The State-Concessionaire Complex – Casino Urbanisms

The State-Concessionaire Complex – Casino Urbanisms

* This is an edited excerpt from the manuscript I am currently working on, tentatively titled “The World in the Casino”. In this chapter, I begin by situating the contemporary casino industry against the historical backdrop of “revenue farming”, a fiscal practice where the state traded its sovereign right to taxation to private entities. While historians argue that revenue farming faded away once the state grew strong enough to collect its own taxes, they do not foresee its reappearance today where the extraterritorial service of these farmers/concessionaires is once again tapped on, and at a much larger scale. I want to show that the relationship between the state and concessionaire is not a zero-sum game as the historians presented. A good way to think about this relationship is through the concept of “partnership of separations”- how they are linked together is as important as how they remain separate from each other.

Image: Casino properties in Asia, 2013. Source: Author

Within the territory of its host government, casino development is often justified as a form of painless taxation or a strategy to bring “outside” money in. But once the perspective turns outside-in, such justifications are replaced by criticisms of “exporting harm” and fears of “capital flight”. In the competitive arena dominated by Macau, Singapore and Manila, the casino concessionaire does the work of extracting surplus capital across territorial boundaries while the state remains at arms-length to perform the task of internal and external legitimation.

This partnership solves the problem of an industry that can only achieve super-profits if it is spatially fixed but territorially untethered. In this respect, casinos are no different from their historical counterparts, the revenue farm. Their spatial fixity is due to two factors: as a monopoly system, the location and number of these casino-farms are often controlled to remove all competition from a demarcated area. This also defines the spatial limit of the legal exception, allowing the monopoly to flourish against a background of criminalization. The line of exception sometimes coincides with a border between two jurisdictions where gambling is legal on one side but illegal on the other. The second factor is that commercialized gambling rarely operates in isolation. They need to be co-located with their customer and labour bases as well as the various services that complete the exchange of money that begins at the gambling table. In colonial times, gambling farms were located close to mines, plantations and coolie agencies, and some were housed under a common licence shared with pawnbroking, prostitution and the sale of alcohol. In this configuration, the phenomenon of “wage-recycling” was observed where wages disbursed to labourers in the morning would find its way back by evening to the unscrupulous employer through the gambling house and the pawnshop. The contemporary casinos of Singapore, Manila and Macau ride on the back of the tourism and corporate event industry, thus tying them to the physical location that completes the overall package of leisure and urban entertainment. Wage-recycling is now replaced by loyalty programmes and hermetic environments where money lost and won in the casino remains within an interiorized and diversified economy of pleasure. 

What about being “territorially untethered”? Until 2000, what distinguishes the casino industry of Macau and the colonial gambling farm from other industries that also rely on extended markets is a shadow infrastructure that facilitates the movement of money in ways that are illegible to the formal bureaucracies of the state. This is accomplished usually by resorting to semi-legal and customary networks of mobile agents, which are in turn supported by a growing range of businesses and technologies that help to switch legal tender into portable unmarked money-form and back. The concessionaire/farmer thus acts as a threshold that allows the hosting state to expand its sovereign right of tax collection through extraterritorial and extralegal means. This “threshold function” is a double-edged sword. Colonial states lost clarity over the very subjects and territories they sought to rule over when they outsourced this important function to Chinese revenue farmers and their diasporic networks. The opacity, combined with the growing political and economic clout of the revenue farmers, fuelled the fear of an “imperium in imperio” and led to its widespread suppression towards the 1920s. This necessary but potentially destabilizing function of revenue farming has evolved into what is called the “junket system” in Macau’s pre-millenial casino industry. 

In short, the junket system is an informal subcontracting arrangement between the concessionaire and independent contractors to bring high-rolling (VIP) gamblers to the casino. Its primary function is to bypass restrictions on transboundary flow of money and lower the risk of debt collection from places where gambling debt is not enforceable by law. The contractor typically buys an agreed-upon amount of chips from the concessionaire which he sells to customers or other agents who open accounts with him. In return, the concessionaire provides gambling rooms, manpower and other amenities. The system that emerged in Macau in the 1980s thus resembles a pyramidal scheme populated by layers of agents who had no contractual relationship with the concessionaire but competed with each other to gain access to lucrative accounts offered by those above them.

