HOME DIGITAL BOOKS ANALYSERS BRIGHT IDEAS ARTICLES SNIPPETS LINKS STOCKS ABOUT
 
SEARCH SITE
SUBSCRIBE
 


  BRIGHT IDEAS

Bonus Baccarat™: A Revolution in Baccarat Game Pricing – by applying an in-game price modification.
by Andrew MacDonald and William R. Eadington

Bonus Baccarat™: A Revolution in Baccarat Game Pricing – by applying an in-game price modification.

Andrew MacDonald and William R. Eadington – 2008.

Macau has quickly become the largest gaming venue in the world, based on gross gaming revenues. Macau’s gross gaming revenues—which were US$10.3 billion in 2007 - have already overtaken those of the Las Vegas Strip and will likely surpass the entire State of Nevada this year. It is possible that 2008 revenues might exceed the combined gaming win of America’s two largest gaming states: Nevada and New Jersey.

The breakdown of gaming revenues by source is arguably even more interesting, especially for analysts used to Western patterns. In most North American casino jurisdictions, about 70% to 80% of all gaming revenues come from slot machines, with the balance coming from table games. In Macau in 2007, table games accounted for 95.7% of gross gaming revenue. Furthermore, Baccarat (in all its variants) represented 91.3% of the total of all table game revenues. In Nevada, Baccarat makes up only about 25% of table game revenues and 8% of total gaming revenues.

The most significant revenue source for Baccarat in Macau is that portion called “VIP Baccarat,” that presently accounts for approximately 70% of all gaming revenues in Macau. “VIP Baccarat” consists of those Baccarat tables located in particular gaming rooms and which pay an annual premium fee of MOP300,000 (Macau Patacas) per table— approximately US$37,500—to the government as compared to mass-market (or main gaming floor) Baccarat where the annual premium is MOP150,000. There is a degree of overlap among play and players as high-end mass market players can easily migrate to the lower-end VIP Baccarat tables and vice-versa, making the delineation of VIP and mass gaming by any criterion besides the annual premium fee problematic.

One of the driving factors behind the rapid growth and dominant importance of VIP Baccarat has been the role of so-called “dead chips” as an integral part of the game’s structure. (Dead chips are also known by a number of other names. They are also called non-negotiable chips, rolling chips, or mud chips.) This system is based on the principle of the casino selling non-negotiable chips at a discounted value to intermediaries—VIP room contractors or junket operators—who then sell the chips at face value to players who they have recruited and brought to the casino.

The dead chip system effectively allocates the theoretical win from the game (which derives from the game’s inherent House Advantage—about 1.35% of all money wagered, the so-called “handle”) between the casino and the intermediaries. Traditionally, the dead chip discount provided about 40% of the win for the intermediaries, and the balance to the casino company. The casino company was responsible for the tax liability, which has ranged between 30% and 40% in Macau since the 1980s, and is now abut 40%. The discounts received by the intermediaries funded their marketing efforts, lending costs, and other expenses related to their responsibilities in VIP room operations.

This informal partnership between the casino operators and the intermediaries was first developed with the monopoly operator STDM beginning in the 1980s and remained relatively stable for some time. However, the system has been significantly affected by the rapid growth and changing competitive conditions that have evolved in Macau since 2004. Since then, the major competitors SJM (the successor company of STDM), Galaxy, Las Vegas Sands, Wynn Macau, PBL Melco and MGM, have all adopted some variation of the “dead chip system.”

The mechanics of dead chip play are typically as follows. The VIP room contractor purchases dead chips from the casino concessionaire, and re-sells them to VIP player representatives. The contractor receives a percentage commission—up to around 1.2%—on the volume of dead chips purchased. The representatives then sell the dead chips to their players who use them in actual play. When players win a wager with dead chips, they are paid off in live (negotiable) chips, which can be redeemed at the casino cage for cash. However, they are typically bought back by VIP room player representatives for dead chips; this process is called chip rolling. In order to add to their profits, VIP player representatives—working under VIP room contractors—continually purchase live (negotiable) chips from players when the players win hands. In this manner, players only make wagers with dead chips, and the VIP player representatives are continually using the acquired live chips to purchase additional dead chips.

