Wynn Resorts Macau Casino Books $10M "Black Swan" Gambling Loss

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.”
 

Comments

Miner ebworthen Fri, 07/28/2017 - 22:00 Permalink

There was a story not long ago about a pair of players that discovered a problem in how the decks were preprinted that allowed them to bilk some millions out of a casino.  One is curious if this is related.IIRC the flaw was a lack of rotational symmetry, so the players could "mark" a card by rotating it as it was returned to the dealer.  After the shoe cycled they had additional data when betting, inverting the house edge to a house deficit.

In reply to by ebworthen

Too-Big-to-Bail (not verified) Fri, 07/28/2017 - 21:36 Permalink

Check first if Goldman Sachs shorted the casino prior to the betting losses

rent slave Fri, 07/28/2017 - 21:38 Permalink

This is why Wynn and Adelson will make sure that any Supreme Court Justice will get the Scalia "My Pillow" treatment if she or he indicates during oral that they may be inclined to rule in New Jersey's favor in its sports betting case.They cannot afford to let the activity Leave Las Vegas,a place where they can continue to exploit the 90 IQ guidos,the mindless Mexicans,and the tourists.Were Congress to force them to open up their product online,they would have to move the Wailing Wall next to McCarran because of the beating given to them by the intelligent goyim in the other 49 states.

Dickweed Wang Fri, 07/28/2017 - 21:55 Permalink

I don't know if it's Wynn's association with Trump or what but it must be a really slow news day for this crap to be posted as "news".  Baccarat is the one type of casino gambling that has been known for a long time to be able to affect the P&L statement of the holding corporation.  This is almost exclusively a very high roller game, usually by invitation only in a separate room, and single bets go into the hundreds of thousands of dollars routinely.  From Wikipedia:Because baccarat attracts wealthy players, a casino may win or lose millions of dollars a night on the game, and the house's fortunes may significantly affect the owning corporation's quarterly profit and loss statement. Notations of the effects of major baccarat wins and losses are frequently found in the quarterly reports of publicly traded gaming companies.

MaxThrust Fri, 07/28/2017 - 22:02 Permalink

Inside Job: transfer money to Wynn Casino's Yuan China account and then win big in Macau so you can avoid the currency controls put in place by the Chinese goverment.

G-R-U-N-T Fri, 07/28/2017 - 22:11 Permalink

I would have been more impressed if the winnings were in craps! I remember years ago after I learned how to play craps, a friend of mine asked me to join him at the black jack table, I lasted about 2 hands, it bored me to tears!When my wife and I go to Vegas that's all I play!

Grumbleduke Fri, 07/28/2017 - 22:43 Permalink

I don't get it - does the bank play baccarat against customers? Always played it against other players, the bank only took rake similiar to poker.If they do bet against their customers, then the deserve all that's coming for them.