This Major Threat to Caesars and Boyd Won't Hurt Las Vegas Sands


Photo: Genting

While Las Vegas still brings in plenty of tourists, companies like Caesars Entertainment (NASDAQ: CZR  ) , Las Vegas Sands (NYSE: LVS  ) , and Boyd Gaming Corp. (NYSE: BYD  ) are still struggling to profit like they once did from Las Vegas. Las Vegas casinos made $37.34 billion in revenue in 2012, just under the $37.52 billion they made in 2007, Las Vegas' peak year before the crash. However, as retaining these players has become more expensive, profits are still down by as much as 50% for many casinos, as is the case with Caesars.

Now, those profits will soon take another blow, as a savvy new competitor will soon open a potential death blow to Las Vegas casino operators. Malaysia's Genting Group, which owns the Resorts World casino resorts, is preparing to start building its newest Resorts World resort on the Vegas strip. This major move begs the question of just what will happen to Las Vegas' age-old casino operators?   

The Malaysian company that is beating the house
Genting, the Malaysian-based company that runs Resorts World casinos in New York, Malaysia, Singapore, and soon other Asian countries such as Macau, South Korea, and potentially Japan, has been rapidly expanding its operations and its profits. This company has been quickly gaining value over the last decade, but unless you are willing to trade on the Kuala Lumpur stock exchange, you aren't going to get in on this growth.

Marina Bay Sands is a tourism staple of Singapore, but still brings in less than half of the revenue of competitor Genting in the country. Photo: Marina Bay Sands, Las Vegas Sands

Genting is the only competitor to Las Vegas Sands in Singapore, where the government has only granted building approval to two casinos. Outside of Macau, Las Vegas Sands' second-largest revenue producer is Singapore with its Marina Bay Sands casino resort. The competition between these two casinos has been fierce, but in 2013, Genting clearly won as it raked in a whopping 68% of the Singapore gaming revenue.

Now, to the dismay of both Las Vegas Sands and Caesars, which are both trying to set up gaming operations in South Korea and Japan, Genting is on top of both of these countries as well. Genting is setting up its operations in South Korea already. Additionally, assuming Japan votes to legalize gaming in its country by this fall as expectations predict, Genting will be prepared to fight for a spot because it has already set up subsidiaries in Japan and is working with Osaka officials.

It's getting ready to do the same in Las Vegas
The company announced in 2013 that it would buy and take over a half-finished project on the Vegas strip that has been sitting vacant since Boyd Gaming Corp. abandoned construction on it in 2008. Genting will use the land to build a Resorts World Las Vegas. The first phase of the $4 billion project could begin as early as 2015.


Rendered preview of the resort. Photo: Genting's Youtube Channel

The company had needed to get approval from the Nevada Gaming Commission to begin building. The commission recently granted Genting a gaming license and the resort is prepared to break ground as early as this summer.

This could become a major issue for local competitors. Senior director for the gaming, lodging, and leisure sector of Fitch Ratings, Michael Paladino, said in a report last year that the added lodging capacity of Resorts World could drive down average daily room rates for nearby casinos in Las Vegas. As the only entirely Asian-themed resort in Las Vegas, Resorts World Las Vegas hopes to attract visitors to its unique resort with a replica of the Great Wall of China, exhibits of terra-cotta warriors, and even live pandas.

The initial phase of the resort will include 3,000 hotel rooms, a casino with a combined 3,500 slot machines and table games, a rooftop sky park and observation deck atop a 674-foot-tall tower, and a 50,000 square foot, 58-foot-tall aquarium with exotic fish. Needless to say, this resort will have quite a bit of splendor and fanfare.

What should US gaming investors do? Bet on Asia instead
Both Caesars Entertainment and Boyd Gaming posted terrible earnings last quarter. Caesar posted revenue down over 8% compared to the first quarter of 2013, which caused the company's total income to drop by over 50%. Meanwhile, Boyd Gaming posted first-quarter revenue down nearly 4% and EBITDA down over 11.6% year-over-year. These numbers were pretty tough for investors focused on US gaming to swallow. Genting's entry into Vegas could lower those profits even more, so what can U.S. investors do? Get out of Las Vegas and bet on Asia with Las Vegas Sands.

Las Vegas Sands got 88% of its revenue from Asian operations in Q1.

Las Vegas Sands is no exception to the trend of lower US revenue, and its Vegas operations also performed poorly in the first quarter. However, this did not create an issue for Sands' bottom line or its share price. Why? Because the company has bet on Asia instead of Vegas.

Gains from Asia helped the company report record first-quarter revenue of $4.01 billion, up over 21% from the first quarter of 2013. Its Macau operations in particular did better than ever with nearly 50% EBITDA growth.

Foolish takeaway: Put your money where the profit is
Resorts World Las Vegas will make Las Vegas even less profitable for Caesars and Boyd, neither of which have Asian holdings to fall back on. Meanwhile, Las Vegas Sands will still be reporting record revenue from its own Asian bets. For investors who seek stronger returns than what Caesars or Boyd can possibly offer, Las Vegas Sands is clearly a company which has placed itself where the money is and will continue to do so. 

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  • Report this Comment On July 07, 2014, at 12:23 PM, spokanimal wrote:

    Genting isn't going to build a casino in Macau, Bradley. The SAR has made it clear that it's sticking with 6 concessionaires for the foreseeable future.

    Caesars threw in the towel in that regard when it sold their coati golf course.

    Also, RWS didn't have a 68% GGR market share last year in Singapore.

    Spok

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