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PP RUEHCN RUEHGH RUEHVC
DE RUEHHK #1819/01 2670940
ZNY CCCCC ZZH
P 240940Z SEP 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC PRIORITY 8616
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 HONG KONG 001819 
 
SIPDIS 
 
STATE FOR EAP/CM 
 
E.O. 12958: DECL: 02/25/2019 
TAGS: ECON EFIN EINV ETRD PGOV PREL MO HK CH
SUBJECT: MACAU GAMING REVENUES RISE SHARPLY AS LAS VEGAS 
SANDS BOOSTS ENGAGEMENT WITH BEIJING OFFICIALS 
 
REF: A. HONG KONG 1362 
     ¶B. HONG KONG 166 
 
Classified By: A/CG Christopher Marut for reasons 1.4 (b) and (d). 
 
¶1. (C) Summary: Gaming revenues in Macau rose sharply in 
August, as the PRC reportedly loosened visa restrictions on 
Mainlanders wishing to visit the Special Administrative 
Region.  Las Vegas Sands (LVS) has restarted its outreach 
efforts directed at senior PRC officials in Beijing, while 
its primary U.S. competitor in Macau, Wynn Resorts, restricts 
government relations to Macau officials.  The government of 
Macau's (GOM) new 1.25 percent junket commission cap became 
effective on September 22.  Industry observers and Consulate 
General gaming interlocutors believe the cap will prove 
difficult to enforce, due to the junkets' economic and 
political influence in Macau and the strong incentive for 
casino operators to increase marginal profits by offering 
above-market commissions.   End summary. 
 
¶2. (C) Comment: The strategies of LVS and Wynn to deal with 
their challenges in Macau tell a story of differing American 
approaches to the Chinese market.  During conversations with 
Consulate General officials this year, LVS executives 
criticized GOM actions and policies related to foreign labor 
visas, gaming oversight and regulation, infrastructure 
development, and perceived interference in personnel 
management decisions affecting Macau resident workers (refs A 
and B).  The company believes discussions with PRC officials 
will likely prove more fruitful than its talks with Macau 
officials, especially with regard to fostering increased 
visitor flows from the Mainland to Macau.  But direct 
engagement with the PRC risks the opprobrium of GOM officials 
who control key elements of the company's operations in 
Macau.  These include visa approvals for foreign workers, 
construction permits, operating licenses, and gaming 
oversight and enforcement.  In contrast, Wynn eschews direct 
engagement with Beijing in part because Wynn focuses on VIP 
players who are less affected by PRC visa restrictions, but 
also because Wynn wants to avoid "going over the head" of the 
GOM.  As a free-rider on LVS's outreach program in Beijing, 
Wynn stands to benefit modestly from potential LVS successes, 
while remaining largely immune from the possibility of GOM 
retaliation.  End comment. 
 
PRC Loosens Visa Restrictions, Gaming Revenues Rise 
--------------------------------------------- ------ 
 
¶3. (C) According to our Macau gaming interlocutors, beginning 
in late July 2009 the PRC loosened the visa restrictions it 
imposed the previous year on Mainland visitors wishing to 
visit Macau.  Wynn Macau Executive Vice President of 
Operations JD Clayton told us visitors from some Guangdong 
cities are now allowed to visit Macau twice per month, 
compared with the previous limit of once every two months. 
This contributed to Macau's gaming revenue increase of 17.2 
percent year-over-year in August.  The record single month 
total of USD 1.4 billion (MOP 11.3 billion) in August 
exceeded the previous month by 17.8 percent.  In addition to 
the looser visa policy, some Hong Kong-based industry 
analysts linked the gaming revenue upturn to a surge in 
lending by Mainland banks, related to the PRC's economic 
stimulus package.  Visitation to Macau has remained strong, 
and industry observers expect gaming revenues in the month of 
September to increase by over 50 percent compared with the 
prior year period. 
 
LVS and Wynn Differ on Approaches Toward Beijing 
--------------------------------------------- --- 
 
¶4. (C) LVS Macau President and CEO Steve Jacobs told EP Chief 
on September 17 that LVS restarted its government outreach 
efforts in Beijing over the past several months, and achieved 
"great success" in building direct relationships with senior 
officials.  Jacobs said LVS's direct engagement in Beijing is 
designed to build goodwill, explain the company's current and 
planned contributions to Macau's economy and society, and 
encourage freer movement of PRC residents into Macau.  LVS 
CEO and majority shareholder Sheldon Adelson highly values 
direct engagement in Beijing, according to Jacobs, especially 
given the impact of Beijing's visa policies on the company's 
growing mass market operations in Macau. 
 
