Inside Asian Gaming

October 2014 inside asian gaming 7 Cover Story first quarter to the second, and the growth in Q2 was the softest since 2011. In the casino’s elite VIP salons it played out in a 6% decline in revenue in the April-June period on a 3% decline in sales of so-called “dead chips,” the currency in the rooms, rolling chip volume, as it’s known, the key indicator of the health of the sector. The volume decrease was even worse viewed sequentially, down 14%, and it drove revenue down 16%. It was the sector’s worst performance since the 2008-2009 global financial crisis. While this was unfolding, the Las Vegas Strip was enjoying one of its best quarters for baccarat ever: US$395.4 million in win, almost double the take of the year-ago period, boosted by a run of good luck (hold was 400 basis points higher), and a 34% surge in wagers. This was captured by all of 295 tables, which is interesting, because at 1.25%, the casino’s advantage on baccarat, it worked out roughly to $107 million worth of bets per table, high-end action by any standard. What’s more interesting is that most of those tables (284) were run by the Strip’s 18 largest casinos by revenue, a group consisting of four operating companies—MGM Resorts International, Las Vegas Sands, Wynn Resorts and Caesars Entertainment—three of which, of course, are ensconced in Macau. This is no coincidence. Most of the Strip’s high-end play is international, and the consensus is that most of it originates in Asia. Baccarat, the game of choice of China’s VIPs, is the biggest game on the Strip five years running, accounting now for more than 45% of table drop and more than half the win. Wynn Resorts, for example, noted midway through last year that Asians accounted for 52% of table revenue at its two Strip resorts. And it’s more profitable revenue than it is in Macau by virtue of Nevada’s low tax rate (6.75% versus Macau’s effective 40%) and the absence of junket commissions—conceptually about twice as profitable dollar for dollar on a pre-tax basis, according to research by investment bank CLSA Asia-Pacific Markets—another incentive to drive the business to Las Vegas, especially for Wynn and MGM, which derive a greater share of their corporate profits on the Strip than LVS does. It’s impossible to assess precisely how this is impacting Macau. The Strip’s baccarat win in the second quarter implies The Strip’s baccarat win in the second quarter implies that drop was around $31 billion. Not all of this could have come at Macau’s expense. But if we assume 50% was play out of China—which is probably conservative—that’s $15.5 billion that wasn’t gambled in Macau. Chinese M2 Growth Source: CEIC, DICJ, Morgan Stanley Research