With the latest round of quarterly financial reports, it appears the Macau, China gaming market is showing signs of potential stabilization. The pace of annual decline in gaming revenue in Macau has been slowing as of late, and during August 2016, the region experienced its first positive year-on-year growth in revenue in the last 26 months.

While Wynn Resorts (WYNN) experienced modest growth in revenue and profitability in Macau, Las Vegas Sands (LVS) and MGM Resorts International (MGM) both experienced continued revenue declines at their Macau properties in the second quarter of 2016 compared to 2015. Adjusted EBITDA

(earnings before interest, taxes, depreciation and amortization) for their Macau operations generally reflected the revenue trends at their respective properties. Sands reported year-on-year EBITDA declines at both its Macau and Singapore properties. MGM also saw annual EBITDA declines at its Macau operations. However, Wynn Resorts experienced year-on-year increases in EBITDA to go

along with rising revenue.

In an effort to diversify the mix of activity, Macau has been increasingly stringent on the number of tables the region is allotting casinos for new projects. Wynn Resorts was offered 100 tables for its new property in Cotai with another 50 to be allowed over the next two years. Sands’ new property, which is

set to open a month after Wynn’s new casino, got the same offer of 150 new tables over a two-year period. However, this pales in comparison to the size of the casino floors. Wynn Palace was slated to have space for 500 tables. In response Wynn is planning on moving 250 tables from its other Macau property to fill the casino floor.

The recent shift in Macau’s table allocation is largely due to the government’s table cap system. Since 2013, Macau has pledged to limit the compound annual growth of live table games to 3 percent until the year 2022. At that growth rate, there remains approximately 1,000 table games to be distributed

over the course of the next several years, and much of that allocation will be consumed by the major projects that will open this year. With MGM Cotai expected to open at the beginning of 2017 and SJM Holdings’ Lisboa Palace due for completion at the end of 2017, the number of tables yet to be allocated is

quickly dwindling.

MGM Grows Company-wide EBITDA

Weak performance by its MGM China division again impacted the quarterly numbers for MGM Resorts International. The company’s international arm saw net revenue decline $104.9 million in the second quarter, down 18.8 percent from a year earlier. Domestic net revenue fell $11.0 million (-1.0 percent),

though all of MGM’s domestic hotels reported increases in operating income except Monte Carlo. The domestic and China operations combined for a company-wide net revenue decline of $115.6 million (-4.8 percent).

Profitability for the quarter showed different trends. Overall, the company’s adjusted EBITDA was up $445.9 million, an increase of 69.6 percent from the second quarter in 2015, which was driven largely by the sale of The Shops at Crystals. Earnings at MGM’s domestic properties increased $57.0 million (12.4 percent), while MGM China reported an adjusted EBITDA of $119.2 million, a 9.8- percent drop-off of $13.0 million.

MGM continues to make progress on its new Macau project MGM Cotai. However, the company recently decided to delay the opening of the $3 billion project until the first part of 2017 due to the recent softening of the Macau gaming market.

Wynn Earnings Up in Macau

Wynn Resorts reported positive revenue growth in the second quarter of 2016 that was mostly driven by its Macau operations, which grew 3.6 percent from the previous year. Las Vegas operations partially offset these results, turning in a modest decrease of 1.1 percent. Wynn reported net revenues of $1.06 billion for the quarter compared to $1.04 billion in the second quarter of 2015.

Those performances carried over in company profitability. Wynn Resorts’ adjusted EBITDA was $312.7 million, up by $17.3 million (5.8 percent) from the $295.4 million in second quarter 2015. Macau’s adjusted EBITDA was $190.4 million, a 9.8-percent increase from the $173.4 million reported in the second quarter of 2015. Though revenues decreased, Las Vegas operations for Wynn reported a 0.2-percent increase in EBITDA from $122.0 million in the second quarter of 2015 to $122.3 million.

Wynn is in the process of expanding its Macau portfolio with the addition of Wynn Palace in the Cotai region of Macau. The $4.2- billion casino opened its doors on August 22, 2016, with 1,700 rooms, 350 tables and 200,000 square feet of luxury retail space.

Sands Reports Mixed Results

Las Vegas Sands’ company-wide revenue decreased 9.3 percent from the prior year to $2.65 billion in the second quarter of 2016. EBITDA across the company also saw declines, with a 6.0-percent decrease to $955.1 million. These declines are mostly attributed to the company’s Macao properties, where all four of Sands’ casinos saw year-on-year declines in revenue. In aggregate, Sands’ Macao unit saw a 16.4-percent fall in revenue.

The Marina Bay Sands in Singapore performed better than the Macao casinos but still reported $2.9 million (-0.4 percent) less in net revenue. Adjusted EBITDA fell in step with revenues, with earnings down at the Macao properties by $79.1 million (-14.1 percent) and in Singapore by $6.2 million (-1.7 percent).

On the domestic front, net revenue at Sands’ properties in Las Vegas climbed $10.5 million (3.0 percent) from the previous year, while Sands Bethlehem in Pennsylvania reported an improvement of $9.0 million (6.5 percent). Adjusted EBITDA increased $18.3 million (33.8 percent) in Las Vegas and $3.6 million (10.6 percent) in Bethlehem.

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.


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