How casino mogul Steve Wynn lost US$10m on baccarat

[LOS ANGELES] In the casino business, it's a cliche that the house always wins. But at Wynn Resorts Ltd last quarter, the tables turned.

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 US$10 million in April, an astonishing swing for a business that can generate profit of as much as US$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 contractor was Suncity Group, one of Macau's largest junket operators, according to people familiar with the matter. Contacted by Bloomberg, Suncity said it didn't have any information to disclose about the matter.

The loss occurred at baccarat tables at the Wynn Palace, the new US$4.2 billion resort on Macau's Cotai Strip.

In a system prevalent in that market, junket operators bring high rollers to the casinos, front them cash and set them up in private rooms. The casinos pay the operators a commission based on the amount their clients bet, and are on the hook for the gamblers' winnings.

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

Gambling is a matter of probabilities, and with baccarat the swings can be extreme. The game attracts the biggest bettors in the world and offers among the best odds for players, with the house advantage averaging 1.2 per cent. That means a player can expect to lose US$1.20 for every $100 bet over time. In slot machines it's as much as US$12.

Given the high volume of players and betting, being unprofitable for a whole month is unusual, said Robert Hannum, a professor of risk and gaming at the University of Denver.

"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."

The Wynn Palace, which opened in August of last year, has disappointed in other ways. Construction on all sides of the new property has hampered access, Mr Wynn said. The shortfall there contributed to a second-quarter earnings miss at Wynn Resorts. The shares lost almost 8 per cent of their value over the past two days.

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 US$15 million to US$20 million shortfall at its new Parisian resort in Macau.

On Wednesday, the company said the volatile high-end baccarat play contributed to a US$100 million revenue bump at its Marina Bay Sands in Singapore.

"Let's be clear, we had a lot of luck this quarter," President Rob Goldstein said on an earnings call. "I think it bears repeating that this is a highly concentrated segment that a couple of dozen players can make a difference in a quarter."

BLOOMBERG