When VIP players come into a casino, they don’t set $1 million on the table and ask for chips; they play on credit. Usually this is done with a junket, a company that will borrow a player’s money and collect a cut of their losses from the casino. In Macau, junkets sometimes operate their own rooms, but no matter the arrangement, VIP players use rolling chips, which can’t be cashed out directly for cash — you have to gamble them.
Rolling chip drop or volume is the amount of rolling chips wagered and dropped at the table (like cash is dropped). Winnings are paid out in cash-equivalent chips. A casino records revenue based on how much of the rolling chip play is lost. Here are a few examples.
| Casino | Rolling Chip Volume | Rolling Chip Win % | Expected Win % | VIP Revenue |
|---|---|---|---|---|
| The Venetian Macau | $11.2 billion | 3.32% | 2.7%-3% | $372 million |
| Wynn Macau | $27.6 billion | 3.08% | 2.7%-3% | $850 million |
| City of Dreams | $19.5 billion | 3.2% | 2.7%-3% | $624 million |
Source: Quarterly earnings releases.
With VIP play accounting for a vast majority of casino revenue in Macau, you can see why this win percentage can create very volatile earnings from quarter to quarter.
When reading gaming earnings, remember that rolling chip drop is the same as volume or turnover. Different companies use different terms, but they mean the same thing.
How to use this data
Even the small sample I’ve provided above can be used by investors. You can see that Wynn Resorts generates a large amount of revenue from VIP tables and The Venetian generates far less. On the flip side, The Venetian is a huge mass market location, as is City of Dreams, whereas Wynn Macau is not.
Over the past year we’ve seen VIP play in Macau slow and mass market play pick up. This is why these two companies have seen earnings grow more than Wynn Resorts. These detailed numbers tell the story.
Making things difficult
Not all companies report the same numbers, and some don’t report much of anything at all. While most companies in Macau report a fair amount of data about gaming trends, MGM Resorts doesn’t reveal much data about its operations. Caesars Entertainment Corp (NASDAQ:CZR) doesn’t report much detail at all, not even about its largest Las Vegas operations.
On the flip side, Las Vegas Sands is the most transparent, providing VIP, mass, and slot volume and win percentages at each of its casinos. Hopefully this overview will help next time you see all of these numbers in a company’s earnings report.
The article Your Guide to Understanding Casino Earnings originally appeared on Fool.com and is written by Travis Hoium.
Fool contributor Travis Hoium owns shares of Wynn Resorts, Limited. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. The Motley Fool has no position in any of the stocks mentioned.
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