¶5. (C) LVS's pre-Olympic outreach efforts were suspended in 
early 2009, after the PRC forced the company to close its 
newly established non-profit Adelson Center for U.S.-China 
Enterprise in Beijing.  The PRC's State Administration of 
 
HONG KONG 00001819  002 OF 002 
 
 
Foreign Exchange in China, according to LVS's latest 
quarterly report published in August 2009, "made inquiries 
and requested and obtained documents relating to certain 
payments made by the company's wholly foreign-owned 
enterprises to counterparties and other vendors in China."  A 
former LVS senior executive told Econoff that the PRC 
inquiries relate primarily to funds transfer mechanisms used 
by LVS to establish the now-closed USD 100 million Adelson 
Center.  LVS's current efforts in Beijing are designed in 
part to offset these early "missteps." 
 
¶6. (C) Wynn's Clayton told EP Chief on September 17 that his 
company does not seek direct engagement with PRC officials in 
Beijing.  He said he thought it was a mistake to go to 
Beijing knocking on doors, and disrespectful to Macau's 
government to go above their heads.  He added that Wynn 
operated in Macau, and that was the government they dealt 
with.  Clayton noted that Wynn CEO and majority shareholder 
Steve Wynn arranges to meet privately with Macau's chief 
executive during each of his quarterly visits to Macau. 
 
¶7. (C) MGM Macau President Grant Bowie said his firm neither 
initiates nor avoids direct involvement with the PRC. 
However, MGM's 50 percent joint venture partner Pansy Ho 
(daughter of Macau casino magnate Stanley Ho) was called to 
Beijing "several times" in 2009 to advise the Beijing 
government about developments in Macau, including GOM plans 
and efforts to diversify Macau's economy away from gaming. 
Pansy Ho's brother Lawrence is CEO of Macau's third-largest 
gaming concessionaire, publicly traded holding company 
Melco-Crown.  Our interlocutors in Macau say Lawrence's 
engagement with the PRC has been limited, but this may change 
due to his father's ongoing hospitalization since early 
August, reportedly due to a severe brain-related illness. 
Stanley Ho is a Standing Committee member of the Chinese 
People's Political Consultative Conference. 
 
GOM Announces Junket Commission Cap 
----------------------------------- 
 
¶8. (U) VIP gamblers in Macau (i.e., those betting more than 
USD 400 per hand) typically come to Macau with the assistance 
of a junket operator who makes travel arrangements, provides 
credit and facilitates access to VIP gaming rooms.  These 
VIPs play baccarat almost exclusively.  VIP baccarat 
accounted for 65 percent of total gaming revenues in Macau 
during the first six months of 2009.  The GOM announced that, 
effective September 22, the commissions the junkets receive 
from casinos for bringing in VIP clients will be capped at 
1.25 percent of VIP gambling chip sales.  The GOM said 
casinos have until October 1 to amend their contracts with 
junket operators.  The commission cap is designed to limit 
the upward trend in payments to junket operators who 
increasingly "shopped" their VIP players to Macau's six 
gaming concessionaires.  Even capped at 1.25 percent, 
payments to junket operators exceed 40 percent of the 
casinos' VIP baccarat winnings.  GOM taxes take another 39 
percent.  Macau's gaming concessionaires seek to bypass 
junket commission payments by sourcing their own Mainland 
Chinese VIP players, but such efforts are risky.  VIP players 
frequently gamble using credit, and gaming debts are not 
legally enforceable in the PRC. 
 
¶9. (C) Gaming Inspection and Coordination Bureau (known by 
its Portuguese acronym "DICJ") Director Manuel Neves told 
Econoff on September 18 that the DICJ will issue details 
"within a week" specifying the types of junket reimbursements 
to be included in the 1.25 percent payment cap.  Industry 
observers believe the commission cap will likely prove 
difficult to enforce.  LVS's Jacobs told us the cap "will be 
routinely violated."  He cited several reasons for this: the 
junket operators maintain significant economic and political 
influence in Macau; the temptation for some casinos to ignore 
the cap in order to boost marginal earnings will prove 
irresistable; and the GOM's implementation and enforcement 
mechanisms require further development. 
MARUT