The world’s largest publicly traded gaming operators’ first quarter earnings results were varied, with some citing strong performances and others experiencing weaker-than-expected results. Their quarterly earnings reports came amid a generally positive worldwide gaming environment. In the U.S., trailing 12-month gross gaming revenues through March 2019 were up in 19 of the 25 states where commercial casinos operate. In Nevada, the world’s second-largest gaming market, revenues increased 1.9 percent from the prior year to $11.9 billion, while the world’s largest gaming market in Macau, China, reported gross gaming revenues of $37.5 billion, an increase of 8.1 percent from the prior year.
Gaming revenue in Macau has grown consistently since late 2016 after it declined 43.7 percent from May 2014 to July 2016. The recent growth trend is mainly attributable to the mass market gaming segment, a pivot from the pre-2015 era that was driven most significantly by VIP baccarat. Since 2015, annual gross gaming revenue in Macau has grown 29.8 percent, reaching $37.5 billion in 2018. Macau gaming revenue growth has slowed over the past several months, with the trailing 12-month growth rate dropping to 8.1 percent as of March 2019. Furthermore, while gross gaming revenue has recovered, VIP baccarat has accounted for a smaller share of total gaming revenue. According to the Government of Macau Statistics and Census Service, VIP baccarat still accounted for 54.7 percent of total gaming revenue in 2018, 25 percent lower than 2011 when it accounted for 72.9 percent of all gaming revenues.
In spite of the drop in gross gaming revenue experienced between 2014 and 2016, visitor volume in Macau has grown notably over the past decade and has demonstrated the viability of Macau’s mass market segment. Macau welcomed over 35.8 million visitors in 2018, up 9.8 percent from 2017 and up 56.1 percent from a decade earlier when 22.9 million visitors traveled to Macau. So far in 2019, visitor volume trends remained positive. In the 12 months through March 2019, Macau has benefitted from the presence of over 37.6 million visitors, up 13.0 percent from the same period of the prior year, when visitor volume totaled 33.3 million.
Developers and regulators have responded to the rapid growth of the mass market in Macau with a mixture of new amenities and regulatory pushes designed to drive long-term growth of the market. For starters, the Economy and Finance Secretary recently announced the continuation of policies that encourage overall diversification. To accommodate more mass market visitors, operator Melco Resorts and Entertainment Limited was granted an additional 40 new live-dealer gaming tables. This was especially helpful to the company because it allowed it to relocate 40 gaming tables to its new $1.1 billion Morpheus Hotel, which opened in June 2018 in City of Dreams, Macau.
Other operators have responded by building new non-gaming amenities such as e-sports arenas and smoking lounges, as well as more large-scale projects such as hotel expansions and new resorts, including the Grand Lisboa Palace by SJM Holdings Limited, which is expected to open at the end of 2019 in Cotai, Macau.
MGM Begins 2019 on Positive Note
MGM Resorts International (MGM) reported a strong set of financial results in the first quarter of 2019, beginning the year with strong performances domestically as well as abroad. Top-line revenue grew 12.6 percent from the first quarter of 2018 to $3.2 billion.
MGM’s domestic resorts posted net revenues of over $2.2 billion in the most recent quarter, an annual increase of 6.4 percent. The company benefitted from more than $1.4 billion in net revenue sourced to its Las Vegas Strip resorts despite these revenues being down 0.3 percent from the prior year quarter, as well as a 20.6 percent increase to $803.9 million from its regional operations, which included $77.9 million from MGM Springfield. MGM China reported net revenues of $734.2 million in the first quarter, representing a 23.2 percent increase from the prior year.
During the first quarter of 2019, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) at MGM’s domestic properties declined 1.0 percent from the prior year to $610.1 million, which included $403.5 million from the company’s Las Vegas Strip resort portfolio that experienced a 311-basis point decrease from the prior year quarter. MGM attributed decreases in EBTIDA primarily to declines in Las Vegas casino revenue. MGM China experienced gains in EBITDA by posting earnings of nearly $190.8 million during the quarter, a 25.7 percent increase on the year. As a whole, MGM’s company-wide EBITDA reached $739.8 million in the first quarter of 2019, a 5.5 percent increase from the same quarter of the previous year.
Macao Operations Carry Sands
Las Vegas Sands (LVS) posted mixed results within its portfolio in the first quarter of 2019, Sands’ performance in Macao allowed the company to remain positive to start 2019, offsetting its more modest performances in the U.S. and Singapore.
