Inside Asian Gaming

INSIDE ASIAN GAMING | November 2011 36 gambling debts are not legally enforceable in China, so the junkets (or rather the sub agents that feed them players) are also charged with the sometimes onerous task of collection. Winning bets are paid in normal cashable chips which players can exchange for more dead chips. The more cash or cash equivalents the promoters induce their clients to exchange, or‘roll,’in this manner, by providing credit, the more they earn, hence the term ‘rolling chip volume’(or ‘rolling chip turnover’) for denoting the churn on income statements and revenue reports. During 2009, the Macau government became concerned about what some analysts had referred to as “irrational” competition in the Macau VIP market, with new casinos (chiefly Crown Macau, now known as Altira) buying new business by offering an eye-watering 1.35% commission on rolling chip sales. Faced with lobbying also from the other casino operators alarmed that theirmargins onVIPbaccaratwerebeing dangerously eroded by the commission price war, in August 2009 the government drafted a regulation to cap VIP rolling chip commission at 1.25%. Profit share—another way of dividing the spoils ofVIPplay between casino and junket operator—is not capped. The Macau government looked at doing it, but decided it would be impractical. The blended average house advantage on baccarat is around 1.3% (with house advantage on cash play determined by dividing house win by handle). The win rate using NN chips in Asian VIP rooms is calculated according to a slightly different metric: house win divided by NN chip sales (with NN chip sales used as a proxy for turnover). Since the Player and Banker bets on baccarat are close enough to evenmoney wagers, each NN chip has an expected life of just under two bets. Thus, thewin rateonVIPbaccarat is a little over twice the house advantage on baccarat. Although casino operators have varying win rate assumptions onVIP baccarat, a generally accepted figure is about 2.75%. Even when the house doesn’t have to share with an outside promoter, the house hold volatility inherent in baccarat can make it a tough—and risky—business for the casino. Gary Loveman, the Chairman of Caesar’s Entertainment, was once quoted as saying he didn’t like high stakes baccarat in his business mix because one lucky whale could potentially wipe out in a single session a significant portion of a casino’s profit. In Macau, the effects of the narrow margin are ameliorated by sheer volume of play. The Macau operators can still rake in enormous profits even after the tax man and the promoters and junket operators take their shares because the roll in dead chips is enormous. VIP turnover last year exceeded US$500 billion, translating into US$17 billion high roller revenue. That was three times larger than the entire gross gaming revenue on the Las Vegas Strip for 2010. Next month, we’ll discuss ‘hungry tigers’, table ratings, silent partners, the possibility of fresh licences and another issue never far from Westerners’ minds when they think about Asian casinos—crime. James Rutherford is a freelance writer and editor based in Atlantic City, New Jersey. He is a former editor at Casino Journal and a former International Editor and Senior Writer at International Gaming & Wagering Business. Dead chips mean a living for junkets and casinos Feature