MACAU, CRIME, AND REGULATION TWENTY-FIFTH LECTURE November 27, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business Director, Institute for the Study of Gambling and Commercial Gaming University of Nevada, Reno

THE GOD OF GAMBLERS (excerpt)

OPERATING CHARACTERISTICS OF VIP ROOMS IN MACAU Junket operators bring customers from Mainland China –Initially Hong Kong and Taiwan, but China since 2003 –Junket operators are outside regulatory structure Revenue share based on Rolling Chip sales –Mechanics similar to non-negotiable chips in the US Under monopoly, roughly 1/3, 1/3, 1/3 revenue split Under competition, it has moved to 50%, 40% and 10% –Bargaining Power, Cutthroat Competition; the role of AMAX –Revenue rich, profit poor => Financial challenge especially for Las Vegas Sands –Revenue growth has made the market profitable in spite of the split

THE VIP SEGMENT AS A PROPORTION OF MACAU’S TOTAL CASINO GAMING REVENUE YearTotal Casino Gaming Revenue (billion, US$) Total Casino Gaming Revenue from VIP segment (billion, US$) Ratio of VIP Revenue to Total Gaming Revenue % % % % % % %

Gross revenue from different game types of games of fortune in Game Types st Qtr.2nd Qtr.3rd Qtr.4th Qtr.Total Roulette Black Jack 1,9172,2471,9032,2902, ,177 VIP Baccarat 55,76273,77279,834135,648196,12652,67852,17551, ,019 Baccarat 16,51521,26425,49834,91748,66915,13015,55316,805-47,488 Fantan Cussec 2,7553,0432,8263,5554,7741,3541,3281,398-4,080 Paikao Mahjong Slot Machines 3,5945,6536,5038,61811,4253,3063,2853,149-9,740 MACAU GROSS GAMING REVENUES (HK$) Note: US$1 = HK$7.75

Number of gaming tables and slot machines in Items st Qtr. 2nd Qtr. 3rd Qtr.4th Qtr. Gaming Tables 4,3754,0174,7704,7915,3025,2425,4985,497- Slot Machines 13,26711,85614,36314,05016,05616,10217,03517,029- Quantity as at period end Number of casinos in Macao in CONCESSIONAIRES st Qtr. 2nd Qtr. 3rd Qtr.4th Qtr. S.J.M Galaxy Casino, S.A Venetian Macau, S.A Wynn Resorts (Macau) S.A Melco Crown Jogos (Macau) S.A MGM Grand Paradise, S.A

MACAO VISITOR ARRIVALS BY COUNTRY OF ORIGIN Country of Origin PRC 55.1%54.5%55.9%57.2%48.3%36.8%29.2%24.8%22.1% Hong Kong30.3%31.6%30.0%30.3%38.9%44.2%50.6%54.1%56.8% Taiwan5.3%6.5%7.9%7.7%8.6%13.3%14.1%14.3%13.2% Southeast Asian Countries 6.5%5.2%3.9%2.9%2.4%3.4%3.6%3.9%4.3% America1.1%1.0% 0.9%0.7%1.0%1.1%1.2%1.3% Europe1.0%0.9% 0.8%0.7%1.0%1.1%1.3%1.9% Others0.6%0.5% 0.3%0.4% 0.5% 0.6% Total number in million Importance of the Individual Visitor Scheme from China, 2003

COMMERCIAL SEX IN MACAU wp&v=8Buq74tLo3Y&NR=1http:// wp&v=8Buq74tLo3Y&NR=1 XxEz6I&NR=1http:// XxEz6I&NR=1

LOAN SHARKING -Cokhttp:// -Cok 6WZV98&feature=relatedhttp:// 6WZV98&feature=related

UNUSUAL DIMENSIONS OF MACAU GAMING Side Betting: Could increase the volume of actual gaming revenues by a factor of 3 to 6 Credit and debt collection in Mainland China –“Black Box”: Very opaque –Casino operations highly dependent on VIP play and therefore Junket Operators Registration and licensing of Junket Operators

ORGANIZED CRIME ISSUES : The Triad Wars and “Broken Tooth” Kwok (Wan Kwok-Koi) –To be released from prison on Saturday : Garrison (battalion) of the Peoples’ Liberation Army in Macau 2005 and after: Increasing reliance on Junket Operators –Distinction between SJM and Galaxy v. Wynn, LVS, MGM and Crown Melco

ALLEGATIONS AGAINST LVS Associated with Junket Operators convicted of “conspiracy to conduct murder for hire” (Cheung) Money laundering and illegal transfers of electronic funds –Casinos are treated as banks with CTRs and Suspicious Activities Reports Bribery of public officials in Macau