IAG December 2015

Cover Story
PHILIPPINE DREAM
Jimei pioneered casino ownership by junkets with Fontana, an
opportunity that followed the US withdrawal from Clark Air Force Base
in 1991. Located about 80 kilometers (50 miles) northwest of Manila,
Clark and surrounding areas and totaling 632 square kilometers (244
square miles), Clark once housed 15,000 US military personnel and
their families. The vast plot was divided into a Philippine military
facility, commercial Clark International Airport and Clark Freeport, a
special economic zone with duty free imports and 5% corporate tax
for qualifying investors, leveraging the airport as a magnet for cargo
and passenger traffic.
In 1998, Fontana’s original investors acquired a 300 hectare plot
including the US base’s officer housing area, laid out like an American
suburb with extensive green areas, a stark contrast to urbanized
Manila or Macau, and just a 10 minute drive from the airport.
Conceived as a membership resort and secured with gated, guarded
entrances, Fontana refurbished former military duplex homes and
built new villas, nearly 500 units in all, offered on an ownership or
timeshare basis. Pagcor, the Philippine casino regulator and operator,
granted Fontana a gaming license “to cater to foreign junket players
and certified club members” in 1999. As a leading Macau junket
promoter, Jimei was already doing business with Philippine casinos.
Fontana chose Jimei to operate the casino, with Pagcor’s consent, in
2004, the year the resort opened. Jimei eventually took control of the
leisure park operation as well.
Fontana has grown into Jimei’s flagship property, open to the
Beating the House
Casinos complain that junkets get the biggest
share of gaming profits. Junket promoters contend casinos and
the government hold the best hands. Inside Asian Gaming asked
University of Macau gaming expert Ricardo Siu to settle the argument.
Using conservative commission estimates IAG provided, Dr
Siu’s calculations found that junket promoters collect up to 65%
more of VIP revenue than casinos in four jurisdictions where junket
promoters are or hope to become casino owners. Casinos have
revenue streams beyond VIP play, but the numbers are striking
nevertheless.
Dr Siu finds the carping from both sides in Macau understandable.
“Casino operators and junket promoters may complain because what
they each get here is less than their counterparts get in the other
jurisdictions,” the Associate Professor of Business Economics says.
“The primary reason is that in Macau, the government shares a larger
portion.” Macau’s gaming tax and other levies reach 40%. As tax rates
drop, casinos get more of the gain but
still trail junkets’ percentage.
Those numbers don’t tell the whole
story, junket investor and consultant
Tony Tong says. When junkets prosper,
operators react. “Junket promoters
complain that casinos change the rules,
especially outside Macau,” the founder
of Pacific Financial Services says. “They
raise rents and other charges if they see
junkets making a lot of money. If they’re
jealous, they’ll try to get a bigger piece of
the revenue.” Junkets also face high costs
Dr Ricardo Siu,
University of Macau
for capital and debt collection issues.
What happens on the gaming floor is the
easy part of the junket business.
Who gets what?
Jurisdiction Tax rate Commission
Macau 39% 1.25%
Philippines 15% (1) 1.40%
Vietnam 17% (2) 1.50%
Saipan 0% 1.7% (3)
(1) This rate for VIP. Mass rate is 27%
(2) From 1 Jan 2016 rate is 35% but commissions are deductible making
estimated effective rate 17%
(3) Conservative estimate
Assumptions
1. VIP play is predominantly baccarat
2. VIP play utilizes dead chip program
3. House advantage is 2.9% of dead chip rolling (pair bet is available)
Macau Saipan Vietnam
Philippines
Casino
Casino Junket Government
Macau 16.9% 43.1% 40.0%
Philippines 36.7% 48.3% 15.0%
Vietnam 31.4% 51.7% 16.9%
Saipan 41.4% 58.6% 0.0%
Junket
Government
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inside asian gaming December 2015