Casinos give incentives to high-stakes baccarat players
Casinos covet Larry Flynt. His baccarat and blackjack bets of $45,000 or so a minute make him one of Las Vegas’s best customers.
SO THE PUBLISHER of Hustler magazine says he gets an incentive that casinos would like to keep secret: a rebate of at least 20% of his losses. “I’ve been offered as much as 25%,” Mr. Flynt says. “I can get a deal anywhere. They’ll do anything.”
Therein lies a dilemma for casinos: They need gamblers like Mr. Flynt more than ever these days, yet such players are harder than ever to find. And in order to reel in these elusive customers, known in the industry as “whales,” casinos sometimes risk giving away the house.
Baccarat, a relatively simple 15th-century card game, was once a favorite of French kings. Nowadays it’s a pastime of international titans, whose identities casinos shield closely and whose presence means fat potential profits. Baccarat bets are routinely casinos’ biggest, with wagers reaching well into the six figures. On a gambling spree that became international news, Australian media magnate Kerry Packer lost a reported $20 million a year ago during a single visit to the Bellagio casino here.
In recent years, almost every casino that has opened in Las Vegas has introduced a high-limit salon, banking on baccarat to support the casinos’ extraordinary cost. “It’s very difficult, when you’ve got a $1 billion building, to make a living on slot machines,” says Glenn Schaeffer, president and chief financial officer of Mandalay Resort Group, which owns the $1.1 billion Mandalay Bay.
But the slowing world economy isn’t producing more whales, and the baccarat business isn’t growing. Of $4.4 billion in total winnings last year, Las Vegas Strip casinos won $536 million at baccarat, down from a high of $595 million in 1995, according to Nevada gambling regulators.
As a result, casinos are competing hard over a dwindling resource. They are showering baccarat moguls with ever-more palatial suites, cash, free chips and even rebates on their losses. “It’s been a player’s market,” Mr. Schaeffer says. But since discounts and other financial incentives affect the math behind baccarat, several industry veterans say the odds are turning in favor of some top gamblers.
Jim Kilby, a former casino executive who has built a consulting career helping fine-tune casinos’ odds, recently chastised executives for their high-stakes efforts. “If Bugsy Siegel were alive today,” he told them at an industry forum last winter, “he’d have you whacked.”
In the baccarat salons of Las Vegas, the clanging of slot machines is replaced by the murmurs of gamblers and the casino staff who outnumber them. Dealers are tuxedoed and butler-polite. Baccarat players are notoriously superstitious – ritualistically kissing, twisting and blowing on their cards for luck. The game works like this: A dealer distributes hands of two to three cards to a gambler who sits at a shallow horseshoe-shaped table. Then the value of each hand is totaled. Tens and face cards are worth zero. Gamblers bet simply on the luck of the draw – on whether the “banker” or the “player” will have the hand totaling closest to nine.
A single baccarat player can turn a casino’s sorry fiscal quarter into a celebration in a matter of hours. But when luck runs against a house, losses can reverberate on Wall Street to best online casino singapore
Such casino losses have been more frequent these days. Las Vegas casinos don’t divulge many financial details for baccarat, so it’s difficult to tell exactly how profitable the game is. But Harrah’s, MGM Mirage and the Venetian have all acknowledged feeling the heat of major baccarat losses in recent times.
Gary Loveman, president of Harrah’s Entertainment Corp. in Las Vegas, has felt the effects of baccarat losses. He says that’s because rivalry is causing casinos to act rashly. “Once you start discounting, you’re on a slippery slope to giving away the casino’s advantage,” he says. “We would argue that at times, our competitors have given more than the house advantage away.”
Despite the huge bets, the house edge at baccarat is one of the thinnest in a casino, averaging about 1.3% – as little as half that of games such as roulette and some slots. In baccarat, it takes at least 15 million hands for a casino to have a 95% certainty of winning that 1.3%.
Andrew MacDonald, chief executive of gambling operations for Australia’s Publishing & Broadcasting Ltd. empire, argues that casinos sometimes blame losses on bad luck when they’ve actually failed to properly factor in the cost of incentives.
