his compares with a year-over-year increase in gross gaming revenue for Macau of 42% for May 2011. AERL’s Rolling Chip Turnover for the first five months of 2011 in Macau was us$ 6.902 billion (an average of us$ 1.380 billion per month), up 89% year-over-year, compared to us$ 3.647 billion for the first five months of 2010.
The Rolling Chip Turnover for May 2011 was impacted by an unusually high overall win of us$ 59.12 million during the month, providing for an overall win rate of 4.34%. If the win rate in May 2011 were normalized at 2.9%, the company’s Rolling Chip Turnover would have been us$ 2.039 billion (us$ 59.12 million divided by 2.9%, up 72% year-over-year). If the win rate in May 2011 were 3%, the company’s Rolling Chip Turnover would have been us$ 1.971 billion (us$ 59.12 million divided by 3%, up 66% year-over-year).
It should be noted that the higher the win rate for the casinos, the lower the chips turnover. For example, us$ 10 million in chips with a 3% win rate is equivalent to us$ 333 million in Rolling Chip Turnover (us$ 10 million divided by 3%). Whereas, with the same amount of chips, at a win rate of 5%, the RCT would only be us$ 200 million (us$ 10 million divided by 5%).
In addition to May 2011 Rolling Chip Turnover, the company also announced that members of its senior management (Chairman Lam, COO Vong Hon Kun and Executive Vice President Sylvia Lee) purchased 125,000 shares of AERL common stock in May 2011 at a price range of us$ 5.90-us$ 7.52 per share.
The company’s VIP rooms are primarily focused on high stakes baccarat. Baccarat accounts for approximately 88% of total Macau casino winnings according to the Macau Gaming Inspection and Coordination Bureau (DICJ). In Macau, two remuneration methods are used to compensate VIP room gaming promoters. On a fixed commission basis, VIP room gaming promoter revenues are based on an agreed percentage of Rolling Chip Turnover.
On a win/loss split basis, the VIP room gaming promoter receives an agreed percentage of the “win” in the VIP gaming room (plus certain incentive allowances), and is required to also bear the same percentage of losses that might be incurred. Compared to the fixed commission basis, the win/loss split basis subjects the VIP room gaming promoter to the risk of losses from the gaming patron’s activity and greater volatility.
AERL’s VIP rooms at the Galaxy Star World in Downtown Macau and the Venetian Macao-Resort-Hotel and Galaxy Macau in Cotai are based on a fixed commission. The VIP room at the MGM Grand Hotel and Casino continues to operate at an approximately 43% (including certain incentive allowances) win/loss split basis. At this rate, and assuming a win rate (the percentage that a casino’s win is of the total amount bet) of 2.9%, AERL would have the same revenues at the MGM Grand Hotel as if it operated under a 1.25% fixed commission basis. However, if the win rate was below 2.9%, AERL would have less revenue than if it operated on the 1.25% fixed commission basis.
For the month of May, the win rate at MGM – which generated less than 5% of the aggregate Rolling Chip Turnover – was above 2.9%. Because the larger part of AERL’s revenues is now directly related to Rolling Chip Turnover, the firm is concentrating its marketing efforts to increase the number of patrons and the amount of play at its VIP gaming rooms that operate under the fixed commission basis. Consequently, in order to increase the Rolling Chip Turnover, the company reinvests its earnings to increase the amount of cage capital available to finance the increased patron activity. Based on a statistical average of 3.00%, AERL’s net profit before general and administrative expenses is typically 0.45% of the Rolling Chip Turnover.
Definition of Rolling Chip Turnover
Rolling Chip Turnover is used by casinos to measure the volume of VIP business transacted and represents the aggregate amount of bets players make. Bets are wagered with "non-negotiable chips” and winning bets are paid out by casinos in so-called "cash” chips. "Non-negotiable chips” are specifically designed for VIP players to allow casinos to calculate the commission payable to VIP room gaming promoters. Commissions are paid based on the total amount of "non-negotiable chips” purchased by each player.
VIP room gaming promoters therefore require the players to "roll,” from time to time, their "cash chips” into "non-negotiable” chips for further betting so that they may receive their commissions. Through the promoters, "non-negotiable chips” can be converted back into cash at any time. Betting using rolling chips, as opposed to using cash chips, is also used by the DICJ to distinguish between VIP table revenue and mass market table revenue.