Las Vegas has been mired in the economic doldrums since the financial crisistook hold in the US in 2007-08. As respected US-based gaming journalist James Rutherfordreports, since then, Sin City’s saving grace has been Asian baccarat playersFriday, 17 February 2012
A relatively small number of wealthy Asian gamblers, predominantly from China, are keeping the recession-battered Las Vegas Strip in the black.
The trend became starkly apparent in 2009, when baccarat dethroned blackjack as the highest-grossing game in the pit, booking US$921.6 million in revenue for the 17 casinos dealing it. It was a 21% increase year-on-year, according to data compiled by the Nevada Gaming Control Board, and it was a godsend at a time when the convention trade — the Strip’s lifeblood, given its effect on hotel room rates—was being battered by the economic downturn and mid-market domestic players, reeling from job losses and the collapse in home values, were staying away in droves. Combined casino revenues were down 9.7% that year. Revenues from blackjack and slots, the mainstays of the floor, had plummeted 20% and 12.4%, respectively.
In 2010, baccarat revenue jumped another 22%, elevating the game’s contribution to $1.2 billion and generating more than 22% of total gambling revenue for the biggest properties on the Strip. It was the deciding factor in their ability to post their first annual increase in combined win in three years.
The latest figures available from the state show baccarat revenue up 7.2% through November 2011 to $1.3 billion at the 16 Strip resorts that were dealing the game. That’s a whopping 43% of their total table market and 23% of their combined win. Baccarat was generating nearly $1 of every $4 those casinos retained from all their customers at all their games, slot machines included.
The play is overwhelmingly high-end. Of the 5,460 or so table games spread across Nevada last year, there were at most about 260 baccarat tables (not counting mini-baccarat), with more than 240 of them concentrated within the aforementioned 16 casinos. Their haul, bolstered by a 12.55 win percentage (the mean is around 11%), averaged $5.2 million per table. Daily average win per table: $15,537. Blackjack, with four times as many tables (1,125) in the 23 largest Strip casinos, generated $714 million, about $1,900 in win per table per day.
The unit win would seem to pale against Macau’s VIP rooms, but it doesn’t account for the fact that most of the play is occurring at only six or seven casinos: MGM Grand and its sister properties ARIA and Bellagio, Caesars Palace, The Venetian/Palazzo and Wynn/Encore; a roster dominated, not surprisingly, by those whose parent companies also operate in Macau.
“Their presence [in Macau and Singapore] gives them knowledge and the relationships with players they didn’t have before,” says Brent Pirosch, who heads the consulting arm of CB Richard Ellis’ Global Gaming Group. “The greater your contacts, the more possible it is to reach out to a larger market. Before, where maybe it was just a satellite office in Hong Kong, now just in terms of sheer volume they’re reaching more people.”
David G. Schwartz, director of the Center for Gaming Research at the University of Nevada Las Vegas, says the players making the biggest impact are Chinese “almost exclusively”.
“Why the spike? It’s a macroeconomic question. More than anything, it’s a result of the expansion of wealth in China. And, of course, the operators are responding to that. They go where the money is.”
The number of millionaire households in China grew 31% in 2010 to 1.1 million, according to a recent Bloomberg report. Only the United States and Japan are home to more. Chinese tourists spend more per capita in the United States than visitors from any other country, twice as much as those from the largest European feeder markets, and three times as much as the average international visitor, according to US Department of Commerce data. In aggregate, their spending has more than quadrupled over the last decade. They’re also the fastestgrowing segment of inbound travel. Through October of 2011, more than 930,000 Chinese visited the United States, up 36% year-on-year. The Commerce Department expects this to grow to well over 2 million by 2016.
Their propensity to gamble makes them especially attractive for Las Vegas. Ten percent of international visitors to the United States listed “casinos/gambling” as an expenditure in a 2010 Commerce Department survey. Among respondents from China, it was 19%. The five years from 2006 to 2010 saw a 70% increase in visitors to Las Vegas from China and Hong Kong, according to the Las Vegas Convention and Visitors Authority. They totalled 148,000 in 2010, an increase of 38% year over year. More than 88,000 arrived by air from China on connecting US or overseas carriers. Through October of last year, that number was up 10% to more than 97,000.
This is with no airline running direct flights from China. But the city is pushing for it, and it could happen come the opening of a new, larger terminal at McCarran International Airport, scheduled for June.
In the meantime, the city is pulling out the stops. Chinese New Year finds hotel lobbies adorned with citrus trees and red and gold lanterns, the casinos host lavish dinners and VIP events for their biggest players, the restaurants get creative with special menus and vie with one another to book the most popular Chinese entertainers and stage the splashiest Lion Dance and Dragon Dance ceremonies. The atriums at Wynn Las Vegas were decorated this year with silk dragons, dragon sculptures 8 feet high and more than 8,000 red and yellow chrysanthemums. Amid the 22,000 flowers at the Conservatory and Botanical Gardens at Bellagio were two 25-foot dragons. The Palazzo displayed a fire-breathing dragon 128 feet long. Even Downtown Las Vegas got into the act with food, arts and crafts and cultural presentations under the Fremont Street Experience’s four-blocklong canopy of lights.
