Did the Macau government just completely change the nature of casino chips?

Macau’s Legislative Assembly spent time last week discussing new rules relating to casino “deposits”, and more specifically the rules around whether concessionaires and junkets will be permitted to take on such liabilities moving forward. (Remembering that money on deposit is an asset for the player who put the money on deposit, and a liability for the entity which accepted the deposit.)

The broad takeaway was that in the future only concessionaires will be able to accept player deposits, with junkets confined to being mere commission agents, no longer allowed to hold player funds.

But there is more to the wording of these changes than meets the eye.

On Friday (6 May) afternoon, Macau Legislative Assembly Second Standing Committee Chairman Andrew Chan Chak Mo said, “Concessionaires are allowed to accept deposits and [assume that liability]because logically they can only issue chips with gamblers if they [are empowered to] accept deposits.”

Wait, what? Issuing chips means accepting a deposit? Yes, it appears the Macau government is saying exactly that.

In calling any exchange of cash for chips a “deposit”, the Macau SAR Government appears to be changing the definition of casino chips themselves – a definition that has been accepted around the world for centuries.

What the government is saying, in essence, is that under its revised gaming law chips do not effectively act as “cash on the casino floor” anymore, they are merely “receipts for deposits at the cage”. This is a seismic shift in thinking that promises to have significant ramifications.

Let’s delve a little deeper. Imagine you enter a casino and exchange $10,000 cash for $10,000 chips. If someone asked you whether you had just made a “deposit”, the answer would of course be no. In fact, you would no doubt consider yourself to still be in possession of $10,000 in cash because those chips in your hand can be used within the boundaries of the casino floor to bet, to tip waiters, to give money to friends, and so on . And of course, you can exchange them for folding money at the cage anytime you want. It certainly feels like you are holding money!

“Deposits” have typically referred to placing money in a player account at the casino, much like a bank account. Just as a teller will give you a receipt whenever you deposit money into a bank account, the cashier in a casino cage must also give you a receipt for depositing cash at the casino cage.

By redefining all exchanges of cash for chips as deposits, the government is also redefining the chips themselves. Apparently, chips are now simple “receipts for deposits”. Should you then go and place those $10,000 in chips on a winning hand of baccarat, the dealer will hand you another receipt – another $10,000 in chips – which can also be redeemed at the cage. If you lose $10,000 in chips, apparently you are now “losing receipts”!

This seems like a minor distinction, but let’s examine exactly why this change has occurred.

Boiled down to its core, we at IAG I believe the Macau government is doing this because it is concerned about potential exposure to the outstanding chip liability – the cash value of all casino chips that are in circulation at any given time, having previously been exchanged for cash.

The government’s concern is likely linked to the issue of reversion, with article 40(1) of the Macau gaming law stipulating that “… all the concessionaire’s casinos, along with all of their equipment and appliances … revert to the Macau SAR…” at the end of the current 20-year concession period.

What this effectively means is that, although the six existing concessionaires are all likely to win a new concession once re-tendering is complete, they will no longer own the casinos and equipment instead, and will have to compensate the Macau government for the continued use of the said casinos and equipment. And that equipment includes casino chips.

The question the government has undoubtedly asked itself is: if casinos revert to the government, and the gaming equipment (including the chips) revert, might the outstanding chip liability revert to the government too? After a concessionaire has long since left town, if a player turns up in Macau with chips in his hand, might he try to claim his money from the Macau government?

Irrespective of what the answers to these questions are, it’s a scenario the Macau government would be keen to avoid. And one way to do this is to change the definition of chips from “casino floor money” to “receipts for deposits with the operator”. That way, any future claimant possessing chips can be politely directed to the company which accepted the “deposit” in the first place.

The concern seems to be so grave that the government has even amended the gaming law to include a new article 50(3), which reads, “Shareholders with an amount equal to or greater than 5% of the share capital of the concessionaires, directors and members of the management body are jointly and severally liable for all debts of the concessionaires, including in particular the chips in circulation.”

This all certainly provides some food for thought.

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