The dead chips also provide a simple accounting system that allows the measurement of a proxy for actual handle. Indeed, for even money (or near-even money) wagers such as Player and Banker at Baccarat, the expected survival in play of a dead chip is just under 2.0 rounds, so for the game of Baccarat, for which there is about a 1.35% theoretical House Advantage, the expected win for the casino should be about 2.7% of rolling chip sales. If the commission rate to the contractor is 1.2%, for example, this would capture abut 44% (1.2%/2.7%) of theoretical win. Some of this amount may be paid back to the player as incentives from the contractor or his agents, and some proportion will be paid to other intermediaries (junket operators, sub-agents, etc.) employed by the contractor. (Note that the tax comes out of the casino concessionaire’s share, so at that commission rate, the concessionaire would receive about 16% of theoretical win.)

Recently, the Macau market has seen the advent of consolidators: strategic partnerships among VIP room contractors who can then negotiate more favourable terms with casino concessionaires in exchange for better commission terms. One such company is AMA International, a junket aggregation business owned by the publicly traded Hong Kong company A-MAX Holdings Ltd. For the month of February 2008, Crown Macau, which had entered into an exclusive arrangement for VIP room play with AMA International, reportedly captured an 18.1% market share of Macau’s gross gaming revenues (and a 24.8% market share of VIP play) and generated rolling chip sales of US$5.3 billion. This was in contrast to their reported gaming revenue market share in November 2007, which was only 5.7%. According to analyst reports, AMA International was able to negotiate commissions of up to 1.35% on rolling chip sales which would amount to about 50% of theoretical win. AMA International then reportedly pays the VIP room contractors up to 1.21% of rolling chip sales. This pool is further divided down the chain of junket operators, agents, and sub-agents, until the individual players also receive some form of “incentive” payment. If these figures are correct, then the after-tax theoretical win for the concessionaire would be 10% of the total theoretical win. (Rolling chip sales of UN$5.3 billion suggests total theoretical win of US$140 million; 10% of that is still US$14 million. However, this is gross revenue prior to consideration of any fixed operating expenses, capital costs, and other overheads.)

This kind of deep discounting might be justifiable given the volumes of dead chips wagered and is much like bulk discounting to wholesalers in other industries. One of the issues with the use of dead chips, however, is the fact that the commissions paid on rolling chip sales are treated for tax purposes as an after-tax expense and are not deductible from gross casino revenues before the calculation of gaming tax. That means that in Macau— where taxes and levies are 40% of gaming revenues—the resultant margin after tax and commission are pushed to super-thin levels that only substantial volumes can overcome. As an alternative, if a way could be found so that the gaming tax could legitimately be calculated after payments are made to intermediaries, th

Date Posted: 19-Sep-2009



 
 
Click here to login to Subscribers area Make urbino.net my homepage Add urbino.net to my favourites Check your Hotmail Search Google

  MORE BRIGHT IDEAS


Satisfaction, Loyalty or Customer Experience
Corporate Social Integration in Macao
You Can’t Manage What You Can’t Measure
Bonus Baccarat™: A Revolution in Baccarat Game Pricing – by applying an in-game price modification.
I Have a Dream (with Apologies to MLK)...
White Collar Criminals Beware
Slot Club? Cash Back?
Create A Refuge
Casino Branding in Macau – Key to Sustainability
The Allure and Loathing Of The Big Drawing
Nopromophobia
A LOOK AT TABLE GAME TRAINING & OPERATIONS IN EUROPE
Signs of a Well Marketed Casino
THE CASE FOR INTEGRATED RESORTS
The Gaming Village Must Deliver An Exceptional Guest Experience
The 10 Biggest Casino Marketing Sins
Locust Marketing
Table Games – Optimal Utilisation: A science and an art.
Little Known Innovations
De-market Corporate Macau to Remove the Bad
DEVELOPING ANALYTICAL TOOLS FOR CASINO MARKETING PROFESSIONALS
CRM in Casino Campaign Management: The Perils of Mass Customization
TABLE GAMES ARE NOT FUN ANYMORE!
How to Listen to Your Customers
Gambling on Conventions
Macau – Confidence or Crisis.
Deliver Winning Experience on a dime
The Concept Of Stalled Revenue Streams
The Southwest Airlines Casino
SIDE BETTING IN MACAU
Casino Innovation – Private Label Energy Drinks
Gaming as a commodity – thinking of gaming as an entertainment service.
ADAPTING TO THE CHINESE CULTURE IN MACAU
TABLE GAMES OPERATIONS: NEW GAMES AND OTHER LEASE FEE ITEMS
Marketing to the Macanese Employees

show more
 
 
HOME | DIGITAL BOOKS | ANALYSERS | BRIGHT IDEAS | ARTICLES | SNIPPETS | LINKS | STOCKS | ABOUT
SUBSCRIPTIONS

© Urbino.net 2017. All rights reserved.
Site by ojo online