Whales Breaking the Bank
On April 30, 1992, Kerry Packer picked Caesars Palace for his high stakes hit-win-run tactics. Packer chose Baccarat and began placing bets consistently over $100,000. By midnight when Caesar World Inc closed its quarterly books, Packer was up $9 million. His rack of chips alone represented 37c a share to the casino company. Caesars’s Chairman Henry Gluck recalls, “[Kerry Packer] single-handedly, by himself demolished that quarter”. The casino group was forced to issue a terse profit warning to the market due to “a downturn at its casinos in Las Vegas and Lake Tahoe”.
In February 1990, a Japanese whale by the name of Akio Kashiwagi won $6 million in a single baccarat session against the Trump Plaza in Atlantic City. Akio was reportedly wagering $200,000 a hand at a rate of $14 million an hour.
Wall St Unforgiving
While all the major casinos have felt the heat from high stakes baccarat players, the most recent was in the 3rd quarter 2007 when the Las Vegas Sands Corp reported an unexpected net loss of $48.5 million (or 14c per share) from its high stakes baccarat and blackjack rooms. Wall St was unforgiving dumping the stock, share price in Las Vegas Sands Corp fell 6.8% on extended US trading. On paper Chief Executive Officer Sheldon Adelson's wealth dropped $2.1 billion overnight.
High Stakes, Rebates and Zero Margins
The problem for the casino executives is that they need the whales who can bet – and potentially lose – millions but the popularity of Baccarat with the high rollers means that realizing the already razor thin house edge is far from assured. Baccarat only has an average house edge of 1.3%. Mathematically, you need at least 15,000,000 hands to have a 95% certainty of winning that 1.3%. Specific bets like the Banker bet carry one of the lowest house edges of only 1.058%.
Problems for casinos get worse from their rival competitors constantly offering their clients better comps and rebates. Such is the competition that whales can expect rebates on their losses anything from 20-40% on top of other complementaries. The casino then owes commissions to hosts and what not. At these rebate rates, casinos are effectively comping away their house edge. So the high roller baccarat business gone from a legalized way to rob rich people to a straight up gamble against players with pockets as deep as theirs. So expect casinos to continue to report volatile earnings from its high roller baccarat rooms.
Wishing the high rollers Good Luck while the Baccarat rooms remain open.