In the first quarter of 2019, Sands’ net revenue increased 1.9 percent from the prior year to over $3.6 billion despite a 0.5 percent collective decline in net revenues at the company’s domestic properties in Las Vegas and Bethlehem, Pennsylvania. The company was elevated by a notable performance of its Macao operations portfolio. Sands’ properties in China posted quarterly net revenue growth of 8.1 percent to $2.3 billion in comparison to the first quarter of 2018, driven largely by results at Sands Cotai Central, The Parisian Macao and The Venetian Macao. Marina Bay Sands in Singapore experienced a decline in net revenue during the quarter, decreasing 12.0 percent from $872.0 million to $767.0 million.
Sands’ company-wide adjusted EBITDA decreased 3.2 percent to $1.5 billion compared to the first quarter of 2018. Sands’ adjusted EBITDA in Macao grew 8.7 percent to $858.0 million in the first quarter (36.8 percent margin) as a result of increased casino revenue, while domestic profitability collectively grew 0.6 percent from $170.0 million to $171.0 million (28.1 percent margin). Sands’ adjusted EBITDA in Singapore declined by 21.8 percent from the same quarter last year to $423.0 million (55.1 percent margin) as a result of lower casino revenue.
Caesars Starts Strong in 2019
Caesars Entertainment Corporation (CZR) began 2019 in strong fashion by posting company-wide year-over-year gains in net revenues and adjusted earnings before interest, taxes, depreciation, amortization and rent (EBITDAR). In the first quarter of 2019, company-wide net revenues totaled $2.1 billion, which was up 7.3 percent from a year prior. Adjusted EBITDAR during the period reached $562.0 million (at a margin of 26.6 percent, an increase of 30 basis points from the year prior) and was up 8.5 percent on the year. Company-wide growth was due primarily to strong performance in Las Vegas and in Indiana, where the company’s recently acquired Centaur properties contributed.
Caesars’ Las Vegas properties generated net revenue of $955.0 million during the first quarter of 2019, an increase of $52.0 million, or 5.8 percent, from the same period last year. Adjusted EBITDAR increased by 12.1 percent to $360.0 million (at a margin of 37.7 percent) from the prior year. Recent growth in the market was attributable to $17.0 million of growth in gaming revenues resulting from increased slot volume and favorable holds, as well as higher revenues from food and beverage outlets and increases in resort fees and overall occupancy rates in Las Vegas.
Net revenues in the company’s “Other U.S.” segment increased by 9.1 percent from the same period last year to over $1.0 billion, where adjusted EBITDAR grew 7.9 percent to $233.0 million (23.1 percent margin). Net revenue growth in this segment was entirely due to the acquisition of Centaur. Without the acquisition, net revenue would have declined by $42.0 million, or 4.5 percent, to $884.0 million. According to Caesars, the company’s strong quarterly results were partially offset by increased competitiveness of the Atlantic City market and weather-related property closures.
Wynn Resorts’ Earnings Shift
Wynn Resorts (WYNN) reported operating revenue of $1.65 billion in the first quarter of 2019, a 3.7 percent decrease from a year ago. Declines in operating revenues were due to a 4.6 percent decrease in casino revenues to $1.2 billion and an 8.1 percent drop to $102.0 million in entertainment, retail and other revenues. Casino revenues declined as a result of lower VIP turnover at Wynn Palace and Macau, as well as decreased table drop at Wynn’s Las Vegas properties. Retail revenues decreased because of lower sales at stores owned by Wynn at Wynn Macau.
Wynn’s operations in Macau generated operating revenue of $1.3 billion in the first quarter of 2019, falling 2.6 percent from the same quarter one year ago. Operating revenue sourced to the company’s Las Vegas operations fell 7.1 percent to $401.0 from $431.5 million reported one year ago. The decline in Macau operating revenue was attributable to performance at Wynn Macau, where revenues fell 15.3 percent to $523.9 million. This decrease was largely due to a 33.7 percent decrease in VIP table games win from $445.2 million a year ago to $295.3 million in the first quarter. Further, revenues from Wynn’s Las Vegas operations were affected by a 27.9 percent decline in table games revenue from $154.4 million a year ago to $111.4 million in the first quarter of 2019.
Wynn’s first quarter adjusted property EBITDA stood at $494.8 million (30.0 percent margin), representing a 12.3 percent decrease from a year ago. EBITDA from Wynn’s Macau operations totaled $386.5 million (30.9 percent margin), while EBITDA sourced to Wynn’s Las Vegas operations declined 24.0 percent to $108.3 million (27.0 percent margin). The decrease in Macau adjusted property EBITDA was due to a decrease in VIP turnover at Wynn Macau, and the decline in Las Vegas was due to a decrease in table drop, increased payroll costs for food and beverages and increases in the provision for doubtful accounts.
Brian Gordon is a principal with the Nevada-based advisory services firm, Applied Analysis. Gordon has extensive gaming and leisure experience from an accounting, finance and operational perspective.