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Interpreting Nevada's great January gaming win

Mar 7, 2017 3:11 AM

On the surface the report that Nevada enjoyed a 12.02% increase in gaming revenue for the month of January would give cause for state officials and gaming executives alike to pull out the celebratory bottles of Champagne and declare nothing but clear skies ahead, but a harder look at the numbers suggests aspirin might just be more appropriate.

Against the revelry and downright giddiness of the jump in gaming revenues, buried inside the state’s report was that taxable revenue for the state declined by 1.74%, the state less Clark County (Las Vegas and all its surrounding area) was down 7.9% in table games and down 4.1% in slots during what should have been a great month.

Nevada enjoyed growth of 16.12% in table games over the prior January, but the prior January suffered a decline of 11.61%, so how much was growth verses normalization? Of the growth in table games, the single biggest contribution came from baccarat revenue, followed by blackjack then Pai gow, with most other areas of table games, counter intuitively, declining in the same period.

Given that the vast majority of the increase in Nevada’s table game revenue came from baccarat, which is predominately played on credit, and as the state only collects its tax after the credit is paid, it does make sense that the taxable revenue was down for the reporting period. However, there is an old casino operator’s adage about credit, “you have to win it twice, once on the tables and once in its collection.” After all, a lot of things can happen before the debt is collected.

There is also some question of if the baccarat market really grew in January or if it was just additional credit extended to the same regular Las Vegas customers by new competitors such as the Cosmopolitan and the newly opened Lucky Dragon. The Cosmopolitan had just opened their new super luxury penthouses, obviously targeted toward the whales, a segment the Cosmopolitan’s senior management is certainly well familiar with from their past casino management time at Bellagio and Aria resorts.

Baccarat and Pai gow are games usually most heavily favored by the affluent Asian visitors to Las Vegas, so it is reasonable to assume the majority of the 53% growth in baccarat and 102% growth in Pai gow revenue came from that market segment. The proverbial “Catch 22” though, is that with a strong win from that segment, it probably greatly reduced that market segment’s ability to return to Las Vegas for February’s Chinese New Year, or at least return and play with the same gusto as January.

Chinese New Year was expected to be great this year. The global economy seemed to have settled down, the US stock market was taking off and the “Year of the Red Rooster” is considered a reasonably lucky one in certain Asian cultures. True as those conditions are, if you are a whale who already lost $5 to $10 million in January and have between 30 and 90 days to pay that debt, you are probably not in a big rush to pay and return a few short weeks later.

Only time will tell how much of the credit extend in January will be collected and, of course, how fast the whales will return, but the very strong January results may just be explaining why February’s Chinese New Year seemed so sparse compared to expectations.

On the Las Vegas Strip, blackjack, craps and slots trended the same direction. Blackjack for the month grew by 22.45%, craps by 4.53%, while slots grew by 6.1%. As those categories are reflective of activity from the mass market this seems a good sign, but it remains confounding why the other table game categories were down in the aggregate for the month.

On the other hand, slots in Clark County were so strong with a 12% increase that even if baccarat revenue had been flat the county still would have recorded a gain in gaming revenues. Clearly for the majority of Clark County, the tourist and locals were out and playing slots in force, unlike the rest of the state, which appeared much more conservative in their play.

Unfortunately Nevada is not as progressive as the other major gaming jurisdictions in the timely reporting of gaming revenues. As such we will have to wait a bit over three weeks to see the results for February, but the Ouija board is predicting, based on the number of resorts that implemented cost cutting moves in February and March, that the great results in January are not being matched with comparable gaming revenue gains in February or March so far.