Move Over, Atlantic City: Pennsylvania Is the New U.S. Gaming Hot Spot

For a time, Atlantic City was the next best thing to Las Vegas in the U.S. When New Jersey opened up gaming in the late 1970s, it started an influx of resorts and casinos in the area, and through the 1980s the area was a hotbed for gamblers.

But by the 1990s, neighboring states started to allow casinos, and today Atlantic City is a ghost of its former self. The latest blow came when Pennsylvania's Gaming Control Board announced that the state's casinos brought in $3.16 billion in gaming revenue in 2012, topping New Jersey for the No. 2 spot in the U.S.

A double-edged sword
The growth in Pennsylvania has really been a double-edged sword for gaming in the U.S. It shows just how fast big markets can pop up and what new casinos can do to revitalize gaming in an area.

Las Vegas Sands (NYSE: LVS  ) has built a resort and casino in Bethlehem, Pa., and now generates the most revenue from table games and second most from slots in the state, but is only now getting a decent return on that investment. The company invested $850 million in the site and last quarter generated $32.1 million in EBITDA. If we assume flat results for a year, that's an annual EBITDA rate of $128.4, about a 15% return on investment.  

Sands is growing right now, so the investment hasn't been bad, but Macau has had much stronger returns for the company. And considering the potential expansion of gaming in Massachusetts and other New England states, I wouldn't be surprised if we're seeing a top in results. Which may be one reason Sands is reportedly looking to sell the resort.  

Caesars (NASDAQ: CZR  ) is experiencing what owning the old hot spot can look like as gaming grows around you. In the third quarter of 2012 the company reported a 4.5% decline in lodgers in Atlantic City and a 5.1% decline in non-lodgers. In regions outside of Las Vegas and Atlantic City, the number of trips was down 6%.

Competition in gaming can be a double-edged sword for gaming companies. When your region is hot like Pennsylvania is today or Borgata in Atlantic City was a few years ago, you're on top of the world, but regional hot spots haven't lasted long.

Cashing in at the right time
MGM Resorts (NYSE: MGM  ) may have inadvertently made a great move by cashing in on its Borgata success at the right time a couple of years ago. The joint venture with Boyd Gaming (NYSE: BYD  ) had to be sold when MGM partnered with Pansy Ho in a Macau joint venture. With gaming revenue down 8% in Atlantic City last year, it may have been great timing.  

Competition growing nationwide
Pinnacle is now set to expand its nationwide network with its Ameristar Casinos acquisition, which will create another major regional player. But I don't think the deal will ease competition for regional casinos.

Caesars has struggled nationwide as competition has grown. Penn National is holding its own, but it is leaning on new developments and shrewd moves to grow its stock. Long-term gaming growth will have to drive everyone in the business.

Now that Massachusetts is moving closer to naming new license holders for the greater Boston area, the competition will heat up. Casinos can be found dotting the East Coast right now, and we've seen a boom-and-bust development cycle at most of them.

Foolish bottom line
Pennsylvania is taking gaming dollars and headlines right now, but even with the growth, the returns for gaming companies aren't phenomenal. With growing competition from neighboring states, the good days may soon move somewhere else.

Where the real money is
For many companies, successfully capitalizing on a booming Chinese economy is like winning the jackpot. That's indeed the case for gaming company Las Vegas Sands, which made a big bet on Macau gaming about a decade ago that's paid off in spades. The company is now looking to spread its empire further, but will it be able to replicate its prior successes? Learn about all these opportunities, and the risks they pose, in our brand-new premium report on Las Vegas Sands. We're providing a full year of analyst updates to go with it, so make sure to claim your copy today by clicking here.


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  • Report this Comment On January 25, 2013, at 7:22 PM, cp757 wrote:

    Travis

    What do you think will happen when online gambling gets going. Won't that take away market share from all the casinos in the US. I can see your point about the US market.

    Asia is different only 3% of Las Vegas Sands revenue comes from Sands Bethlehem in the US but Las Vegas Sands get's 90% of the income from Asia. CZR and MGM both have heavy debt and rely on the US.

    Las Vegas Sands has the highest Mass Win Per Day. It increased 34.9% to $8.5 Million in 3Q12 – Highest in Macao Market. The next project to open is The Parisian Macao this will add to the 10,000 rooms they have now.

    Targeted completion date: First quarter 2016

    Total cost of project: ~$2.7 billion

    Hotel rooms and suites: 3,000 to 4,000

    Gaming capacity: ~450 table games and 2,500 slots and ETGs

    Additional amenities including retail mall, replica Eiffel Tower, MICE space, diverse food & beverage options and entertainment.

    WYNN is having troubles with the foundation on the Cotai Strip but they might finish 2000 room and open in 2017.

    MGM's Pansy Ho's connections with the Triads is the worry some have in Macau. The head of 14k ( Triads ) Wan Kuok-koi. better known as broken tooth is out of jail and will be a junket operator and he will send his old friends to one of the VIP rooms with Ho connections or maybe Steve Wynn will let him use one of his rooms .

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