Will Vegas Become a Growth Driver for Casinos?

For years now, Macau has been the main (and growing) source of income for global gaming businesses. Surprisingly, the domestic business could join in on the fun.

May 10, 2014 at 9:00AM

Is Las Vegas about to become a growth driver for the big gaming players? In recent years, the name of the game has been international and emerging market expansion to account for what most consider a stagnant market here in the United States. Vegas was in the midst of a massive construction boom at the onset of the greatest economic recession since the Great Depression, and the projects that survived have yet to fulfill their original potential. Now, though, it appears that the city could begin to grow into itself -- a trend that would undoubtedly drive profits even higher for the casinos that have looked to the East for their growth prospects.

A growing bet?
MGM Resorts
(NYSE:MGM) has had plenty of time to relive the decision to build an $8.5 billion project on the Las Vegas Strip in what felt like seconds before a devastating recession took hold of the country (and soon after, the world). The company's 50% ownership was looking like a loss before construction workers even broke ground on the 67-acre project. By mid-2012, the company had written down the value of its investment by more than $2 billion.

Another multibillion-dollar casino operator, Wynn Resorts (NASDAQ:WYNN), is officially calling for the return of Las Vegas. On the recent earnings call for Wynn, the company's founder and chairman, Steve Wynn, made his first firm remarks regarding the prospects for the company's home market. While gambling revenue still fell year over year for Wynn's Vegas operations, the company saw a 12.6% increase in occupancy. Wynn elaborated on the subject briefly, saying, "Las Vegas [is] getting a footing that it hasn't had quite as clearly in the past."

While it isn't the most outright encouraging statement, it strikes a new tone for one of the industry's greatest executives. The magnate went on to say that Las Vegas appears to be growing into the capacity that it had ill-fatedly built in the years leading up to the recession.

With factors including lower unemployment in Vegas (while still above the national average), a much recovered housing market, and rising prices for rooms on Strip, it appears that the macro-level tailwinds are starting to blow in the right direction.

Here's where things could really get exciting. Las Vegas and its major casinos are primed for a growth spurt. With the rampant success of the new global gambling mecca, Macau, casino operators have gorgeous cash flow statements. While there is rapid development in Macau and other fresh markets, these companies have had billions come in the door, and the respective management teams have been smart enough to plow some of that back into the domestic market and wait for the rebound.

MGM, for example, continues to redevelop its Monte Carlo property on the Vegas Strip. The company noted recently that it had opened three new restaurants on the street level and is seeing substantial traffic increases. Shake Shack, the best thing to hit burgers since lettuce, is set to open at the company's New York-New York property soon.

The company is also developing festival lots to tap into the lucrative and fast-growing music-festival industry, with the U.S.'s first-ever Rock in Rio festival coming next fall to MGM's lot. The company expects 300,000 attendees.

Macau will continue to buoy the gaming companies' income statements for years to come, and new markets on the horizon will keep the global players rolling in the dough. Vegas, though, may have a much bigger role to play in the coming years.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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