Discounting may also contribute to another unsettling trend. Big gamblers are spending less time than ever at the tables. One Las Vegas casino, which declines to be named, estimates the average baccarat player last year gambled for a mere nine hours – down from 17 hours in 1997. Mr. Kilby says he noticed the downturn when working recently as head of international marketing at the Rio. Discounts encouraged gamblers to hop from casino to casino, he says.
Mr. Kilby says he asked a Rio player with a 20% discount last year why he was leaving after quickly winning $100,000. According to Mr. Kilby, the player calculated correctly that he’d be better off losing at another casino than doing so at the Rio – where his win could have offset his loss, negating the discount.
Harrah’s in June decided that its slot-machine players were subsidizing high rollers at the Rio, Mr. Loveman says. When high rollers won enough to dent Harrah’s second-quarter earnings by 10%, or four cents a share, Harrah’s began shutting down marketing offices around the world and cut its maximum acceptable wagers to $15,000 from $100,000. That put the Rio effectively out of the baccarat game. “We’ve become the reverse Robin Hood of the casino world,” griped Mr. Loveman at the time. “Take from the poor and give to the rich. It’s a stupid way to run a business.”
Not all casinos in Las Vegas concede it’s a problem. Officials at MGM Mirage, which dominates Las Vegas baccarat with its Bellagio, MGM Grand and Mirage properties, say they’re resisting the urge to ratchet up the rebates. Executives at the Venetian, a major incentive-giver in Las Vegas, didn’t respond to several requests for comment.
GAMBLERS AT THE HELM
Still, casino bosses aren’t always as mathematically savvy as they seem. Many make gut-level decisions based more on emotion and tradition than arithmetic. Mr. Kilby says he has witnessed executives giving a night off to dealers who seem unlucky or reducing the betting limit of a gambler on a winning streak – decisions that defy the statistical probabilities on which casinos make money. The author of the industry’s standard textbook on casino management, Mr. Kilby says casinos are regularly seduced by their own game. Executives are often onetime gamblers or dealers and tend to think like their customers rather than like financial-services companies.
“You hear people saying things like, ‘Let’s take a shot’ or ‘We can beat him,’” he says. “You’d never hear Allstate or State Farm saying that.”
Casinos also hide – even from many of their own employees – details of incentive deals. The arrival of a big gambler is likely to be shrouded in subterfuge. The MGM Grand built a separate walled entrance for the limos of these high rollers in large part to prevent rival operators from knowing their comings and goings.
Many baccarat players are wealthy foreigners who come to the U.S. to avoid publicity at home, where gambling may be illegal or frowned upon. “The customers don’t want to see their names thrown around,” says Jim Murren, MGM Mirage’s president and chief financial officer.
Australia’s Mr. Packer, a casino owner himself, is widely believed to be the world’s highest roller. His sprees in Las Vegas drip with drama. On April 30, 1992, the billionaire strode into Caesars Palace and began placing mortgage-sized bets. By midnight, when the books closed on Caesars World Inc.’s fiscal quarter, he was up $9 million – with a pile of chips worth roughly 37 cents a share to the company. It halved the quarter’s earnings. Mr. Packer “single-handedly, by himself demolished that quarter,” recalls Henry Gluck, then Caesars’ chairman.
A few days after the incident, the company issued a terse profit warning, blaming a downturn at its casinos in Las Vegas and Lake Tahoe. Fortunately for Caesars, though, Mr. Packer stuck around that night. In the hours after midnight, he gave back everything and more – earnings that Caesars reported in the following quarter.
Megagamblers may pose too large a threat to a casino. The MGM Grand sent an emissary several years ago to tell Mr. Packer his bets could no longer be accommodated – and he hasn’t gambled there since, according to people familiar with his visits. When the company last year bought Mirage Resorts Inc., Mr. Packer called to ask if he would still be welcome at Mirage’s Bellagio casino. He is. Mr. Packer declined an interview request.
Still, hooking whales is one of the most attractive, and highest stakes, jobs in the casino world. It requires living something of the life of a high roller – entertaining at lavish parties, sitting ringside at boxing matches, even touring the world to visit customers.
MGM Mirage Chairman Terry Lanni is one of his company’s most potent marketing weapons, based on his longstanding friendships with gamblers that go back decades to his early career running Caesars Palace. Mr. Lanni, who recently toured Asia visiting customers on their own turf, may approve big players’ credit limits and agree to other details of their stays.
