was first here as a tourist, then I learned that there was a job position as a gaming promoter, making money out of commissions, so I started getting into this business as a gaming promoter on and off. I’ve worked at Lisboa Casino, and also witnessed the opening of the Landmark Casino and Sands. At the end of 2006, there was an opening in the Suncity group and also later a junket group Heng Seng. I’ve worked in many baccarat VIP parlours as a gaming promoter. After all these years, I think I have a certain understanding of the Macau gaming market. How has the market been reacting so far to this VIP slot club? The market reaction has been great. Two or three gaming operators have shown interest in us. They would like to have VIP slot parlours operated by us on their properties. We’re in negotiation already. There are slot machines suppliers that are in talks with us [regarding] investing in our company as well. Conservatively speaking, we are planning on open three more VIP slot parlours in Macau this year.
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