Inside Asian Gaming

January 2009 | INSIDE ASIAN GAMING 15 In Focus M acau’s VIP gamblers may love baccarat, but it’s a game that can occasionally give casino executives sleepless nights. It’s likely to give them even more hours of restless sheep counting in 2009. This is because of baccarat’s well- documented volatility. Volatility does, though, work both ways. It can hugely benefit casino operators at times, but it can also put a severe crimp on the bottom line if the house has a run of bad luck. In Las Vegas, Harrah’s got out of the high roller baccarat market after losing money in that segment. CEO Gary Loveman was quoted as saying “it didn’t make sense” to have 10,000 to 12,000 people enjoying themselves in your property but be nervous that one ‘whale’ in the high limit room could undo it all. A shellacking In light of Las Vegas Sands Corp’s recent troubles in Macau, a losing streak in VIP baccarat is probably the last thing on its executives’minds. Nevertheless, the US$48.5 million net loss recorded by LVS in Q3 2007 was attributed in part to a run of bad house luck on its VIP tables in Macau. “We got shellacked. It is what it is,” is how LVS President and Chief Operating Officer Bill Weidner memorably put it. One of the reasons the non- negotiable chip system was introduced to VIP table gaming was to deal with the potential threat to junket operator liquidity posed by high-rollers walking away after big wins. Too many of those runs on the bank in a short space of time can threaten not only the working capital of the junket operators, but also wipe out casino profits. Rolling chips do not, however, deal with the wider issue of smoothing table hold volatility. To achieve that effect, other mechanisms are needed. In that context, Deutsche Bank analyst Karen Tang found things to praise in Melco Crown Entertainment’s Macau strategy in a recent report on the outlook for the territory’s economy in 2009. By special arrangement Ms Tang mentioned in particular that MPEL had “mitigated” volatility risk to high- end table games by signing a “volatility hedge arrangement” with Hong Kong-listed A-Max Holdings Ltd, the junket aggregator that feeds MPEL most of the VIP players that attend Crown Macau. In case ‘volatility hedge arrangement’ sounds like a silver bullet for dealing withVIP House on Edge There’s no silver bullet to deal with table hold volatility Rolling chips do not deal with the wider issue of smoothing table hold volatility