Nevada casinos' baccarat heading downward

April 07, 2015 3:00 AM
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Bellagio Las Vegas baccarat roomThe March numbers are in from Macau and the February numbers are in for Nevada and the story of focus seems to be all about the Baccarat.

Let’s start with Nevada’s numbers, for the month of February the NGCB has reported overall gaming revenues were down a touch over 1%. The decrease was basically driven by a decrease in Baccarat revenue of over $37 million, which given the Chinese/Lunar New Year fell squarely in February was very disappointing.

On the plus side though, if Baccarat was pulled out of the state’s numbers February would have shown an increase of 3.6%, which is reflective of the increased volumes and spending coming through Nevada casinos.

While it is good news that traditional visitor volume is up and they were willing to share both a portion of their tax refunds and gas savings in the casinos, it should not be glossed over that there was a material decrease in Baccarat revenue.

So what is happening to Nevada’s Baccarat business?

It has been beaten to death that gaming activity out of Mainland China to Macau has been decreased by the various economic changes and corruption crackdowns in China, but there has been virtually no reference to the reduced activity out of Taiwan. Taiwan has been a great source of Baccarat revenue for Macau and the Las Vegas Strip for close to 30 years now, but things have tightened there as well.

While Taiwan has not suffered the same pressures found in China, a tightening of currency reporting has slowed things up a bit. In the past when patrons from Taiwan lost, they would often settle their markers by paying them off through the various casino marketing offices in Taiwan with local NT$.

The marketing offices would then send the money back to the corporate offices, using either a service or the wire transfer limits of their local staff. But alas, when the Taiwan central bank tightened the reporting requirements and related processes, a number of casinos found themselves with a lot of money stuck in Taiwan.

Currently between Nevada, Macau and Australian casinos there is something north of $100 million stuck in Taiwan. While the money will eventually find its way out of Taiwan, probably in the form of various goods such as furniture and construction materials, future customer play will be expected to be paid by the customers in U.S. Dollars, which will dramatically reduce the number of customers from Taiwan that can conveniently play on credit.

For the Las Vegas Strip though, offsetting some of the decrease in play from Taiwan was actually an increase in play from mainland Chinese customers and surprisingly from Brazilian customers.

Mainland Chinese customers who happen to have assets outside of China have found the privacy of Nevada casinos holds a better attraction than the Macau casinos and t the collection efforts of Nevada casinos are much more polite and softer than the junkets reps from Macau.

Brazil, as it continues to grow as a global economic power over the last few years, has become a new source for higher end patrons who have found their way to both the Baccarat and Roulette tables. Unfortunately, the play out of Brazil and Mainland China tends to be trending toward matching holiday and special event time periods and does not look to be settling in as a steady monthly source of activity for Nevada Baccarat rooms. So the challenge for VIP marketing executives will now be to find new sources of replacement business to fill in the coming gaps of action in the baccarat rooms.

Turning to Macau, its regulatory system requires the casinos to report in real time their respective gaming revenue numbers; accordingly the regulators there generally release the monthly gaming results within a day or two of the close of a calendar month (something Nevada should consider doing). For the month of March, Macau reported a decrease in gaming revenue from the prior March of 39%, mostly from a decrease in VIP Baccarat.

The reasons for the decrease remain the same as previously reported, Mainland China’s crackdown on corruption, economic slowdown, political sensitivities and increased regional competition, particularly out of South Korea and the Philippines.

Oddly, most Macau market watchers were comforted that the decrease was only 39% and the go forward available market will be between $24 billion and $30 billion a year for the next few years with an increase in focus on the mass markets and decrease in focus on the VIP segment.

Though materially down, Macau still is a market that is multiples of the size of Nevada’s market and still a very important market for LV Sands, MGM and Wynn and thereby Nevada as those three companies are critical to the health of Nevada’s gaming business as well as the state over all.

Though the LV Sands, MGM and Wynn will be impacted by the reduction in VIP play in Macau, they will benefit from the expanding mass market capacity of Macau once their collective construction projects are completed. LV Sands in particular is probably best positioned to excel in the repositioned Macau market. They have significant room capacity, most of their properties are clustered together and are essentially a must visit destination within Macau. MGM and Wynn, once their new construction is completed, should enjoy a nice market place rebound but LV Sands looks to be the best positioned of the home town companies to make the most out of Macau.

It is an oft used but true adage that “inspiration is stimulated by necessity” as both Macau and Las Vegas have need of replacing the declining Baccarat revenue, it will be interesting to see what the creative minds of some really excellent gaming companies come up with to either find a new source market or other new innovation to stimulate business to replace the Baccarat business that seems to be, at least for the time being, going away.

The Analyst is an experienced gaming industry executive who offers insight each week on events and issues affecting the industry. Contact The Analyst at Publisher@GamingToday.com.

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