Macau Casino Companies Could Face Junket Liabilities up to $6.3B, Says Credit Suisse

Posted on: April 22, 2022, 10:31h. 

Last updated on: April 22, 2022, 11:20h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Macau concessionaires could be on the hook for as much as $6.37 billion in agent claims. That’s following the collapse of major junket operators in the region, say Credit Suisse analysts.

macau junket
Locals walk by a Macau casino. Credit Suisse says operators could face steep junket liabilities. (Image: CNN)

Credit Suisse analysts Kenneth Fong, Lok Kan Chan, and Sardonna Fong estimate the gaming companies are sitting on $3.82 billion to $6.37 billion in frozen capital based on current exchange rates. Citing recent court rulings against MGM China and Wynn Macau, the analysts say it’s possible those funds could be seized by Macau authorities.

The two recent highest court rulings [against Wynn and MGM] hold casinos liable for gaming-related deposits by gaming promoters,” said the analysts. “Although it is still remote and not all cases will be successful, this is a significant tail-end risk that we cannot ignore.”

Last November, Macau’s Court of Appeal found Wynn Macau Ltd and junket promoter Dore Entertainment liable in a case involving a high roller customer. The court ruled that those companies must return $770,000 to the patron. A similar ruling was made against MGM China in February.

Macau Junket Business Shrinking

Following the arrest of Suncity boss Alvin Chau last year, Macau’s junket business is shrinking considerably. That’s largely due to the collapse of that company and Tak Chun Group.

Eight years ago, there were 235 junkets doing business in the world’s largest casino center. But as of the end of the first quarter, that figure tumbled to just 36. That figure could further decline as the special administrative region’s (SAR) newly ratified gaming laws require government approval of junket firms.

News of the potential junket-related liabilities comes as concessionaires grapple with tumbling share prices as coronavirus lockdowns in mainland China imperil Macau’s recovery hopes. UBS estimates the concessionaires will generate just $12 billion in combined gross gaming revenue (GGR) this year.

Recently, other research firms highlighted the ballooning debt burdens and declining cash position of Macau operators. They noted some might only have enough capital to survive a year based on current burn rates.

Operators Ditching Junket Ties

Amid the junket controversy, some operators quickly cut ties with those companies. Galaxy Entertainment and Sands China announced they’d done so in recent months.

Those are Macau’s two largest operators, as measured by market share. But both derive the bulk of their business from mass and premium mass players, making them less dependent on the junket model.

Of the six Macau concessionaires, Melco Resorts & Entertainment, MGM China, and Wynn Macau are more VIP-dependent. But some analysts say Wynn is reducing its exposure to that market segment, and Melco and Wynn certainly shuttered junket rooms in recent months.