Gaming revenue might be a shrinking piece of the resort industry’s revenue puzzle, but it still makes up more than a third of the industry’s annual revenue. As a significant portion of the industry financial picture, gross gaming revenue can provide a gauge of the health of the industry as a whole and identify ongoing and emerging trends throughout the year.
In Clark County, Nevada (home of the Las Vegas Strip), trailing 12-month totals in gross gaming revenue have grown steadily, if unspectacularly, since mid-2011. The solid growth continued through 2013 and 2014 as year-over-year gaming revenue growth rarely fell below zero and reached as high as 4.6 percent in July 2014.
However, since the calendar turned to 2015, trailing 12-month gaming revenue totals have dipped into negative territory five out of seven months (through July, the latest available figures). June and July have witnessed the worst two months for gaming revenue growth since 2010 with trailing 12-month declines of 2.2 percent and 2.5 percent, respectively.
This sudden dip can be linked to a just-as-sudden decline in baccarat revenue. Baccarat 12month revenue totals in Clark County fell 11.4 percent in May compared to the previous year, 20.2 percent in June, and 22.7 percent in July. The last three-month stretch of double-digit declines was reported in 2009. The falling baccarat revenue trend has coincided with double-digit declines in betting activity as year-over-year baccarat drop totals fell 43.1 percent in June and 35.1 percent in July. Comparisons to the prior year have particularly tough given impressive gains one year ago.
These trends illustrate how baccarat revenue influences gross gaming revenue totals in southern Nevada. Baccarat accounts for about 15 percent of all gross gaming revenue in Clark County (the share is 25 percent at Las Vegas Strip casinos), and most baccarat play is generated by high rollers from international markets, particularly Asia. That combination means swings in luck among a relatively small group of big bettors can swing month-tomonth baccarat revenue by tens of millions of dollars, which causes gross gaming revenue to rise and fall along with baccarat revenue.
Excluding baccarat from gross gaming revenue paints a clearer picture of the gaming industry as a whole. By eliminating the influence of a small group of high rollers, the figures reflect trends among the broader gaming industry. Viewed through this prism, recent gaming revenue trends take a positive turn. Year-over-year growth in trailing 12-month revenue totals climbed in all but one month this year and have reported growth of 2.1 percent, 1.5 percent and 1.7 percent in the past three months.
Baccarat remains a key revenue generator for the gaming industry, especially on the Las Vegas Strip, where 99.8 percent of Clark County’s baccarat revenue is generated. However, its volatility can sometimes obscure underlying trends in the industry among the vast majority of gamblers, and those trends are worth watching. Recent financial performances of gaming operators with interests in key gaming markets provides additional insight into industry trends.
Macao Impacts Sands Revenue
Amid ongoing net revenue drops at its Macao properties, Las Vegas Sands (LVS) continued to report significant falls in company-wide net revenues in the second quarter of 2015. Year-overyear quarterly net revenue for the company fell from $3.6 billion to $2.9 billion, a 19.4-percent loss. Those numbers reflected an improvement from the 24.9-percent drop-off in consolidated net revenue reported in the first quarter of 2015.
The second quarter decline in net revenue contributed to a 22.6-percent fall in company adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), which dropped $296.5 million from the $1.3 billion reported in the second quarter of 2014. Like the percentage drop in net revenue, the most-recent percentage drop in company-wide EBITDA was not as deep as the 29.0-percent fall reported for the first quarter of 2015.
Las Vegas Sands’ properties in Macao carried the majority of the company’s revenue losses. The four properties reported a $619.5 million drop in net revenues in the second quarter, which accounted for 88 percent of the company’s overall net revenue decline of $702.9 million.
Together, The Venetian Macao (-$293.3 million) and Sands Cotai Central (-$230.5 million) were responsible for most of the drop in net revenue.
One Macao property, Four Seasons Macao, reported a year-over-year 9.4-percent climb in profitability. However, the other three Macao properties reported double-digit drops in adjusted EBITDA, leading to an overall $241.5 million fall (-30.1 percent) in combined profitability for the four Macao properties.
Marina Bay Sands in Singapore also reported a double-digit decline in net revenue, which fell 11.4 percent (-$91.7 million) to $713.0 million. The property’s adjusted EBITDA also declined, dropping $54.5 million (-13.1 percent) in the second quarter, which was nearly three times the 4.6 percent drop reported in the first quarter of 2015.
Las Vegas Sands’ domestic properties performed better than their overseas counterparts. Properties in Las Vegas and Pennsylvania reported a 0.9-percent rise in net revenue, from $479.2 million in the second quarter of 2014 to $483.5 million in the second quarter of 2015. Sands Bethlehem carried that gain with a reported $11.4 million climb in net revenue (+9.0 percent), while Las Vegas operations recorded a 2.0percent decline (-$7.1 million) in net revenue.
Strong revenue growth at Sands Bethlehem contributed to 22.2-percent growth (+$6.2 million) in EBITDA, while profitability at the Las Vegas properties declined $11.9 million (-18.1 percent). Overall, Las Vegas Sands’ domestic operations reported a $5.8 million (-6.1 percent) dip in profitability in the second quarter.
MGM China Lags US Growth
Quarterly growth by MGM Resorts International’s (MGM) wholly owned domestic properties was overshadowed again by lagging performance by MGM China. Company-wide net revenue in the second quarter of 2015 dropped by $195.9 million (-7.6 percent). That decline was attributed to MGM China, which reported a $271.1 decrease in net revenue (-32.7 percent). In contrast, MGM’s wholly owned domestic properties reported a net revenue improvement of $66.2 million (+4.0 percent).
Those trends were mirrored in profitability results. Company-wide EBITDA declined by 2.5 percent to $641.1 million in the second quarter of 2015. Profitability at MGM’s wholly owned domestic resorts climbed 10.5 percent to $458.1 million, while MGM China reported $132.2 million in EBITDA, a $78.3 million drop (-37.2-percent).
Wynn Results Swayed By Macau
Industry-wide struggles in Macau were again evident in Wynn Resorts’ (WYNN) quarterly results. Company-wide net revenue in the second quarter of 2015 fell $371.6 million compared to the second quarter of 2014, a 26.3percent decline. Most of that loss was reported by the company’s Macau operations, where net revenue fell by $343.6 million (-35.8 percent). Las Vegas operations fared better but fell $27.9 million (-6.2 percent).
Company-wide adjusted EBITDA dropped by $172.0 million to $195.4 million, a 36.8percent decline. Wynn’s Macau operations accounted for $133.6 million (-43.5 percent) of the fall in profitability, while its Las Vegas operations reported a $38.4 million drop (23.9 percent) in EBITDA.
Caesars Continues Rebound
With no exposure in Macau and the financially troubled Caesars Entertainment Operating Company in Chapter 11 bankruptcy protection, Caesars Entertainment (CZR) bucked industry trends and reported strong earnings and profits in the second quarter.
Company-wide net revenue increased by $169.0 million to $1.1 billion, a 17.4-percent year-over-year rise. Caesars attributed the growth, in part, to the openings of two new properties, renovations of The LINQ Hotel & Casino, and ongoing growth in hospitality amenities in Las Vegas. Adjusted EBITDA improved even more, climbing by 55.6 percent (+$124.0 million) to $347.0 million in the second quarter.
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Brian Gordon is a principal with the Nevadabased advisory services firm, Applied Analysis. Gordon has extensive gaming and leisure experience from an accounting, finance and operational perspective.