The Las Vegas Strip might be the gaming epicenter of the United States, but the majority of gaming today takes place within regional casinos located throughout the country.
Regional gaming has enjoyed a bounce back year in many respects, and several of the largest regional gaming companies reported improving net revenues and profitability in the third quarter. Gross gaming revenue remains a primary driver of their success, unlike resorts on the Las Vegas Strip, which increasingly rely on non-gaming revenue.
To demonstrate how different gaming markets can perform differently for any number of reasons, a review of two distinct submarkets located within the same metropolitan area provides a clear example.
The Las Vegas regional market primarily catering to locals reported positive growth throughout 2015 after a relatively flat 2014. Trailing 12-month totals in gross gaming revenue have grown year-over-year in nearly every month in the past year, reaching 3.1 percent in October 2015 (latest available data).
By contrast, gaming revenues on the Las Vegas Strip have moved in the opposite direction as of late, falling into negative territory in all but two months during the past year and dipping to negative 3.5 percent or lower in five consecutive months.
Around the nation, gaming revenue growth has varied depending on the state. Among the largest regional markets, Maryland led the way with year over- year growth of 24.8 percent in trailing 12-month total gross gaming revenue. Louisiana recorded an impressive 8.0-percent growth rate in September, continuing a consistently rising growth trend that started with the December 2014 opening of the Golden Nugget in Lake Charles. Other major markets Michigan and New York reported gaming revenue growth of 3.6 percent and 2.4 percent, respectively.
Those gains were offset somewhat by negative growth in other regional markets. New Jersey, which is the third-largest regional market in terms of annual gaming revenue, reported a year-over-year 8.3-percent dip in the trailing 12-month total gross gaming revenue. Indiana also saw its year-over-year gaming revenue drop by 3.7 percent. Neighboring Illinois also saw its gaming revenues contract slightly during the past 12 months.
Macau Gaming Continues Slide
While regional gaming market performances have been somewhat mixed, major gaming company revenue trends have been impacted by international market performances. Third quarter results varied by operator. Companies with casinos in Macau were especially challenged, as properties in the Chinese administrative region continued to suffer significant losses in revenue and profits with the continued slide in gaming revenue.
The gaming decline coincided with a Chinese government corruption investigation that affected high-end junket operators who ferried VIP gamblers to Macau. Since then, year-over-year gaming revenue has declined for 18 straight months. The most recent results in November reported a 32.2- percent drop from the prior year, making it the 10th month in 2015 with a drop of 30 percent or more in year-over-year gaming revenue. The last 2014, when the trailing 12-month total reached a peak of $47.9 billion. That figure dropped to $29.7 billion in November, a 38.0-percent decline. Amid the slumping market, Las Vegas Sands, Wynn Resorts, and MGM Resorts International are each building new multi-billion resorts set to open next year. It will be important to monitor their financial performances as they expand the gaming supply within the region.
Sands Results Hit By Macao
The aforementioned challenges in the Macao gaming market once again manifested in the third quarter results for Las Vegas Sands (LVS). The company’s quarterly net revenue fell to $2.9 billion, an 18.1-percent decline from the $3.5 billion reported a year earlier. The quarterly drop in revenue was a slight improvement from the 19.4-percent loss reported in the second quarter of the year.
Company profits also fell by double digits, with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) declining 18.0 percent, from $1.3 billion a year ago to $1.1 billion in the third quarter.
Companywide results were pulled down by declines in net revenues and profits at its four properties in Macao. Each property reported at least a 26-percent fall in year-over-year quarterly net revenues. In total, the four properties saw net revenue decline 29.5 percent, losing $680.0 million between the $2.3 billion reported a year ago and the $1.6 billion reported in the third quarter.
Adjusted EBITDA for the Macao properties followed similar trends, with quarterly profits falling at least 27 percent for each property. As a group, the four properties lost $272.3 million in quarterly profit (-33.7 percent), which declined from $809.0 million to $536.8 million.
Las Vegas Sands’ property in Singapore, Marina Bay Sands, provided a positive result compared to the company’s Macao resorts. Third quarter net revenue for the property climbed $15.2 million more (+2.1 percent) from a year earlier, rising to $750.7 million. The property’s EBITDA improved by a greater margin, rising from $351.7 million to $389.7 million, a 10.8-percent increase.
The company’s domestic properties contributed mixed results, with combined net revenue climbing 4.3 percent in the third quarter to $529.5 million and adjusted EBITDA declining 2.3 percent to $117.3 million. Resorts in Las Vegas saw net revenue increase slightly (+1.3 percent) to $385.5 million, while quarterly profits dropped 11.5 percent to $79.8 million. Sands Bethlehem reported double- digit increases in both quarterly net revenue and EBITDA. Net revenue rose by $16.7 million (+13.1 percent) to $144.0 million, and profits climbed by $7.7 million (+25.7 percent) to $37.5 million.
Wynn Revenues Fall Companywide
Wynn Las Vegas (WYNN) shared in the industrywide struggles in Macau. Quarterly net revenue at its Macau property fell 37.9 percent, a $357.2-million decline that dropped net revenue from $942.3 million in the third quarter of 2014 to $585.1 million in the third quarter of 2015. Those losses accounted for the majority of the drop in companywide quarterly net revenue, which declined by $373.7 million (-27.3 percent) to $996.3 million. Wynn’s Las Vegas operations fared better but still reported a net revenue decrease of $16.6 million (-3.9 percent), with quarterly net revenue falling from $427.8 million to $411.2 million.
Companywide profits fell further as well in the third quarter, with adjusted EBITDA declining $178.9 million (-39.0 percent) from $458.8 million to $279.9 million. EBITDA for Wynn’s Macau operations fell by half compared to a year ago, dropping from $325.5 million to $162.8 million. The company’s Las Vegas resorts reported a smaller decline in EBITDA, losing $16.2 million in quarterly profits, a 12.1—percent decline from the third quarter of 2014.
Domestic Resorts Positive for MGM
MGM Resorts International’s (MGM) wholly owned domestic properties provided positive results in the third quarter financials, but the overall lag in performance by MGM China left the company with mixed overall results. The company’s net revenues declined from $2.5 billion in the prior year third quarter to $2.3 billion in this year’s third quarter, a drop of $204.2 million (-8.2 percent).
MGM’s domestic properties reported rising quarterly net revenue, which climbed $58.1 million (+3.7 percent) to $1.6 billion. Conversely, the company’s Macau property reported a $265.2 million drop ( 33.4 percent) in net revenue from $794.3 million a year ago to $529.0 in the third quarter.
Company profits followed a similar pattern. MGM’s wholly-owned domestic resorts reported quarterly adjusted EBITDA of $411.3 million, an increase of $83.3 million (+25.4 percent) from a year earlier. However, MGM China’s adjusted EBITDA of $128.2 million was $85.6 million less (-40.0 percent) than in the prior year third quarter. MGM Resorts still reported a quarterly profit of $32.5 million (+5.7 percent) due to a $34.3 million increase (+149.3 percent) in adjusted property EBITDA from its unconsolidated resorts, including CityCenter in Las Vegas and Borgata in Atlantic City.
Caesars Reports Strong Third Quarter
Caesars Entertainment (CZR) reported positive third quarter results in both net revenue and adjusted EBITDA. Net revenue climbed from $1.0 billion in the prior year third quarter to $1.1 billion this third quarter, an increase of $126.0 million (+12.4 percent). Caesars attributed this improvement mainly to a full quarter of Horseshoe Baltimore results, the expansion of resort fees, favorable hold and continued strong performance by Caesars Interactive Entertainment, which owns and operates online social and mobile games.