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Investors gazing at the horizon for signs of gambling stocks in 2010 see only a sea of uncertainty.
For Macau-linked stocks like Las Vegas Sands (NYSE: LVS ) , Wynn Resorts (Nasdaq: WYNN ) , or Melco Crown Entertainment (Nasdaq: MPEL ) , it's still tough to forecast the Chinese government's ever-changing policies on allowing travelers from the mainland to visit Macau.
For stocks with a big Las Vegas Strip presence, predicting a comeback remains problematic after 22 consecutive months of comparative declines in gambling revenue, including October's 10.2% drop year over year. The current focus on The Strip is the monster casino/hotel//retail/condominium complex CityCenter -- for its impact on MGM Mirage (NYSE: MGM ) as well as its ripple effect on competitors.
But to get right to it, all casino stocks will be affected by consumer confidence and discretionary spending. And both of those factors are pegged to an economic recovery that -- depending on which expert you believe -- may look like a V, a W, a hockey stick, or a woolly caterpillar.
When looking ahead, investors shouldn't forget this year's phenomenon, in which shares of many casino stocks blasted off from sub-basement-level lows to elevated prices didn't seem to match the companies' fundamentals.
The best-or worst
Given this environment, it's time to ask: What's the best and worst bet for 2010? The answer to both, as it happens, is Las Vegas Sands.
Pardon our fence-sitting, but Las Vegas Sands has more moving parts -- potential or actual -- than its peers. Like Wynn, Melco Crown and MGM Mirage, the company's Macau operations are affected by the Chinese government's travel regulations and infrastructure-building strategies.
Like Wynn, it is counting on a Las Vegas Strip revival, or at least a modest comeback. For both, however, the big money is in Macau, where Wynn is scheduled to open the Wynn Encore by mid-2010, and where Las Vegas Sands' growth strategy -- including 20,000 additional hotel rooms -- is more dramatic. The Strip's health will play a bigger role for Harrah's Entertainment and MGM Mirage.
Big bet in Singapore
What distinguishes Las Vegas Sands, aside from its massive expansion planned for Macau, is the opening of the Marina Bay Sands in Singapore during the first quarter of 2010. Originally, the project was due to open in early 2009 and cost $3.6 billion.
Now, the $5.4 billion project will cost more than MGM Mirage's half-share of the $8.5 billion CityCenter. Marina Bay Sands is more than gambling: it will house a museum, convention center, retail space, approximately 2,500 hotel rooms, theaters, and restaurants.
Aside from CityCenter, which has been opening in bits and pieces since Dec. 1, Marina Bay Sands will be the signature event among U.S. casino operators in 2010.
Let's just call a spade a spade. If Marina Bay Sands is a hit, Las Vegas Sands shares should see a huge bump, as the company also restarts construction on several Macau projects that could be completed by mid-2011. If the Singapore project is a disappointment, shares of the debt-dented company will surely suffer.
Singapore could provide a big payday for Las Vegas Sands. Unlike the crowded Macau market, with more than 30 casinos, Singapore will have two players. The other is the Malaysian conglomerate Genting Group, whose casino is expected to open in early 2010.
Macau has been a gambling Mecca for decades, but Singapore is new to legalized gambling. One wild card is the Singaporean government, whose strict laws merit a warning from the U.S. State Department. Behavior that that "might not be illegal or might be considered minor offenses" in the U.S. will be harshly penalized in Singapore. Jaywalking, spitting, littering and vandalism, among other misdeeds, receive the overly stringent punishment of a caning!
Singapore has also imposed rules to make sure the country doesn't produce an army of compulsive gamblers. Singapore residents must pay a daily or annual fee – the equivalents of $72 or $1,443 respectively – to enter casinos, according to a recent report by the Las Vegas Sun. And to possibly dissuade massive expansion, the casinos will pay a 15% gaming tax, which is higher than in Nevada or in New Jersey, but still a bit lower than in Macau.
In other news, more big deals
Despite a continuing weak economy, 2010 is shaping up to be the year of the Big Event for other casino operators -- a testimony to plans originally devised during the boom years. Investors should prepare for potentially dramatic stock swings among several other companies, including:
- Pinnacle Entertainment (NYSE: PNK ) , which plans to open its River City Casino in St. Louis County, Mo., in early March. Pinnacle owns two other casinos in the St. Louis area, which will feature seven in total after River City opens.
- Penn National Gaming (Nasdaq: PENN ) , which wants to enter the Las Vegas Strip market. It has targeted the unfinished, bankrupt Fontainebleau Las Vegas, but it recently withdrew an initial bid when Carl Icahn came in with a bigger sum. The bidding is expected to close in January; watch for Penn National to make a higher final offer.
- Boyd Gaming (NYSE: BYD ) has halted construction on a Las Vegas Strip project, but that hasn't deterred its desire to buy other Las Vegas assets from bankrupt Station Casinos.
Each action should have a significant impact on shares of the respective dealmakers, but the biggest deal is Singapore and Las Vegas Sands. If that isn't enough to stir investors, just wait until 2011 to see whether the company's dreams for Macau have been realized.