Robust regulation needed for proxy betting: GMA

Aug 09, 2016 Newsdesk Latest News, Macau, Philippines, Rest of Asia, Top of the deck  

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Proxy betting has a legitimate place on casino floors as a relatively cheap-to-establish product that can bring incremental gains to venues’ gaming revenues – but it needs “robust regulation” in order to be accepted, says a new research paper from consultancy Global Market Advisors LLC (GMA).

“International gaming operators do not want to put their licences in Nevada, Atlantic City or any other jurisdiction in jeopardy,” noted the report from GMA partner Shaun McCamley.

In Macau, the local regulator – the Gaming Inspection and Coordination Bureau, also known by its Portuguese acronym DICJ – in May issued specific instructions banning the use of mobile telephones at tableside; meaning proxy betting is now widely regarded as off limits to Macau casinos. Even before the local regulator’s instruction, at least one of the U.S.-licensed operators in the Macau market had warned off its junket partners from offering such a product.

The GMA paper defines proxy betting as where a gambler not physically present in a casino designates a trusted individual as his or her proxy. The proxy communicates via a mobile phone with a colleague physically present at a casino table; with the latter person making the actual bets on behalf of the customer.

One problem with telephone betting, say several gaming lawyers spoken to by GGRAsia, is that while potentially beneficial to a casino’s top line and bottom line, the practice risks creating a loophole regarding the ‘know your customer’ protocol. Such a protocol is encouraged under best international practice on tackling the threat of money laundering via casinos.

But some Asian gaming jurisdictions are more receptive than Macau to the idea of building proxy betting business, noted GMA’s Mr McCamley.

“Proxy betting is available in many casinos throughout Southeast Asia, most notably in Cambodia, Vietnam and the Philippines where regulations do not specifically prohibit this kind of gaming activity. Those casinos that do not currently offer this service are now looking very closely at including it as an additional gaming option to their players and agents.”

Proactive approach

Mr McCamley stated: “To obtain appropriate regulation [for proxy betting] requires a proactive approach from casino operators. Astute casino operators will be the ones that plan ahead for when regulations covering proxy betting will be created and enforced.”

“By being proactive, and through active lobbying and using consulting firms who specialise in working with government, casino operators can ensure that proxy betting will be understood, accepted and regulated by governing authorities,” added Mr McCamley, a former president of Ho Tram Resort and Casino in Ho Tram, Vietnam.

In a note on May 16, brokerage Daiwa Securities Group Inc said it estimated – based on conversations with junkets and other industry participants – that Macau phone betting had grown about 15 percent year-on-year in 2015, to account for approximately 20 percent of junket gaming volume in Macau, compared to 8 percent to 10 percent of such volume in 2014.

Daiwa added it estimated phone betting business accounted for approximately MOP21 billion (US$2.63 billion) of casino gross gaming revenue in the Macau market in 2015.

Mr McCamley wrote in his white paper: “As a result of the DICJ’s decision, opportunities to offer proxy betting have now opened up for gaming operators in other jurisdictions, particularly in countries like Cambodia, Vietnam and the Philippines where regulations regarding proxy betting are less rigorous and more open to operators’ interpretation.”

Player privacy

How the desire for player privacy can be squared with the desire of many gaming regulators to maintain or increase transparency in licensed casino operations is a matter for debate, according to investment analysts.

A note in June 2015 from brokerage Sanford C. Bernstein Ltd described the differing degrees of attention paid to proxy betting by regulators as resulting in “regulatory arbitrage”. In effect, some gaming jurisdictions compete with others to attract the agents that can facilitate proxy betting by foreigners and thus kick start a local casino industry, said the brokerage.

“Long term, we expect the regulatory arbitrage to eventually diminish as Macau/Chinese government tightens up their control on online gaming and underground banking,” noted Sanford Bernstein; indicating that China was increasingly likely to have an appetite for the sort of long-arm regulation shown by U.S. gaming jurisdictions. The latter, in particular, often inquire into the overseas activities of U.S. licensees.

The risk to the integrity of the casino industry of potential lapses in anti-money laundering protocols was illustrated earlier this year in the Philippines, when approximately US$63 million – of US$81 million reportedly stolen from Bangladesh’s central bank in a cyber heist – was exchanged for casino chips at several Philippines casinos and mostly disappeared, according to testimony given to the Philippine Senate.

Mr McCamley’s paper acknowledged that the “number one reason” for the appeal of proxy betting was “player anonymity”.

He wrote: “China’s continued high profile anti-corruption drive has meant that players are now reluctant to travel or be seen playing at casinos. Also, [for] players… [that] for one reason or another, cannot leave their home country – either through inconvenience or visa restrictions – proxy betting allows them to overcome these hurdles and enjoy casino gambling.”

The ‘multiplier’

The former casino executive acknowledged there are “cons” to having a proxy gambling operation.

“‘Know your customer’… and anti-money laundering reporting are the obvious hurdles that casinos in vigorously regulated jurisdictions will have to face if they want to offer a proxy betting service,” said Mr McCamley.

He added that proxy betting could also facilitate operation of what is known in the industry as ‘the multiplier’. That is typically characterised by industry analysts as a private arrangement between a player agent and a player. Under the arrangement, the face value of an on-the-table bet – typically in a local currency – will be multiplied by a factor equal to the exchange rate of a stronger currency – typically U.S. dollars – with the difference being in the form of an ‘under the table’ bet. This has the effect not only of magnifying the value of winning and losing bets, but also of defrauding the regulating jurisdiction of gaming tax in places where a direct tax on wagers applies.

“There is a distinct lack of specific legislation in place that deals directly with proxy betting in gaming jurisdictions throughout Southeast Asia,” noted Mr McCamley.

“Casinos operating in less regulated markets will always run the risk of future government intervention should they offer proxy betting to their customers. However, given its low set-up costs, proxy betting can quickly pay for itself and provide a steady revenue stream,” he added.

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