“Overall, it’s got to do with marketing and competition,” says Steve Rosen, an industry veteran who spent five years in Macau with Las Vegas Sands Corp and later with the original Studio City project. “You’ve got a lot of American companies now that are more comfortable and more familiar with Asian cultures gained from their properties in Macau and Singapore. So they’re marketing differently, and that’s more appealing to the Asian player, and it’s reflected in baccarat.”
The breakthrough came with the “Westernisation” of the gaming product in Macau, he says, which provided the Chinese with an entirely new experience and gave them a taste for Las Vegas. “They’re more comfortable over here; it’s what they’re used to. Now, this Western influence is coming back in the form of Chinese players. What’s funny is that we think everything is invented here and we export it. Now, a lot of this is starting over there and it’s coming over here. Really, it is the globalisation of gaming, and unless you’ve been to both places you don’t realise that it’s here and that it’s happening fast.”
Perhaps no Strip casino knows this better than Bellagio, where baccarat drop has doubled since Sands Macau broke the mould not quite a decade ago. “I would call it incremental growth,” says Vice President of Table Games Bill Bingham. “I know that since Macau started offering Western-style casinos it has provided a pipeline.”
The casinos that want the action are aggressive in pursuing it, motivated by Nevada’s low tax rate of 6.75% of gross revenue. Macau has the advantage of location, but their Vegas competition get to keep more of what they win, which gives them more leeway to offer incentives to entice this select group of players to come halfway across the world—players who might be expected to lose US$10 million on a single visit. There are discounts on losses and/or straight cash rebates. These are determined by the size of the bankroll the player is prepared to risk, their creditworthiness, their betting volume, and other factors, and usually these are negotiated up front. Discounts on losses are just what they sound like and can run as high as 20% or 30%. Rebates are reimbursements: lose $1 million, for example, get $200,000 cash back at the end of the trip. Then, of course, there are the luxury accommodations and gourmet food and drink, gifts, travel expenses, maybe a casino jet to pick you up and take you home, and more, like invitation-only tournaments, often with six-figure prizes, no entry fees or buy-ins required.
Marketing and player development are managed almost entirely in-house through offices in the key Far Eastern locations— “meeting the players, wining and dining them,” says Mr Bingham. “It all comes down to personal relationships.”
On the down side, there are no junket networks to negotiate the preliminaries and extend credit. The risks are the casinos’ alone.
“It’s a completely different business here than in Macau,” Mr Bingham says, which makes it a “very, very tricky business,” in his words, and an expensive one. “It’s not like any one of us has a lock on these players. They move around, and it’s not uncommon for them to come here for a few days, play here, play at Wynn, at the Sands properties; the competition has definitely heated up, and so the incentives it takes to get them here have definitely increased, and at some point, that does hit your margins.”
To make it work, the casinos carefully rate a player’s value in terms of theoretical win, which is calculated on the basis of the time they spend at the tables and the size of their bets, which are agreed upon up front and govern the decisions regarding discounts, rebates and comps.
“It’s very scientific and very reliable if you do it right,” says Mr Bingham.
Promotional chips, or “bonus” or “casino action chips,” as they’re sometimes called, are another popular tool. They’ve been employed for years in Las Vegas at all levels of play. Similar to Macau-style “dead chips” in that they’re non-negotiable, they function as a rebate, except this is front-end money instead of back-end. In exchange for a $500,000 cash deposit in the cage, say, the player will get $10,000 in non-negotiable chips to play with, with the understanding that more can be had, but they must be played through until they’re gone.
Credit is the most challenging part of the equation and requires a thorough vetting of bank accounts and credit history and informational networks such as Central Credit Services, an international industry data base. Assets in accounts outside of mainland China are taken into consideration. Operators also swap references and experiences.
“Most of the Las Vegas operators have it figured out,” says Mr Pirosch. “They’re generally not using credit as a marketing tool.”
It’s one of the areas where a presence in Macau can be invaluable. “There is a lot of reward and a lot of risk, and you have to know what you’re doing,” says Mr Rosen. “The MGMs, the Las Vegas Sands, the Wynns of the world have the experience. They definitely have an advantage. They know who the customers are.”
With the onward march of the Chinese economy, there will be more and more of them, too. But there are implications that extend beyond wins and losses. As Mr Schwartz notes, “It means we’re very dependent on that lifeline to China. It means more of your eggs are in the same basket. It’s a dangerous game. But risk is their game. They’re in the business of gambling. And these are the people who are gambling.”