Baccarat Variance Reveals Sluggishness of Gaming Recovery

The Nevada Gaming Control Board released the May 2013 Gaming Revenue Report this morning, letting us all get a glimpse at how well the state’s biggest industry performed in May.

The answer: fair to middling.

From a distance, it looks good: statewide gaming win up 1 percent. Las Vegas Strip casinos are up 6 percent. Even Washoe County, with Reno and the North Shore of Lake Tahoe, is doing well, with a 7 percent bump in win.

But looking closer, things don’t look so hot. To understand why, we need to look at the role baccarat plays in the overall revenue picture.

Baccarat, if you’ve misplaced the memo, is a card game that’s played mostly by high rollers. The vast majority of baccarat games are played in a score of Strip casinos.

That being said, back in the middle of the last decade, baccarat accounted for about 5 percent of Nevada’s total gaming win. In May 2013, it represented 10 percent of the total win. That’s right: one game in a half-dozen or so Strip casinos was responsible for about one dollar in every 10 made in every casino statewide. To put it in perspective, there are more than 300 casinos and 157,000 slot machines in Nevada.

So it’s clear that baccarat is in the driver’s seat. That’s a problem, because it’s not a steady driver. Oh, it’s capable of doing fantastic things, but it’s not the most consistent of motorists. Because of the high volumes of money wagered by relatively small numbers of players, there’s a lot of volatility in the game’s hold percentage, or the amount of money bet that casinos keep. Games like blackjack crunch along relatively steadily, with their hold percentages (on the statewide level) never deviating too far from their expected averages. Baccarat, though, is all over the place. It’s usually somewhere around 11 percent, but can zoom as high as 20 percent and below 4 percent.

In May 2012, baccarat hold was only 8 percent. Gaming executives wept (well, metaphorically at least). That led to an easy comparison in May 2013. Baccarat hold returned to normal, leading to an apparent jump in profitability for the state’s casinos.

But in fact, overall levels of play fell. High rollers bet less this May than last; casinos just won more. Slot players and other table players also bet less this year than last.

May confirms the direction that Nevada’s gaming industry is headed for the foreseeable future: increasingly dependent on the whims of baccarat fate, with a broader “mass market” rebound still frustratingly out of reach. We are supposedly three years into the “recovery,” but we remain far from the gaming industry’s pre-recession highs.

Tellingly, the new casino projects announced are eschewing the traditional slot player base that built the modern Strip. Resorts World will presumably draw on parent company Genting’s expertise in catering to Asian players, particularly high rollers, and SLS Las Vegas is pitching itself as a hotel with premium nightclubs, dining, and retail that also has a casino. Those who have skin in the game, it appears, have already adjusted to a spending profile that’s changed, seemingly for good, since the recession. May 2013 is just another data point proving that thesis.

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