Where have all the high rollers gone?
Baccarat win - the bellwether of high-end play - was down 12.6 percent on the Las Vegas Strip in the 12 months that ended in February, compared with the year before. At the casinos that cater to big-time gamblers, the largest casinos, defined by state statisticians as those with annual table revenues in excess of $72 million, baccarat win was down 12.07 percent.
A look at betting volume, or drop, is even more telling. Figures compiled by the investment firm UBS Warburg show baccarat play down 18.7 percent in December, January and February, the quarter which takes in the busy Western and Chinese New Years. Hold percentage was roughly steady, compared with the 1999-2000 quarter. Win was down 19.6 percent.
"It means that more than 95 percent of the drop in revenue is due to lower volume, not luck," says Robin Farley, a gaming equities analyst with UBS Warburg.
Farley detects a trend, "and not a very positive one."
"The last time we saw a drop of this magnitude was in ’98, during the Asian economic crisis, so it’s significant," she says.
Certainly there is less willingness to deal credit at the some of the dizzy levels of the past, a reflection both of the tough times in the Far East and the big markers some casinos have gotten stuck with as a result. Says one highly placed Strip executive, talking about the slowdown in high-end play, "I think it’s got more to do with the inability of these players to pay their debts."
Maybe that’s more of a problem now than it used to be because the milk of gambling credit is flowing freely elsewhere - on the East Coast, at Foxwoods, the giant Indian-owned resort in Connecticut, and in South Africa, the Caribbean, Taiwan and at places like Crown Casino in Australia, where owner Kerry Packer, himself a whale of world-class girth, is offering huge discounts to lure high-limit action.
Only the largest U.S. companies - MGM Mirage and Park Place Entertainment spring to mind - can compete in that league. But how high do they really want to fly?
"You have to compete on amenities, not on price, otherwise you’re carving into your margins," says Jim Murren, chief financial officer of MGM Mirage.
To hear some of the talk around town, margins are already way too tight for comfort. Rio boss Jay Sevigny affirms that more casinos have entered the bidding for high-limit gamblers, with the result that worldwide, the number of such players is actually on the rise. "But with more casinos going after it," he says, "the costs have increased tremendously."
In baccarat the ideal is to cancel, say, a $100,000 "player" wager with an identical wager on the "banker" hand. That way the loser pays the winner and the house happily collects its vigorish. It’s easier for the conglomerates to do this by laying action off on different properties. But their ability to control costs in this way is upset when single-property companies like The Venetian and the Aladdin aggressively chase the same big bettors.
"Today the customer has never had more power in determining the profitability of their play," says Sevigny.
Then there’s those in the know, like Murren, who insist that the nature of gambling is changing and that baccarat is not the most accurate measure of high-limit action. "You have to take high-end table games in the aggregate," he says. That would account for a lot of what the Strip is experiencing - like why table win has held fairly steady in the years since the Asian crisis while baccarat win has dropped - and why baccarat was the only major table game to experience a decline in win in the last 12 months - and why baccarat, which accounted for 15 percent of total win in 1997, the year the Hong Kong stock market crashed, now represents only about 11 percent.
The alacrity with which the Nevada Legislature passed a bill this spring to change state law to permit private gambling salons would seem to reflect some sense that the big-time gamblers just aren’t rattling the cash registers the way they used to, and something needs to be done about it.
"The Middle Eastern and Arab players go to London where they have private gaming," says one Strip insider. "Las Vegas never got much of that play. I think this is more of a move to market to them."
"We know we’d have players playing at a very high level today if they could play privately," says veteran European operative Derek Llambas, who runs the Aladdin’s luxury London Club.
But while some are sharpening the harpoons and lowering the boats for fear the whales are swimming too far, guys like Sevigny are steering clear in another direction. Under the ownership of Harrah’s Entertainment, the Rio is marketing away from the super-high end. The Tropicana likewise is out of the business. The Las Vegas Hilton, long a high-roller haven, exited last year.
"The decline in high-end play also can be seen to represent more of a rationalization of costs in the direction of a more normal level of play," says equities analyst Harry Curtis of BancBoston Robertson Stephen.
"A lot of companies would like to shift their marketing if they could, toward more stable domestic play. Most of us would prefer to do that," says one high-ranking Strip executive. "But the reality is, you need all levels of play to be successful. You can’t ignore any aspect."
So it will always be that somewhere on the Strip some multimillionaire will push out so many chips on the flip of a card that his luck might wipe out months of profits. In the future, few will see it because the drama will take place behind closed doors, in a chandeliered room where a pit boss will be sweating even though the air is cool. That much will never change.
As Curtis aptly puts it - "You live by the sword, you die by the sword."