A Hong Kong billionaire and her son appear to be building a casino juggernaut on a remote U.S. outpost, the island of Saipan. A shiny beachfront casino-hotel is under construction, but meanwhile Chinese gamblers are betting huge amounts at their temporary casino in a nearby shopping mall--or at least it seems so.
The casino reports that last year it raked in losing bets from high rollers totaling $32.4 billion at its mere 16 VIP tables in the middle of the Pacific. That's $3.5 billion more than the giant Venetian Macao did at more than 100 VIP tables at the hub of the world's most lucrative casino destination, and the gap is widening. In the fourth quarter, Saipan's reported $11.6 billion VIP roll beat the Venetian's $6.9 billion. Each VIP table in Saipan is generating a daily average of $5.6 million in bets, four times Macau's average during its high-roller heyday.
By Imperial Pacific's numbers, every month its 100 or so VIP visitors each roll an average of $27 million. "Saipan has benefited from the ongoing crackdown on political corruption and conspicuous consumption waged by the Chinese central government," says Global Market Advisors senior partner Andrew Klebanow. "Much of that business has come from VIP play that once went to Macau."
There's plenty to like for Chinese tourists, who can't bet at home because the mainland has long banned casino gambling. The island is a U.S. territory, but they get visa-free entry, a legacy of exemptions from U.S. immigration and labor laws that once made Saipan a low-wage producer of "Made in U.S.A." garments. VIPs see U.S. sovereignty as a big advantage. "Chinese players want places with political stability," explains Tony Tong, who invests in and advises junket operations that bring Chinese gamblers to casinos in Asia, Australia and Europe. "It guarantees the safety of patrons."
Direct flights from Shanghai to Saipan take four hours and 20 minutes; from Beijing it's five hours and 40 minutes--two hours longer than a trip to Macau but shorter than flying to Singapore or beach spots such as Bali or Phuket. In 115 square kilometers, nearly twice the size of Manhattan, Saipan offers clean air and water, dramatic scenery and golf. There is also a lot of history--50,000 Americans, Japanese and islanders died in the 25-day Battle of Saipan in 1944, and nuclear bombers attacked Japan from neighboring Tinian. Saipan voters may never have wanted a casino, but arrivals of Chinese tourists are increasing rapidly--from 46,451 in fiscal 2011 to 206,538 in fiscal 2016, which ended last September. Total arrivals rose by a virtually identical number, to 501,179.
The casino's owner is Imperial Pacific International Holdings--Hong Kong billionaire Cui Lijie owns nearly two-thirds--and its Saipan subsidiary, Best Sunshine International, runs it. There are no hotel rooms and only 48 tables, along with 144 slot machines. But Best Sunshine started bringing in VIP players in November 2015, marking the first time a casino has operated a Macau-style "rolling program" on U.S. soil.
The tiny temporary casino, Best Sunshine Live, opened as part of a sweetheart deal. Imperial Pacific pays a $15 million annual fee instead of taxes on gambling revenue, and it got a 40-year exclusive license and rights to operate multiple casinos without limits on the number of gaming tables or machines. The company's initial payment of the first- and fifth-year license fees, $30 million, allowed the cash-strapped government of the Commonwealth of Northern Marianas Islands, of which Saipan is a part, to reverse 25% cuts to public-employee pension checks and fund health services ahead of elections in November 2014.
But now there are doubts about the temporary casino's impressive VIP take and when the new casino-hotel will open. "With no tax on gross gaming revenue, and no apparent independent confirmation, it remains conjecture whether the published VIP numbers have any veracity," says Newpage Consulting principal David Green, a former Australian gaming regulator. Like others, he wonders whether the roll reports "may be confected to ramp up the market value of Imperial Pacific." However, the price of its Hong Kong-traded shares has fallen since monthly roll reports began in December 2015, cutting Cui's fortune from $1.9 billion at the end of 2015 to $1.7 billion now.
Skeptics also note that Imperial Pacific's financials show that trade receivables--unpaid debts from players--amounted to 89% of its VIP revenue through last June 30 (the latest figure released). The rest of Asia averaged 14%, according to an analysis by Morgan Stanley. Imperial Pacific did not respond to questions about the VIP revenue.
Meanwhile, the $600 million, 365-room Imperial Pacific under way a few hundred meters from the temporary casino is supposed to open by the end of this month. But the company still needs some $300 million to finish it, and a $400 million bond offering announced in September failed, despite an enticing interest rate above 10%, Bloomberg reported. Early last month the company did issue $70 million in bonds at 8.5% to finish the casino. It sold another $100 million to Cui at 7.8% to continue building the hotel. Fitch and Moody's rate the bonds six levels below investment grade and both downgraded Imperial Pacific's corporate rating in January, citing the company's dependence on VIPs and its lack of non-gaming revenue as key risks that opening a new casino without a hotel won't address.
Now there is the possibility that if the casino doesn't open by the end of next month the government might take away its license and auction it off. Officials at the governor's office, the attorney general's office and the casino commission will neither confirm nor deny this. Imperial Pacific won't discuss it either, but a company vice president told a local newspaper last month that it will have a soft opening on March 31 and will finish work on the hotel by August. Days after that declaration, though, the company asked the government to extend its deadlines for opening the casino and hotel.
