Macau's winning casinos beat baccarat odds
Gamblers on a roll are often tempted to bet the house. But what happens if the house is on a winning streak?
Macau casino operators the Sands, Wynn and Galaxy StarWorld all reported record turnovers on their high-stakes baccarat tables in the second quarter. What's more, they all won a higher percentage of bets than they should have, going by the statistical house advantage built in.
But here is the real wild card: in the past year, both the Sands and Wynn have raised their forecasts for their 'win rate' on the VIP baccarat tables - the percentage of gambling chip sales they expect to win back - to levels above what Macau casinos have generally experienced to date.
The house is on a roll and is betting that the winning streak will continue. If their luck runs out, casinos may be in for a margin squeeze.
'It's a risk,' said Joe Fath, a gaming analyst at TRowe Price Associates. 'If you get these kinds of volumes, you should go back to statistical norms.'
Baccarat is an incredibly simple card game and one of the fairest in a casino as the odds are around 49-51 in favour of the house. Customers bet that either the 'player' or the 'banker' comes up with the winning hand. They can place an additional wager on a tie between the two but smart players tend to avoid 'tie' bets as the odds are around 43-57 in favour of the house.
Macau casinos' win rate has worked out to around 2.7-2.8 per cent historically. This means that for every HK$100 in VIP chips sold, a casino can expect to win back HK$2.70 to HK$2.80 on average.
At least that used to be the case. Now, the two most profitable casinos in Macau are betting they can beat those odds by winning more.
From the launch of its VIP gaming programme in early 2005 until the second quarter of 2006, the Sands forecast a win rate ranging from 2.5-2.8 per cent. The casino actually managed a rate of 2.4-3 per cent. In the third quarter of 2006, Sands won back an unusually high 4.2 per cent of chips sold, prompting it to raise its forecast win rate to a range of 2.7 to 3 per cent.
In the second quarter of this year, Sands recorded a win rate of 3.44 per cent. Again, it raised its forecast win rate, this time to a flat 3 per cent.
The small percentage leap translates into US$36.5 million in winnings on Sands VIP chip sales in the three months to June.
The same goes for Wynn, which raised its forecast win rate to 2.7-3 per cent earlier this year from 2.5-2.8 per cent at its opening last September, after booking a win rate of 3.3 per cent in the first and second quarter.
But the odds of the game haven't changed: statistically speaking the theoretical house advantage is still about 2.7 per cent. So how can the market's relative newcomers be so confident of beating the historical win rate?
Perhaps the most obvious possibility is that less-experienced players are producing a higher-than-normal volume of tie bets.
'I don't know if it's dumber or new players in the market who just aren't as savvy about how they play but that might be part of it,' said TRowe Price's Mr Fath.
'Over time, it should go back to norms as people play more intelligently.'