Melco’s spectacular $1.1 billion Klein bottle of a hotel opens next month, and it looks like it’s from another dimension. Morpheus, or to continue the topological pun – the Morpheus strip – looks like something Ayn Rand’s character Howard Roark would have built if he were on psychadelic mushrooms while drawing up the blueprints. It’s going to attract a lot of gamblers looking for an experience, but surprisingly, CEO Lawrence Ho has said that the resort would operate without casino junkets. Maybe so for the first few years, but I have a hard time believing junkets will really have nothing to do with the hotel long term.
The stated purpose of Morpheus is to attract “premium mass market” gamblers. Unlike the qualitative difference between VIP and mass market, there is no qualitative difference between mass market and premium mass market. By qualitative, I don’t mean that VIP patrons bet HK$1 million at time and mass market players bet a few hundred. That’s still quantitative, though it’s a big quantitative. Rather the qualitative difference is that VIP players must come through junkets by virtue of Chinese money laundering regulations.
The primary purpose of a junket is not to connect a VIP with a casino because the casino can’t do it. The casinos could do this themselves if they really wanted to, and save on commissions. The primary purpose of a junket is to provide cover for a casino by providing the credit that a VIP gamer needs in order to stake enormous wagers because he can’t transfer that amount of money across the border by law. The amenities are just a way that junkets compete with one another in order to attract the VIPs in the first place, but their primary function is as a provider of credit, which legally and technically circumvents Chinese restrictions on movement of capital from the Chinese mainland to Macau.
The reason casinos don’t ferry in VIPs directly is not that they can’t, but that it would be, for lack of a better way of putting it, bleeping where you eat. The Chinese government knows very well what junkets do, that their very existence is for the exclusive purpose of circumventing capital controls, and whether Beijing puts up with it or not depends on little more than the prevailing mood in the capital. If casinos were involved in this endeavor themselves, it risks directing regulatory wrath on the casino directly, rather than letting a junket middleman take the fire if the prevailing mood changes.