Casino Credit Without Risk
By Steve Karoul
Casinos around the world issue billions of dollars in credit every year. Foxwoods Resort Casino, being the largest casino resort in North America, is one of the larger issuers of casino credit. As much as casinos like to declare that this is with minimum risk there is risk. There is always risk when one issues casino credit. There is the risk of the player not paying for numerous reason such as his financial situation changed quickly, he is no longer liquid, he owes too many other casinos money and may decide to pay them first especially if he plays there more regularly than at your casino, etc., etc. We have all heard these types of excuses over the years. The other issue is fraud which is more prevalent in international casino credit transactions where decisions are not as structured as we would like and oftentimes are based purely upon a players past record of “play and pay” at other casinos. Unfortunately, I have been on many collection trips where the player’s home address turned out to be a cemetery, an empty lot or where the player threatened physical bodily harm to me. Casino Collections can be dangerous in some countries especially in ones where casino debts are not recognized legally and therefore, are also not legally enforceable for collection proceedings.
What can casinos do to better protect themselves from credit risks? Depending upon your gaming jurisdictions and regulations there may be some new creative options worth consideration. We hear a lot about ‘reverse mortgages’ today as an option for individuals above a certain age to remain in their own homes during rough financial times where they basically borrow against the equity that they have built up in their homes but in actuality, they pledge their home to the lender as collateral. The lender thereby allows the customer to live in their own home until their demise knowing that they will eventually take ownership of the home. It is an innovative new concept.
This concept enabled me to start to think outside of the box and take a closer look at casino credit from all angles trying to determine what are the ‘benefits’ to all parties. One perspective was to think like a consumer rather than as a casino operator and then try to develop a new innovative concept that made sense to all parties and that provided benefit to all parties. I also studied private banking to get a better understanding of how they developed relationships with their best customers.
After meeting with well over a dozen of the top Private Banks during my last job in Singapore I decided to work with a major international private bank at that time that I will refer to as Bank X. Bank X is one of the market leaders in Asia especially in Private Banking and also seemed to be fairly aggressive marketing wise. Our initial meetings focused on educating Bank X about casino credit. They were intrigued and quickly grasped the concept that casinos lend billions of dollars annually to customers in the form of casino credit for purposes of gaming. They wanted in and we then began to focus on the benefits to the customer as opposed to the benefits to the casino or to Bank X. Those benefits were reviewed independently of casino customer benefits.
The first task was to educate Bank X as to why customers prefer to use casino credit as opposed to bringing cash to gamble or bank transferring funds in advance of their gaming trip. We all know that it is both dangerous and difficult to carry large amounts of cash around the world with today’s strict reporting requirements. Carrying large amounts of cash is not illegal if declared properly at each Customs location within each country. However, there is always the danger of theft. To digress for a moment, I remember a trip to Moscow several years back where an Asian gentleman on my flight was seen declaring about US $35,000 in cash at Customs in Moscow airport which was a fairly open and visible procedure. I later noticed that same gentleman checking into my hotel about the same time as me. About an hour later, I became concerned when I saw that the hotel lobby was full of police. I asked what happened and the hotel staff told me that an Asian guest had been robbed and killed in his room. It was the same person that I saw at the airport and in the hotel lobby. My guess is that someone “fingered” him at the airport as someone with a large amount of cash and that he was followed back to the hotel by the thief / murderer. Cash can be dangerous.
The second reason why players prefer to use casino credit is that they do not have to liquidate assets to wire transfer money in advance of a gaming trip. The fact is that even though many high-rollers are rich, they do not keep large amounts of money in the bank. They invest their money to work for them and therefore must liquidate assets when they need cash. One other point is that if a patron is bank transferring funds from one country or currency to another they will incur hefty bank transfer fees as well as foreign currency conversion fees both on the outbound and return transfers. Many larger casinos often agree to pay these bank fees for the customer especially if he is a big player. These fees can range from 1% to 3% depending upon where the funds are being transferred from. They can add up quickly. For example, $100,000 x 2% = $2,000. Therefore, the fees could potentially amount to $2,000 x 2 = $4,000 plus bank transfer fees which could be an additional $40 to $100 each way. Using the same example, a million dollar transfer could equal over $40,000 in bank transfer fees. Therefore, most players prefer to use casino credit to avoid these fees until such time as they lose and need to pay their markers. It is also aggravating and expensive for players to pay the high bank transfer fees if they win in the casino and want to transfer their winnings back to their home country.
While in Singapore I helped to developed a new program with Bank X where our VIP customers, primarily from Asia, opened personal investment accounts with Bank X that were then invested in various stock funds. Bank X would then allow these select VIP customers to borrow up to 80% of their investment portfolio and issue a Cashier’s Check to the casino. The players were allowed reasonable credit time to either top up their investment portfolio amount or the bank would execute a pre-signed authorization form allowing Bank X to enough of their investment portfolio and to send that amount to the casino to pay off their outstanding casino credit. This was not an easy process to get approved and took months of review from both the Compliance and Legal departments at both Bank X and the casino that I worked for as well as the Regulators in Singapore. Both the casino and the bank maintained close control over this to insure that all Know Your Client (KYC) reviews were properly completed as well as all paperwork properly completed. This concept, in effect, was innovative at the time but still limited in scope for a number of reasons. One reason was the volatility of stocks which seemed to a concern to several customers.
Consequently I have now developed an innovative new program with Gold Bullion International (“GBI”; www.bullioninternational.com) that will enable Foxwoods to grant credit to many international players that we would not feel comfortable granting credit to for a variety of different reasons such as the fact that casino credit may not be an enforceable debt in their home country, local currency control laws that do not allow for the free flow of funds out of their home country, prior bad casino credit history of “derogs” (derogatory information on non-payment of past casino credit), current amounts of casino credit that is still outstanding versus their credit worthiness or insufficient financial information on th
Date Posted: 11-May-2011
[Steve Karoul is Vice President of Casino Marketing at Foxwoods Resort Casino. Steve is also a highly respected casino consultant as well as lecturer and author. Steve has lived in numerous countries and has conducted casino marketing activities in over 100 different countries. Steve is a recognized gaming industry innovator who openly shares his ideas with fellow casino executives to help develop the gaming industry. Steve may be reached at skaroul@comcast.net or (860) 312-3588.]
