In 2010, some analysts attributed lowered summer revenue in Macau to consumers' focus on the World Cup soccer tournament in South Africa. With the 2014 World Cup under way in Brazil, should investors be concerned that gaming revenues in Macau will again drop for companies such as Las Vegas Sands (NYSE: LVS ) , Melco Crown (NASDAQ: MPEL ) , and Wynn Resorts (NASDAQ: WYNN ) ? Definitely not, and with these short term concerns lowering share prices over the last few weeks, now might be an even better time to bet on this market.
Will the World Cup distract from gaming in Macau?
The 2010 World Cup got people around the world, otherwise uninterested in the sport, engulfed in the excitement of country-on-country action. That same year, Macau's gross gaming revenue in June dropped 20% from the month prior, then picked up again in July. Analysts pointed to the World Cup as the cause, and they say the same is likely to happen this summer. Credit Suisse and Goldman Sachs analysts have recently commented that the FIFA World Cup could be a "distraction" that lowers gross gaming revenue in Macau by between 1% and 6% for the one-month period of the tournament.
Why this is a foolish (little "f") worry
Foolish (big "F") investors are much more concerned with the long-term catalysts for growth, more so than with the short-term noise that might cause small fluctuations in share price. Instead, let's pay more attention to the broader trends in consistently rising numbers of visitors and the revenue this brings, leading to quarter after quarter of growing profits for Las Vegas Sands, Melco Crown, and Wynn Resorts.
More importantly, let's look at what's coming this summer and fall that will to spur growth well past the summer World Cup. When the games end in Brazil, each of these three companies will return to operating incredibly profitable and growing casinos in Macau. Additionally, they will each be preparing to open brand new resorts in Macau next year that are bigger and better than anything the Chinese special administrative region has seen yet.
Melco Crown CEO Lawrence Ho continues to lead the company's growth prospects. Photo: Bloomberg
The coming casino boom
Melco Crown is one of the most profitable and fast-growing casino companies in Macau, making massive gains from increased visitation and revenue growth in the region's gaming market. Melco Crown reported first-quarter 2014 revenue up 19% over the first quarter of 2013. EBITDA jumped 31% for the same period.
The next bet for this company is its coming Studio City casino, to be completed in the summer of 2015. This cinematic themed integrated resort on the Cotai Strip is set to be better than anything Melco Crown has produced yet, with 500 gaming tables and more than 1,500 slot machines, as well as a five-star hotel, shopping mall, and more. Citigroup has said Studio City will be the "best situated" resort on the Cotai Strip, being directly adjacent to the Lotus Bridge connecting it to mainland China, and at a proposed stop of the new intercity light rail coming next year.
Not to be outdone, Las Vegas Sands is preparing its own casino resort to be completed around the same time. Sands has also been aggressively growing in Macau in the last few years and it continues to do so. Sands is now developing its third casino on the Cotai Strip, The Parisian, which will open in mid-2015. This resort will be the biggest of the new resorts coming to Cotai, at least in terms of number of guests it can hold, with over 3,000 hotel rooms and suites, roughly 450 table games, 2,500 slots, a retail mall, and a replica of the Eiffel Tower at 50% scale.
CEO Steve Wynn introduces the vision for the new resort on the Cotai Strip in 2012. Photo: Reuters.
Last but not least, Wynn Resorts also has a new casino resort coming to the Cotai Strip within the next 18 months, just after the other two resorts are opened. The $4 billion Wynn Palace will include a 1,700-room hotel, centered around a "performance" lake that will put the one in Las Vegas to shame.
While offering fewer rooms than Las Vegas Sands' new resort, the 1,700 additional rooms will help Wynn to take advantage of one of its best operational highlights: nearly full hotel occupancy. One major operating highlight of Wynn's first-quarter earnings this year was the increase in the company's hotel room occupancy rate to 98.1% from 93% in the year-ago period.
Foolish conclusion: don't get scared away from this opportunity
A slow 2010 summer for Macau gaming revenue, attributed to the World Cup in South Africa that year, might have scared investors away from investing in Macau gaming companies at that time. But those who weren't frightened off the Macau market in June 2010 would have gained 136% on an investment in Wynn Resorts, 175% on Las Vegas Sands, and a massive 658% on Melco Crown. While the World Cup might again slow June revenue in Macau, that is no reason to be scared out of this market, which is slightly down from earlier this year. With new resorts coming from each of these companies, there are many more reasons to be excited about the growth of revenue in Macau over the next few years.
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