Below the top brass, teams of sales people called hosts attend to player whims, shopping for birthday gifts and catering to other needs as well as luring gamblers from competitors. Another host duty is to put rivals off the scent of who’s playing and how much. “We love to spread misinformation with our competitors,” MGM Mirage’s Mr. Murren says.
Casinos also put local hosts in offices around the world. From this vantage point, Las Vegas often sees the cutting edge of international trends. Casino executives joke they can read the world economy through baccarat: Mexican, Japanese and Indonesian players have all come and gone according to their nations’ financial fortunes. The industrial reaches of China are hot these days. Gritty cities such as Chengdu, where MGM Mirage recently opened an office, are producing wealthy entrepreneurs who are eager to gamble.
DINING ON CAVIAR
In Las Vegas, high rollers wager among authentic Picasso paintings, dine on caviar, and tee off at the likes of MGM Mirage’s Shadow Creek, a $40 million golf course lushly stocked with 30,000 trees and roughly 40 species of exotic birds. MGM Mirage aims to get four trips a year from its top players, scheduling golf tournaments and other events to attract them.
Almost anything goes. A 73-year-old Texas banker who frequents several Las Vegas casinos routinely demands a setup in his suite that costs as much as $20,000, according to one Las Vegas casino host. A recent request of the banker’s included two Mont Blanc pens, monogrammed bathrobes, Godiva chocolates and a case of 1985 Sassicaia Tenuta San Guido, a rare and highly rated Tuscan wine that costs $900 a bottle wholesale. The gambler also received a discount on losses of 18% and $25,000 ostensibly to cover his airfare.
In 1999, the MGM Grand raised the stakes for baccarat with the Mansion – a 29-villa high-roller resort within the casino that cost $180 million. Some of its suites measure 12,000 square feet and feature barber-shop chairs and bathrooms with televisions over both the sink and tub. The Rio later built a less extravagant version, the Palazzo Suites. Caesars Palace recently spent $25 million building two villas for high rollers and the two-year-old Venetian plans to build new high-roller digs next year.
The Las Vegas baccarat business started out far more humbly. The game emigrated from Cuba in the 1950s, where it was played at a handful of casinos using bundles of cash. In the 1970s, casinos sped up the betting by using chips, says Paul Weintraub, baccarat manager at Bellagio.
Rebates on losses first appeared in the 1980s, when the Tropicana, Desert Inn and other casinos started giving secretive discounts of as much as 5% to a handful of players if they paid up within 30 or 60 days.
As more casinos entered the business, incentives grew. It became standard practice for casinos to pay commissions to freelance representatives who reel in lucrative gamblers. The commissions are usually based on a percentage of how much a gambler is likely to lose, says Paul Rubeli, chief executive of Phoenix-based Aztar Corp., which owns the Tropicana.
Casinos began to enter complex negotiations with players or their agents. Casinos invented new lures, such as free-chip deals, “walk-in” cash, and a variety of discounts to reduce losses if a gambler pays in cash, pays up quickly, or pays in U.S. dollars.
Witness the terms demanded earlier this year by a Greek gambler with a $5 million credit line at Caesars Palace, according to a casino host familiar with them. He requested $150,000 for “airfare” as well as a lift on the casino’s private jet. The player asked for free chips worth $200,000, a rebate of 15% to 25% of his losses, and a $100,000 commission for his agent, who shopped the player to competing casinos. The casino host says the player had obtained similar terms from Caesars in the past. Caesars officials questioned the amount of the agent’s commission, but declined otherwise to comment.
Mr. Flynt says casinos can be so aggressive that it’s possible to have losses rebated and still head home a winner. If he loses early in the evening, he says, “You can go to dinner, get your discount, and come back and play again.”
Spiraling incentives goaded the Tropicana to close its baccarat pit in 1999 after decades in the business. “It was all we talked about,” says Mr. Rubeli. “We’d come out of a two-hour meeting and we’d spent an hour and a half talking about baccarat.” The casino’s cash flow from operations thereafter tripled to $28.8 million last year from $9.2 million in 1998 – a success that Mr. Rubeli attributes to “the wonderful middle-market business.”
“I’m very happy we got out,” Mr. Rubeli says. “For a very personal reason: I don’t have to come in on Monday and say, ‘What happened over the weekend?’ ”