Big Trouble In Little Macau?

These companies arrange travel and accommodations for rich Chinese gamblers from the mainland to come to Macau, and then lend them money to play, since the Chinese authorities limit the amount of money they can take out of the country.

The junket companies normally collect their loans within 30 days and charge up to 3 percent interest a month thereafter for outstanding debts, according to a report by Reuters. They also operate many of the private gambling rooms these individuals use, but according to a consultant a lot of the companies’ clients are taking up to a year to pay back their debts, leaving the companies with serious shortages of cash. This situation couldn’t come at a worse time, as China’s economy is experiencing a slowdown and its government is cracking down on corruption.

Those two developments are making high-stakes gamblers think twice about taking that jaunt to Macau. One junket operator told his investors in October that 30 percent of the money owed to him was more than a year old, and gamblers are paying off their loans on a monthly basis rather than all at once, which used to be the norm. Since the business is carried out “informally” and thus may be legally shaky, it’s difficult, according to Reuters, to “establish how much credit these junkets extend,” but one analyst told the news service that it probably amounted to about $13 billion.

The junket system has been instrumental in making Macau the gaming capital of the world. Without it, the major casinos would have to rely on mass market gamblers or extend their own VIP credit, which they don’t want to do since in many cases they may end up writing off the debt. However, since gambling debt is illegal in China, some junket operators fly directly to the mainland to pressure clients or even seize assets. Some have even resorted to shaming scofflaws on the Internet.