It is important to recognize that while the junket system is unique to Macau, its functions within the global casino industry are not. The contractors and triads do the work of international marketing, credit lending, dispute settlement, labour unionization and debt collection, all of which are essential to any large-scale commercial gambling operation. In other jurisdictions like the US, “ancillary casino services” which could be subcontracted or conducted in-house perform similar functions through regulated and formalized channels. Thus, as a 21st century gambling farm, Macau’s casino industry preserved elements of an “economic brotherhood” that had over time shed its pastoral influence over Chinese migrant labour to become agents of the criminal underworld. The state, concessionaire and the junket operator form a partnership built on separations that are legal, economic and territorial in nature. What happened after 2000 when Macau’s monopoly was “liberalized” was an attempt at dismantling and redistributing the functions of the indigenous junket system to an internationally recognized coterie of financial and regulatory institutions – banks, governments, legal consultancies, private security firms, market intelligence brokerages, and the casino operator itself. The objective was to rescale the partnership of separations according to the mutually recognized norms of the international community, especially the US and Australia where some of the major casino companies are based. At the same time, “liberalization” aimed at diluting the political clout of the incumbent monopolist and, at least in theory, forestalling the overdependence of the government on any single concessionaire.

The extraterritoriality of the state-concessionaire complex is evident in the resilience of Macau’s junket system after 2000. When American casino developer Wynn Resorts refused to begin construction on their project in Macau because the rules on credit lending made foreign corporations dependent on junket operators, legal revisions essentially created a bifurcated structure that allowed these operators to continue working with companies not subject to the laws of the US. Between 2000 and 2007, junket operators in Macau continued to contribute around 65-70% of the total gaming revenue, and the number of licensed operators peaked at 235 in 2013. This should be contrasted with Singapore, which applies very strict controls on what the government has renamed as “international marketing agents”. Since the two casinos opened in Singapore around 2004, the government has only approved three junket operators that specialize in the Southeast Asian market to work for Malaysia-based casino operator, Genting Resorts. Despite the dramatic difference in number, the effects of the regulations produce a similar bifurcated structure where US and non-US companies can access the necessary avenues of extraterritoriality in accordance to the laws they are subjected. From the industry’s perspective, Singapore’s strategy is costly because it confines the extraterritorial reach of the industry to the “mature” markets of Southeast Asia, rather than the massive and unsaturated market of China. The indigenous junket operators that flourish in Macau and Hong Kong remain the most effective cells that can negotiate the complex and risky task of moving large sums of money out of China. An industry expert, sounding like every revenue farmer who came before him, suggests that the Singapore government needs to learn to “look the other way”.  

In this partnership, each party plays its role in relation to and in concert with others, while maintaining a degree of separation borne out of self-interest and risk mitigation. Singapore, Manila and Macau can be placed along a gradient of interdependency between the state and the concessionaire that explains the necessary separations between the points of extraction and accumulation. For Singapore where gaming revenue is spectacular but remains a small fraction of the national income, the government subsumes casino development into an overall tourism strategy and measures its performance using touristic indicators like “room nights” and “visitor spending”. While it has instituted differentiated tax rates on gaming revenue to incentivize the industry to target VIP players from overseas, it can also afford to pay the cost of removing junket operators from this partnership. For Macau and the Philippines, the government’s dependence on gaming taxes as well as the overwhelming profitability of the VIP market makes such a stance near-impossible. Despite the constant refrains to “diversify” the industry, no one can wean themselves from the VIP market. Junket operators are a necessary part of this relationship, and as long as they are, the only question left for all parties involved is how long this gravy train can last. In concert, the concessionaire has learnt to speak the language of its political masters, whether it is to promote celebrity chefs or job creation, while doing the silent work of taxing foreigners.  

Since 2000, the partnership of separations has been in flux. Junket operators have adapted by relocating themselves in the nexus of territoriality and legality. For some, it meant finding new locations where their shadow infrastructure can continue to operate. Saipan, a small US-administered island in the Pacific Ocean, exploded into the limelight in 2016 when it became a gambling mecca where VIP tables earned even more than those in the largest casinos in Macau. Its casinos were run by a partnership between a junket operator and an ex-chief executive of Las Vegas Sands and Wynn Resorts. For others, it meant stepping into the corporate world and re-emerging as publicly-listed companies. By 2006, Suncity Group Holdings Ltd, one of the three largest junket operators in Macau, had diversified into property development and tourist services, which are listed on the Hong Kong stock exchange, while at the same time, operating as a non-listed casino developer in Vietnam and the Philippines. This split profile is a reflection of the different spheres of legitimacy that are bleeding into each other. The transformation of junket operators is thus reminiscent of how corporations gradually replaced the mafia in Las Vegas once the Nevada Corporate Gaming Act was passed in 1969. It is also reminiscent of how Chinese revenue farmers of colonial SE Asia traded their political responsibility to migrant labour for economic opportunities offered by modern states and European traders. These are all phases of capitalist transformation and state formation, but working at different scales. In this grand narrative, furtive agents who used to operate between the legal and the illegal have to once again find new ways to provide the extraterritorial service the industry and their hosting governments desire.

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Author: Jennifer Martin