When looking at earnings from gaming companies, trying to figure out what all of the numbers mean can be confusing. Revenue and net income are easy enough, but luck plays a role and companies throw out terms like “rolling chips” and “drop” like they’re everyday terms. So, let’s take a look at what those numbers mean and how they impact earnings reports.
How the house works
There are generally three categories in any earnings reports: mass market play, VIP play, and slots. Mass market is simple enough: It’s the average person who walks into a casino and puts money down at a table or into a slot machine. VIP players play on credit and use what are called rolling chips. Slots are just that — slot machines. Here’s what the terms and numbers mean.
Before we dive into the all-important VIPs, let’s start with slots. Not every company reports the same data, but full disclosure would include the following.
1). Slot handle: The amount wagered at a slot machine.
2). Slot hold %: The percentage of the slot handle that is won by the casino.
3). Slot win: The casino’s win, which flows to the revenue line of the income statement.
Below I have two examples, one from Las Vegas Sands Corp. (NYSE:LVS)‘ Venetian Macau and the other from Wynn Resorts, Limited (NASDAQ:WYNN)‘ Las Vegas operations. Note that all numbers in this article are from third-quarter 2012 because not all companies have reported fourth-quarter results.
| Casino | Slot Handle | Slot Hold % | Slot Revenue |
|---|---|---|---|
| The Venetian Macau | $1.26 billion | 4.9% | $61.9 million |
| Wynn Las Vegas | $723.5 million | 6.4% | $46.3 million |
Source: Quarterly SEC filings.
You can see that hold percentage in The Venetian Macau was lower than that at Wynn Las Vegas, a typical difference between Las Vegas and Macau. Las Vegas Sands’ U.S. properties experienced a higher hold percentage, likely due to lower-odds penny and nickel slots.
To put these numbers into some perspective, MGM Resorts International (NYSE:MGM) expects slot hold percentage to be 7.5% to 8.5%, so both of the percentages above are lower than MGM expects every quarter.
Mass-market table games
When you walk up to a blackjack table in Las Vegas and you hand the dealer a $100 bill for chips, they put that money into a drop box. This is what is known as the “drop,” “table game drop,” or sometimes “non-rolling chip drop.” The corresponding casino win is the amount left over when you cash out your chips at the cashier. Win is usually expressed as a percent of drop, which also corresponds to revenue.
Below are mass market drop numbers from three casinos in Macau, including Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL)‘s City of Dreams. I’ve also included the expected win percentage for companies that publish such data.
| Casino | Table Game Drop | Table Game Win % | Expected Win % | Table Game Revenue |
|---|---|---|---|---|
| The Venetian Macau | $1.14 billion | 31.3% | N/A | $357.1 million |
| Sands Macau | $739 million | 20.8% | N/A | $153.7 million |
| Wynn Macau | $686.1 million | 30.8% | 26%-28% | $211.3 million |
| City of Dreams | $889.8 million | 27.4% | 25%-30% | $243.8 million |
Source: Quarterly earnings releases.
Think about these win percentages next time you enter a casino. The numbers say you’ll only walk out with about 70% of what you put down at a table.
Where the big bucks are made
In recent years, investors have become focused on rolling chip drop, or VIP play in Macau’s casinos.
