Majestic Research

Reuters

Vegas Casinos 'Whaling' for the Biggest Spenders

By Paritosh Bansal
Published: August 09, 2006

NEW YORK, Aug 9 Reuters) - Casinos that “whale hunt” pull out all the stops to entice high-rolling players who can often affect a casino’s revenue with a good hand.

Whales, once significant factors in a casino’s profits, are losing their importance, as gambling centers like Las Vegas depend more on non-gambling features for revenue and casino companies increase in size.

Gamblers who routinely risk a half million dollars or more get the red-carpet treatment from casinos.  These whales are flown in on private jets, picked up by limousines and whisked away to penthouse suites where private elevators take them to exclusive gaming rooms with credit lines that run into millions of dollars.

Other perks include show tickets and discounts on losses, where the casino will forgive a percentage of the player’s loss.

“You market to them one at a time,” Bill McBeath, president of MGM Mirage’s Bellagio casino, said of wooing the high-stakes gamblers who are willing to part with big bucks.

The stakes are high.  A few high rollers can either leave a dent in a casino’s revenue or boost its profits.  But while there are more whales than ever, their hold on a casino company’s overall fortunes has waned.

Consolidation in the industry over the last few years has created behemoths such as Harrah’s Entertainment Inc. and MGM Mirage, who due to their size and mass markets are less susceptible to the vagaries of Lady Luck.

“The average Joe coming in and leaving $50 or $100 basically pays for operating the place,” Pinnacle Entertainment Inc.Chief Executive Daniel Lee said. “And the high end is your profit.”

Las Vegas casinos also now get more than half of their revenue from non-gambling sources, such as hotel rooms, retail and food and beverage sales—further weakening the whales’ impact.

Yet the high-roller business remains a game of chance.

MATTER OF LUCK

Peter Dunay, chief investment strategist at the Leeb Group, remembers seeing baccarat tables at casinos where players needed to have at least $250,000 to take a seat.

“These people were playing easily with a million (dollars) and up,” Dunay said. “They give $25,000 chips as tips to people.”

High rollers can bet as much as $100,000 or more per hand and can win or lose millions at a time, and it takes just a few of them to substantially swing a casino’s revenue.

Las Vegas Sands Corp. (LVS.N: Quote, Profile, Research) and Wynn Resorts Ltd. (WYNN.O: Quote, Profile, Research), which own one casino each in Las Vegas and cater to high rollers, both said in the second quarter that gamblers’ winning streaks hurt revenue.

Las Vegas Sands said table games’ win percentage—or the amount of money it won from gamblers—at its Venetian Resort Hotel Casino was 17.6 percent, compared with its expected range of 20 percent to 22 percent.

On a table drop—the amount of money exchanged for chips—of $254.2 million in the quarter, the casino would have lost roughly $7 million to $8 million in revenue due to luck, Majestic Research analyst Matthew Jacob said.

That’s about 10 percent of Venetian’s casino revenue of $71.3 million in the quarter.  Similarly, at Wynn Las Vegas, lucky high-end players pushed table games win percentages to 19.8 percent, on the lower end of the expected range of 19 percent to 22 percent.

“Both the results ... underscore the volatility that’s inherent when you do cater to high rollers,” Jacob said. “A casino can have a swing in luck much like an individual gambler does.”

Not everyone wants to deal with that kind of volatility.

Aztar Corp. (AZR.N: Quote, Profile, Research), owner of Tropicana Hotel and Casino in Las Vegas, decided to exit the business of high rollers in the early 1990s after it got too competitive, a spokesman said.

But when the mass market weakens, the whales can also shore up revenue.  Bellagio saw a lucky streak in the quarter, helping MGM Mirage post healthy profits amid a slowing overall market in Las Vegas, Jacob said.

THE WHALES

Casinos are reticent when it comes to talking about who the whales are, citing immense competition among companies to tap into this high-margin business.

But Bellagio’s McBeath said the number of whales has increased over the years.  A few years ago, MGM said there were about 200 whales worldwide.

“There is a much greater representation of high net worth individuals willing to risk seven-figure amounts on a trip,” McBeath said. “And their corresponding betting limits have been raised as well.”

Many of the whales come from Asia, and Las Vegas casinos—companies such as Wynn, Las Vegas Sands and MGM Mirage—are capitalizing by setting their sights on the booming Chinese gambling enclave of Macau.

As these companies get even bigger, the risks that come with betting millions in a trip will be reduced—for the casinos.

“It used to be that Caesars Palace would have great variability in its income based on high rollers,” Pinnacle’s Lee said. “It’s still probably true, but it’s buried into this monolith called Harrah’s.”