30-second summary:
- High rollers are vital to the performance of casinos
- There was a 10% decrease in high rollers visiting Macau in the fourth quarter of 2018
- This worrying trend might reflect the Chinese economy slowing down
- Chinese authorities are pushing Macau to diversify from its focus on gambling
High roller gambling
High rollers are very important to casinos in the major gambling hubs such as Macau and Las Vegas. For the most part, the high rollers are in a much greater concentration in Asia.
The game of choice for these players is usually baccarat. Often times movies would portray the “sexier” casino games such as blackjack, craps and roulette as being the choice for high rollers. However, baccarat is where most of the high rollers flock when they go to gamble.
For those who are not familiar with this game, it is fairly simple to understand. A player makes a bet on whether or not they think if the dealer will tie with the player, or get closer to a combination of nine when the cards are dealt.
The reason most high rollers prefer baccarat is because of the very tight edge that the house holds over the player. In Macau, traditionally about 90% of all casino revenues come from baccarat, of which about 60% is from high rollers.
High rollers are well looked after by the casinos, getting all sorts of perks. How it works in Macau is that the high roller usually will get rolling chips. These track every aspect of their play when they are in the region. When you win, this will be in the form of regular chips that can be cashed out.
Playing on credit
Most high rollers will also use lines of credit when playing. Or they will use a marker, which effectively is an IOU to the casino. Usually, you will have to prove your net worth is at a certain level before you are given the opportunity to use markers. However, there will always be players who can’t repay these debts.
This is why casinos generally write off 5% of their debts each year, as they are not collectible. In Las Vegas, about 40% of all gambling revenues on the Strip are through the use of markers.
The casinos can, of course, file a civil suit to try and get their money back, but this is a lengthy process and often more expensive than the size of the debt. Therefore, they will pick and choose which cases they go after.
Declining high rollers in Macau
As it is clear, casinos rely heavily on the business of high rollers. Therefore, a decline in the number of high rollers coming to a region will have a significant impact on revenues.
Macau is experiencing a drop-off in high rollers, with many saying it is a sign of a slowdown in the overall Chinese economy. Credit Suisse estimates that fourth quarter figures for 2018 show a decline of nearly 10% in the volume of VIP players. The number of non-VIP players saw a rise of only 1%. Tourist numbers in the city are still pretty consistent.
However, Credit Suisse is now planning to lower its exposure to Macau. It currently provides coverage for the Wynn Macau, MGM China, Galaxy and Sands China casinos.
Other analysts are taking a similar stance. A UBS analyst said: “Despite November revenue better than expected… our lower estimates are driven by weaker VIP and premium demand amid heightened risk to macroeconomic outlook in China.”
Some signs that this may be true include the official growth rate target in China for 2019 falling to between 6% and 6.5%, which is the lowest it has been since 1990.
Macau to diversify
China is also pushing Macau to tighten up its gambling industry oversight and take a more proactive stance when regulating the gaming sector. It believes the Macau government needs to make more effort in managing financial and economic risks.
There is also a desire for Macau to more closely monitor changing trends in the gambling sector. China wants some diversification into non-gambling activities. This is to prevent a downturn in the gambling sector having a major impact on the wider economy in the region.
As well as being a gambling destination, China wants Macau to focus more on leisure and family tourism. This will be difficult due to the small size of the island. However, there is now more of an emphasis being put on entertainment and retail stores across the region.