Proactive Gaming Regulation: Lessons for Macao

With the liberalization of Macao’s gaming industry, Macao’s gaming revenues grew explosively, from U.S. $2.26 billion in 2002 to U.S. $13.57 billion in 2008. There were only 11 casinos in 2002. At the end of the first quarter of 2009, there were 31 casinos operating in Macao.1 But while many economic indicators are positive, there has been mounting evidence of gaming-related social problems, including problem gambling.

With Macao’s poor economy at the end of the last century, the Macao government had strong incentives to derive revenue from the liberalization of its gaming industry. Undoubtedly, Macao has achieved the objective of economic benefits. However, with the emergence of such social ills as problem gambling, it might be appropriate to see whether the importance that the general public of Macao attaches to economic benefits has changed over time, and whether there have been requests for the reprioritization of objectives for Macao’s future development. Given that gaming-derived taxes support about three-quarters of Macao’s public budget,2 the identification of new objectives in view of the public requests and the local situation, coupled with the adoption of the appropriate gaming regulation, has thus become a significant area of government policy that requires critical examination.

Macao’s Gaming Industry and Patrons from China

The liberalization of Macao’s gaming franchise, as well as the relaxed travel restrictions for mainland residents under the Individual Visitor Scheme in July 2003, has brought millions of Chinese to Macao, the only place in the People’s Republic of China (PRC) where legal casino gaming is allowed. The PRC has remained Macao’s largest source market, accounting for more than 50 percent of all visitors.

New money has been brought in by travellers from outside Macao, and the revenue earned from their casino play contributes to local workers’ wages and suppliers’ and owners’ profits. This has naturally led to a true net increase in Macao’s economic activity. On the other hand, with the significant proportion of gaming business coming from the PRC, it is unclear whether such gaming activities may have negative influences on a significant number of patrons from the PRC, as well as on the PRC cities or towns where these patrons reside.

Stories of gaming losses representing massive transfers of wealth in the hundreds of thousands or millions of U.S. dollars from PRC patrons can sometimes be overheard in the cafes and restaurants near casinos in Macao, and it is evident that some patrons from the PRC have experienced significant losses.

Unfortunately, research in the area of the associated negative influences, if any, on PRC patrons and on the cities or towns where they reside is very limited (I did search a number of university databases to see if any such research did exist). Nevertheless, there is some research related to the above topics for other jurisdictions, including Las Vegas and Atlantic City. The annual cost to society of a single pathological gambler in the U.S. was U.S. $10,330 in 2003, as illustrated in Table 1.3

While this figure represents only a partial cost estimate because estimates for four of nine categories of social costs, such as government direct regulatory costs and suicide, were not available, other researchers have stated that it was easy to have either largely understated or ignored the economic and social costs.4 If the social costs in the U.S. can be applied to patrons from the PRC, the annual cost of a single pathological gambler to the PRC, adjusted for inflation, might be around U.S. $12,460 (as of 2008). Given the methodological difficulties in assessing and adequately describing the social costs associated with gaming,5 the social costs of gaming are nearly impossible to quantify with great precision. However, given the emergence of multiple gaming jurisdictions in Asia in the coming years, such as Singapore, and their active focus on attracting patrons from the PRC,6 problem gambling in the PRC is too significant an issue to be overlooked.

Although Macao’s gaming revenue has more than quintupled since the liberalization of its gaming industry, it appears that the level of interest in the prevention and treatment of problem gamblers has not kept pace with the enormous increases in gaming revenues. Given that Macao has a “light touch” regulatory system, emphasizing voluntary industry codes of conduct and individual (player) responsibility, it appears that Macao’s existing practices, which require self-reporting for identifying problem gamblers, are rather passive consumer protection strategies. Considering reports about problem gambling in Macao among locals and players from the PRC, it appears that both the Macao government and the gaming industry need to apply more policies and practices to better protect gaming consumers for the sustainable development of Macao’s gaming industry. Following this line of thought, it would be beneficial to learn from the experiences of other gaming jurisdictions.

Lessons from Other Jurisdictions

In Nova Scotia, responsible gaming systems were attached to Video Lottery Terminals (VLTs) to track the amounts won or lost over the last week, month or year, and for the current session; to set spending limits for certain time periods (i.e., until day, week, month or year); and to exclude problem gamblers for specified time periods, including a 48-hour “cool-down” period.7

Holland Casino, the sole national government casino operator in the Netherlands, has implemented a Visitor Registration System, an Incident Registration System (which promptly detects possible problem gamblers based on frequency of visits and on-the-floor observation), a CCTV system of up to 250 cameras per casino, and a proactive on-floor intervention system.8

In New Zealand, statutory requirements under Section 3 the Gambling Act 2003, which took effect on July 1, 2004, require gaming providers to “take all reasonable steps” to develop and implement a policy to identify actual or potential problem gamblers; provide information and advice on problem gambling; issue exclusion orders, even to those who do not identify themselves as problem gamblers but about whom staff continue to have concerns; and refuse to permit excluded persons into gaming areas during the period of the exclusion.9

In Great Britain, the 2005 Gambling Act and Code of Practice, which became operative on Sept. 1, 2007, includes an emphasis on host responsibility. Section 2.3 of the License Codes and Codes of Practice requires licensees (hosts) “to make information readily available to their customers on how to gamble responsibly and how to access information about and help in respect of problem gambling.” Section 2.1 requires licensees to “put into effect policies and procedures intended to promote socially responsible gambling,” which must include specific policies and procedures in relation to “how they will contribute to research into prevention and treatment of problem gambling,” “to public education on the risks of gambling and how to gamble safely,” and “how they will contribute to the identification and treatment of problem gamblers.”10

Since gaming is a global industry, what happens in one gaming jurisdiction is of crucial interest to other jurisdictions. From these examples, it appears that an increasing number of gaming jurisdictions are adopting more interventionist policies and practices to identify problem gamblers and to treat problem gambling as a public health issue, as it does not result from just individual “weaknesses” but is influenced by broader contextual factors that require a multidimensional approach on the part of gaming regulators, operators and other stakeholders to move beyond merely offering problem gamblers treatment and counselling.11 With a more proactive public health approach, a better balance can be achieved. If more appropriate harm-minimization interventions are targeted at problem gamblers to minimize the negative impacts of gaming, the industry’s economic gains and the entertainment value received by patrons will not be so offset by the ills of problem gambling and the gaming industry will become more sustainable.

