Inside Asian Gaming

May 2008 | INSIDE ASIAN GAMING 45 Circus Circus. Companies that offer corporate Players Club cards such as Harrahs and MGM Mirage will face new problems, challenges and expenses as their customers try to figure out where they receive the best “value” from their membership. Operations run by strong-minded individuals, such as Steve Wynn or Benny Binion, often tend to have high VCLs. SteveWynn has always had a very high VCL, as observed at his new properties in Las Vegas and Macau, where the table maximums are all USD$10,000 or higher. Benny Binion’s strategy to attract high-rollers to a non- high-roller property—the no-frills Binion’s Horseshoe Casino—has become the stuff of legend. Binion would accept a maximum bet of any value from a player, so long as it was the player’s first bet.The first bet would then become the maximum bet. High risk, high reward is also synonymous with many casinos in London. Most of these casinos are small,with 15 or fewer table games. British gaming regulations are also quite restrictive and prohibit the casinos from explicitly advertising gaming. Therefore,many London casinos have accepted a very high Volatility Comfort Level (VCL) in the hopes of attracting more high-roller play to their tables. They understand the volatility and accept it as a consequence of high risk, high reward. Mitigating risk in Macau Some of the highest-stake betting in the world takes place in Macau’s VIP rooms, where you can bet up to US$250,000 a hand at Baccarat. However, there is one big difference worth mentioning. Most of the VIP Room operators in Macau use what is known as a “Table Differential” to lower or control their VCL and still allow customers to wager much higher amounts of money. A Table Differential is the amount that the casino will set as the difference between what is bet on Banker and what is bet on Player at the same table. Therefore, a US$100,000 Table Differential is the Volatility Comfort Level (VCL) of that particular operator. In other words, the operator is willing to accept a maximum of US$100,000 worth of risk on every hand wagered, even if the actual bets placed are much higher. For example,you could have two players playing against each other on the same table with one betting US$500,000 on Banker, as long as the other player did not bet more than US$600,000 on Player. The VCL or differential for the table is US$100,000 per hand. Cruise ships used to always have very low VCLs until Star Cruises, owned by Genting in Malaysia, started to operate high- level shipboard casinos offering land-based casino betting limits. This set a new trend for VCLs for casinos on cruise ships and you can now find gaming cruises or sea-going gaming junkets on board major cruise lines such as Star Cruises, Norwegian Cruise Lines and Carnival Cruise Lines. We have also witnessedVCL changes through the introduction of newtable and slot games. For example,Caribbean StudPoker reduces a casino operator’s VCL since the game basically accrues money from other players of the game and then pays out on big winning hands. Customers like these games because they have a chance of earning a big payout with minimal investment. The same is true of slot machines with large progressive jackpots. IGT’s Megabucks Jackpot, for example, allows a casino to market huge jackpots with minimal risk, thereby lowering the casino’s VCL since the huge jackpot gets paid out of accrued funds rather than the casino’s coffers. Games such as Roulette allow players to decide their own personal VCL. By placing even money bets on the game, players can choose a very low VCL. They can also accept a much higher VCL and go after a much higher payout by betting on straight up numbers for 35 to 1 odds. Lottery operators face the lowest VCL of any gaming company while lottery ticket buyers have the highest VCL of any gambler, since their odds of winning—and hence potential value—are so low. Even Poker, which is red hot right now, has a very low VCL for casinos, since players play against each other and not the casino. The casino takes the “rake”, which is a small percentage of the amount wagered, giving the casino a low risk, low reward revenue stream. Back to basics Whether you are directly employed in the casino industry, or merely interested in it, you need to understand as much as possible about Volatility Comfort Levels for many reasons. Your boss may ask you about a big player and whether or not to book his action. Alternately, you want to be comfortable that you make the right decision when investing in risk-taking businesses such as casinos, which can be extremely volatile—high limit Baccarat,for instance,can dramatically affect a casino’s earnings. In addition, many high-rollers will ask for things in advance such as pre-payment of their airfare or chartering a private jet or helicopter to fly them in to play at your casino.That is why you need to understand a bit about how standard deviations work at estimating your probability of beating a particular player for a certain amount of money to cover your expenses and also make a reasonable profit for your casino. There are programs available that will compute this for you. All you need to do is plug in the game,the time period,their average bet,the house advantage for that game and number of hours to be played.