The new casino, when and if it opens, will only increase Best Sunshine's reliance on VIPs, and that raises fears that China, the U.S. or both will crack down. VIPs from the mainland taking large amounts of money out of the country to bet offshore have long been a sore point with Beijing. Junket promoters organize VIP trips, and they're vital for casinos because they recruit players, provide them with credit and collect gambling debts. They're also vital to VIPs for circumventing currency restrictions; mainland Chinese travelers can't legally carry more than $5,000 out of the country. Despite the widespread presumption that junkets have ties to organized crime, U.S. regulators, after initial reluctance, have tacitly accepted American casino companies' use of junkets in Asia because they are crucial to bringing in business. "It's not a federal crime to do business with foreign enterprises that don't abide by [other countries'] local laws," says Scott Wilson, a partner with New York law firm Boies, Schiller and Flexner. "The real pitfall in working with the junkets is facilitating money laundering."
The commonwealth's casino commission has allowed only a couple of small junket promoters to operate in Saipan so far. But Best Sunshine uses junket tactics--granting credit, which skirts China's currency controls, and taking the risk of collecting gambling debts, which can't be recovered through mainland courts--to bring players to the casino directly. In exchange for their services, casinos give junket promoters rebates--up to 1.25% in Macau but, as set by the casino commission, up to 1.8% in Saipan--which promoters share with their players.
Imperial Pacific's roots are in the junket business. Cui's sister, Cui Limei, is the registered owner of Macau operations for Heng Sheng Group, the first junket with acknowledged mainland ownership. Cui Lijie's son, Jason Ji Xiaobo, 38, is a former investor in Heng Sheng and may have been an executive; sources differ. An Imperial Pacific attorney called him the "mastermind" of the Saipan project. The company insists that he no longer has any connection to Heng Sheng.
Best Sunshine may now be getting a new chief executive. Mark Brown has been Best Sunshine's president and CEO since November 2014, opening the temporary casino, beginning work on the new casino and negotiating the rights to a 1.6-square-kilometer site for a multibillion-dollar resort project to keep Imperial Pacific's promise of a $7 billion investment on the island. He cites U.S. president Donald Trump as a mentor in a career that includes running Trump's Atlantic City casinos before opening the Venetian Macao for Sheldon Adelson's Las Vegas Sands. Now he's moving up to Imperial Pacific to become chairman; an announcement is expected soon. James Woolsey, a former director of the U.S. Central Intelligence Agency and a national security adviser for Trump's campaign, currently sits on the parent company's board.
The new Best Sunshine CEO is expected to be Chief Operating Officer Kwong Yiu-ling, who spent 30 years with Stanley Ho's SJM Holdings and its predecessor, STDM, before working for Ho's son Lawrence as COO of Melco Crown's Altira Macau and for Stanley Ho's daughter Pansy as MGM Macau's executive vice president of casino operations. Some suggest that Kwong increases the comfort level for Ji, who doesn't speak English.
More troubles are waiting for the next CEO. An ex-employee alleges that the casino didn't enforce U.S. rules against money laundering. A wrongful-dismissal lawsuit filed in December by a former vice president for table games alleges that "Imperial Pacific failed to implement or enforce an adequate" anti-money-laundering program, permitting a $400,000 deposit without the required customer identification and advising players on "structuring" transactions to avoid the $10,000 threshold for reporting deposits and credits to VIPs' accounts. But ex-regulators Green and Fred Gushin (a former advisor to Tinian's gaming commission and New Jersey Gaming Enforcement Division alumnus) say accusations in a civil lawsuit don't necessarily trigger official investigations. Imperial Pacific didn't respond to questions about the suit but regularly insists that it follows anti-money-laundering rules.
Strict U.S. anti-money-laundering laws lead many to question why Imperial Pacific chose Saipan for a casino. "Risks are higher for a company doing business in a U.S. territory than any other place in Asia," says Gushin, now managing director of Spectrum Gaming.
The bigger risk for Imperial Pacific probably comes from China, not the U.S. President Xi Jinping's campaign against corruption has branched out into a crackdown on money leaving the country. At its height in 2013, $1 trillion left mainland China via Macau's VIP tables, judging from official revenue figures and reported roll. Some insist that Macau's roll figures represented as little as 10% of the actual total because junket promoters accepted side bets, allowing players to multiply table wagers and helping promoters avoid gambling taxes and the casino's cut. Those outflows helped curb inflation during China's peak boom years. Now, in a less explosive economy shifting from investment- to consumption-driven growth, there's an increasing incentive to keep that money at home.
That's led to developments such as Beijing's attack on underground banking networks; its arrests last year of employees of Australia's Crown Resorts in China, who are still held on accusations of illegally promoting casinos; and new restrictions on overseas withdrawals via mainland-based UnionPay. All this signals a preference that if Chinese citizens gamble, they do it in Macau, where activities can be most closely monitored. Macau's recent recovery features an upturn in VIP revenue.
Back in Saipan, the fallout from the campaign to legalize casinos is still felt. Saipan voters rejected casino legalization twice in referendums before it was rushed through the legislature in 2014 without public hearings. The commonwealth's governor, Ralph Torres, is one of three elected officials who admitted to violating the local Open Government Act as part of settling a citizen's lawsuit over the legalization. Today, he expresses no doubt the government made the right decision. Legalization "will provide the economic foundation for both the immediate and long-term expansion of the commonwealth as a major tourist destination in Micronesia," he tells Forbes Asia. "There is still more to be done, but our quality of life has definitely improved while new economic developments are on the rise." Maybe, but there's no doubt it's quite a gamble.