Macao’s Proactive Gaming Regulation

In Nevada, coin-operated devices are the most popular form of gaming, contributing to about 68 percent of gaming revenues (versus 29 percent from table games).12 Similarly, Australia’s electronic gaming machines generate the largest proportion of industry income,13 and in New Zealand gaming machines contribute more than 40 percent of gaming revenue.14 Rather than relying predominantly on gaming machines, Macao’s VIP segment, which is primarily comprised of baccarat, contributes about 70 percent of Macao’s total casino gaming revenue.

Since the VIP segment is based on human interactions, it appears that the abovementioned foreign practices, which rely primarily on responsible gaming systems to identify and exclude problem gamblers, would not adequately protect gaming consumers in Macao. Nevertheless, there are still some cost-effective and socially responsible ways to protect gaming consumers that Macao regulators and operators should consider.

Because casino hosts or junket representatives15 know their patrons better than others, they could help their patrons avoid certain destructive gambling behaviors that could lead to financial hardship, such as using credit to chase losses. This line of thought suggests that the adoption and implementation of a “code of conduct” among casino hosts and junket reps with respect to their patrons. If there were an enforcement mechanism, such as a licensing process that could be adopted by casino and junket operators16 in cooperation with Macao regulators, then such practices could carry greater clout than just moral suasion. If this were the case, hosts or reps would be more likely to stop their patrons from gaming beyond their means, keeping them within spending levels that fit their discretionary budgets and psychological comfort zones.17

Such responsible practices might not only assist in converting apparently exploitative gaming practices into more socially acceptable processes but also might prevent the PRC’s future involvement in trying to “solve” the social ills associated with gaming in Macao.

With leading gaming jurisdictions now treating problem gambling as a public health issue, if protecting gaming consumers is a major objective for the Macao government, officials are well advised to draw upon the lessons learned from these jurisdictions and to take the initiative to adopt more proactive responsible gaming regulation.

Footnotes
1 DICJ (Macao Gaming Inspection and Coordination Bureau). www.dicj.gov.mo/CH/Estat/DadosEstat/2009/estat.htm#n5. 18 April 2009.
2 Siu Lam, C. and Eadington, W.R. (2009). Lessons from the Nevada model on Macao’s junket operations. Gaming Law Review and Economics 13(1): 6 – 22.
3 Grinols, E. L. (2004). Gambling in America: Costs and Benefits. Cambridge University Press.
4 Ladouceur, R., Boisvert, J. M., Pepin, M., Loranger, M. and Sylvain, C. (1994). Social costs of pathological gambling. Journal of Gambling Studies, 10: 399 – 409; Henriksson, L. E. (1996). Hardly a quick fix: Casino gambling in Canada. Canadian Public Policy, XXII, 2, 116 – 128.
5 See the special issue of the Journal of Gambling Studies, 2003, vol.19.
6 Yong, K. P. and Fu, W. H. (2007). With the two integrated resorts (IRs) in Singapore due for completion in the next few years, how should the IRs align their strategies to attract the increasingly affluent and outbound tourists and businessmen from China? Proceedings of the International Conference on Gaming Industry and Public Welfare, Peking University.
7 Schellnick, T. and Schrans, T. (2007). The Nova Scotia Player Tracking Data Analysis. Focal Research Consultants Ltd. Halifax, Canada; Nova Scotia Gaming Corporation. Available at www.nsgc.ca/reDevice.
8 Holland Casino (2007). Presentation. On site at Amsterdam Casino (October 6). Unpublished manuscript.
9 Gambling Commission New Zealand (2007). The Gambling Act 2003. www.gamblingcom.govt.nz/Gcwebsite.nsf.
10 Gambling Commission (2007). License Codes and Codes of Practice (June). Birmingham: Gambling Commission. http://www.gamblingcommission.gov.uk.
11 Messerlian, C., Byrnes, A. and Derevensky, J. (2004). Gambling, youth and the Internet: Should we be concerned? The Canadian Child and Adolescent Psychiatry Review, 13, 12-15.
12 Nevada Gaming Abstracts, 2006–2008.
13 Delfabbro, P. (2009). A Review of Australian Gambling Research. Gambling Research Australia for the Ministerial Council on Gambling.
14 Curtis M. (1999). Gaming: An economically significant industry. Economic Statistician, Business Statistics Division of Statistics New Zealand.
15 In Macao high-rollers usually play through junkets. Junket reps receive commissions based either on actual gross gaming revenues generated or on rolling chip sales. These reps typically utilize their extensive social networks in particular regions to recruit patrons to their junkets.
16 Junket operators usually work for VIP room contractors under informal contracts. VIP room contractors enter into agreements with the gaming licensee where compensation is be determined as a percentage of the turnover of non-negotiable chips, computed on a monthly basis, from the licensee. If junket operators can underwrite a significant amount of non-negotiable chips, they can deal directly with the gaming licensee.
17 Siu Lam, C. and Eadington, W.R. (2009). Lessons from the Nevada model on Macao’s junket operations. Gaming Law Review and Economics 13(1): 6 – 22