MGM China Warns of Possible $30M Liability over Junket Holdings

Posted on: March 11, 2022, 06:43h. 

Last updated on: March 11, 2022, 01:12h.

Erik Gibbs Read More
Expertise: Asia Pacific Gaming, Gaming Business, Global Gaming.

A recent court decision in Macau could cost MGM China tens of millions of dollars. That’s the amount deposited by gamblers in MGM-linked junkets that the operator may have to reimburse.

MGM Macau
The MGM Macau, one of MGM China’s casinos in the city. The casino operator may have to pay close to $24 million to settle the debts of two of its former junket partners. (Image: South China Morning Post)

Last November, Wynn Resorts and its Wynn Macau arm received some news they didn’t want to hear. Macau’s Court of Final Appeal closed the book on a legal case regarding the casino operator’s obligations relating to a junket’s debt. The court determined that an operator can be liable for its junket partners’ outstanding debt. The ruling forebode of possibly similar fallout to come for other operators.

Now, the inevitable has happened. MGM China said in a report filed yesterday with the Hong Kong Stock Exchange that it expects to be held accountable for the actions of two of its former junket partners.

Three civil cases linked to junkets and MGM are causing the operator a financial headache. In all three, VIP players deposited money with two junkets but were never able to withdraw any funds. Therefore, they targeted MGM and its deep pockets.

Losses in the Millions

One case already made its way through the court system, with the Macau Court of Final Appeal ruling in favor of the plaintiff in February. In that case, MGM was liable for HKD117 million (US$14.95 million), as well as another HKD80 million (US$10.2 million) in principal and accrued interest.

Given that Wynn lost its case and MGM has already lost one of its trio of fights, the operator is confident it will need to cover the others. In total, it estimates that around HKD202.7 million (US$25.9 million) are at stake.

The court verdicts are in line with Macau’s “Administrative Regulation no. 6/2002,” according to the company. It said in its filing that the “chance to recover the loss suffered through the payments to be made by the group, is remote.” As a result, once all of the paperwork is settled, MGM will likely add a loss to its financial statement for 2021.

Chance to Recover Money

MGM has the ability to go after the junkets, which it didn’t name in its filing. It could sue them in court to seek restitution. However, even MGM brass knows that the odds of winning a case like that are longer than winning the lottery.

In Wynn’s case, the legal dispute began when a junket employee ran off with VIP money in 2015. It wasn’t until 2021 that the battle finally ended.

Junkets are losing favor in Macau and operators are distancing themselves from their old allies. This will make any chance of financial compensation from a lawsuit virtually impossible. Even the law is against the operators. As MGM pointed out in its filing, there is already a law that holds the operator responsible for certain actions of its junket partners.

Going forward, with new gambling laws coming, the level of responsibility is solidified. Provided there are no changes, the new laws make it clear that licensees carry the full burden if a junket loses a VIP’s money for any reason. The new laws also stipulate that operators would be responsible for junket collaborators’ actions as well. Collaborators are essentially tertiary agents that work directly for the junket.

This hasn’t sat well with operators. They’re concerned because they almost never have any interaction with the collaborators. As such, they don’t believe they should be held liable.

Because the new gambling laws are still in draft mode, these measures could change. In addition, a separate law specifically addressing junkets is coming in August. That, too, may clear the air.