Posted by on July 29, 2017 1:25 am
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Categories: Black Swan Black Swans Business Casino Casinos in Macau Cotai Cotai Strip donald trump Economy Entertainment Gambling Gambling in Macau HFT Las Vegas Las Vegas Strip Las Vegas Valley Steve Wynn University of Denver Volatility Wynn Las Vegas Wynn Palace

Wynn Resorts, the casino and resort company controlled by billionaire mogul and former Trump political adviser Steve Wynn, booked a staggering gambling loss that one economist described as a “black swan” during the second quarter when one of its subcontractors in charger of keeping the casino stocked with high rollers lost money for a whole month.

The loss was revealed by Wynn during the company’s second-quarter earnings call earlier this week, when he described how Suncity Group, a junket operator that recruits high-roller clients for the casinos, brought in clients whose winnings cost the casino more than $10 million in April, according to Bloomberg.

“On Tuesday, casino billionaire Steve Wynn revealed that a junket operator in his Macau casinos – essentially a subcontractor – brought in clients whose winnings cost the casino more than $10 million in April, an astonishing swing for a business that can generate profit of as much as $50 million.

‘We had probably the most unique statistical anomaly in my 50 years of doing this,’ the founder and chief executive officer of Wynn Resorts told analysts on a conference call. ‘And that is with enormous volume, one of our leading outlets lost money for the entire month.'”

The high-rollers made millions, Wynn explained, with the casino on the hook for it.

“The bottom fell out and all of the players won millions of dollars,” said the 75-year-old casino mogul.

According to Bloomberg, the loss occurred at the Wynn Palace baccarat tables. The Palace is Wynn’s new $4.2 billion resort on Macau’s Cotai Strip, a market teeming with high rollers. Macau has a system where junket operators like Suncity bring high rollers to casinos, front them cash and pay for private rooms. The casinos then pay the operators a commission based on the amount their clients bet.

Though the anecdote was clearly intended to amuse, it also contains some insight into the behavior of Wynn shares following the company’s Tuesday earnings release. The company’s stock dropped 4% despite the company beating on the top-line numbers as investors raised concerns about weakness in the company’s mass-market business, which tends to be more profitable – and more stable – than the VIP business segment.

Robert Hannum, a professor of risk at the University of Denver who was interviewed by Bloomberg, explained that a string of losses of this magnitude is extremely unlikely in baccarat, though the game does have some of the best odds for players.

“The odds are astronomically high,” he said in an e-mail. “Of course, black swans do occur and some might say that anything can happen in the casino business.”

In baccarat, the house advantage averages 1.2 percent – meaning a player can expect to lose $1.20 for every $100 bet over time. That’s compared with a loss ratio as high as $12 for slots. The inherent volatility of the casino business, a phenomenon with which President Donald Trump is well acquainted, has forced some resort companies to use creative accounting techniques to prevent a stretch of bad luck from ruining a quarter.

“The volatility of the business has prompted some casino operators to report their results on a hold-adjusted basis, meaning they also tell investors what revenue would have been had winnings been more in line with historical norms.

In January, Las Vegas Sands Corp. blamed one lucky gambler for contributing in part to a $15 million to $20 million shortfall at its new Parisian resort in Macau. On Wednesday, the company said the volatile high-end baccarat play contributed to a $100 million revenue bump at its Marina Bay Sands in Singapore.”

Wynn is becoming known for his antics during earnings calls. During the company’s Q1 2016 call, Wynn launched into an epic tirade about naked short-sellers before excoriating HFT firms for front-running orders and other market-rigging techniques, saying “have very little respect for the integrity of the trading on the exchange in most stocks.”

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