Is the Sun Setting on Las Vegas?

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When gaming in Macau opened to Las Vegas Sands (NYSE: LVS  ) , Sheldon Adelson talked about building a Las Vegas-style strip in the region. It was an ambitious idea that Macau could someday be the next Las Vegas, but after years of astonishing growth Macau has passed Las Vegas so far that the comparison for gaming's former capital has changed to a far less flattering one: Atlantic City.

There once was a time when casinos were profitable in the East Coast town, but they eventually became overbuilt and run down, falling to competition from Las Vegas. Could we be seeing the same movie playing out with Las Vegas's competitor half a world away?

What happened in Vegas
The short-term story is just the continuation of a long-term trend: visitors looking for deals and unwilling to throw down big dollars on gambling. Visitation to Las Vegas was actually up 1% in February year over year and is up 4.8% in the first two months of 2011 -- positives that haven't translated to slots and table play.

Gaming, which drives everything in Las Vegas, was down 9.6% on the Las Vegas Strip and 6.7% statewide in February. This was partly because of a bad hold percentage and lower revenue on sports betting, but to keep up with supply, gaming dollars need to be increasing. So while the figures might not be as bad as they appear, there's no good news here.

MGM Resorts (NYSE: MGM  ) and Caesars Entertainment will be the hardest hit by a weak first quarter because of their reliance on Las Vegas for revenue. It will also hurt Las Vegas Sands and Wynn Resorts (Nasdaq: WYNN  ) , but with most of their revenue coming from fast-expanding Macau, they should still experience considerable growth. And Las Vegas Sands is still finding ways to squeeze more profit from its Marina Bay Sands property in Singapore, the world's most profitable casino.

Know when to fold 'em
I've been leery of Las Vegas for quite a while, and it looks like staying cautious there will continue to be the way to go. Despite analysts upgrading Vegas-centric MGM Resorts and Boyd Gaming (NYSE: BYD  ) in February, there just doesn't seem to be a lot of value there. I would stick to more profitable markets with Las Vegas Sands or a company with no ties to Las Vegas: Melco Crown (Nasdaq: MPEL  ) . Las Vegas just isn't worth the gamble right now.

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Fool contributor Travis Hoium owns shares of Melco Crown. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Melco Crown Entertainment is a Motley Fool Global Gains recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Read/Post Comments (10) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On April 11, 2011, at 3:15 PM, MutualFundMonday wrote:

    Travis -

    I'll give you the scoop for your next article. Look up the loan covenant information for MGM's senior credit facility in the recent 10-K filing. You will notice they are required to maintain a minimum trailing EBITDA per the loan covenants. At 12/31/10, the minimum requirement was $1B EBITDA, and MGM pulled in $1.14B according to the calculation for trailing EBITDA. Per the 10-K, the minimum requirement then shoots up to $1.10B on 3/31/11. However, you just had a weak Q1 in Vegas and you have to throw out the Q1 2010 EBITDA in your calculation. That $1.14B number may have gone DOWN! What do you have? A company in danger of breaking its loan covenants......

  • Report this Comment On April 11, 2011, at 4:13 PM, Senescent wrote:

    I'll agree that Vegas is paling by comparison with Macao and, soon, Singapore. But there's still money to be made there by buying at the right price. I think MGM is most likely a dead duck but Boyd may surprise.

  • Report this Comment On April 11, 2011, at 6:20 PM, TMFFlushDraw wrote:


    You took the surprise from my Wednesday/Thursday article.

    Travis Hoium

  • Report this Comment On April 11, 2011, at 7:28 PM, popsylvania wrote:

    I'm writing this in TI across the street from my favorite hotel in Vegas - "The Palazzo". I couldn't get a room in The Palazzo because it's SOLD OUT.(Don't believe me, call them right now and try to book a room for tonight or tomorrow.) Saying Vegas is dead is a bit premature. High fuel prices will get folks off the roads and into jets to Vegas, Disney, etc.

  • Report this Comment On April 11, 2011, at 10:35 PM, MutualFundMonday wrote:


    It doesn't matter how "packed" Vegas is to your eyes. People aren't gambling or spending much money during their stays. The data supports this. Also, Palazzo is probably packed due to a convention.

  • Report this Comment On April 12, 2011, at 11:09 AM, zed20001984 wrote:

    LVS is the best pure play in the Asian gamming sector, Macau revenue has exponentailly surpassed Vegas renenue.

    Las Vegas Sands Penn/Bethlam has surpassed Atlantic City Revenue. LVS Expansion into Florida, possibly spain/japan/india are on the horizon as well as online gamming. Anything LVS has touched has turned to gold

    Las Vegas has only had negative impacts on the regionals, MGMs, BYD, these will suffer markedly, the "shakeout" period will make the global players stronger, ala LVS and Wynn. And aggressive expansion by LVS

    This is why LVS IS getting upgrades..they will see reduced competition, with growing revenue year over its a high beta play, alote of the money mangers that have not been successful will jump on here to massive gains during the good time...+ short squzzes will have MASSIVE gains ahead

    you would be crazy not to of the best hold and wait stocks out there...

  • Report this Comment On April 12, 2011, at 8:24 PM, TMFFlushDraw wrote:


    "LVS is the best pure play"? Really? MPEL only has revenue in Asia. Isn't that the definition of a pure play?

    Then you point out mediocre markets like Florida, Penn, Spain, etc. All against the "pure play" in Asia.

    I'm not disagreeing that LVS is a good stock long term. Just saying it isn't the best pure play if that's what you're looking for.

    Travis Hoium

  • Report this Comment On April 13, 2011, at 9:10 AM, ucdavisnum1 wrote:

    Travis, LVS may not be a "pure play," however it does serve a diversified market if they build the European and Florida resorts. Florida captures the South American and caribbean markets. And the Spanish resort would capture European markets. Beth captures East Coast traffic while Vegas is still the West Coast hot spot. This while still holding Macau and Singapore properties (and maybe Vietnam/Japan).

    With these new resorts in place, LVS has a diversified global basket which appeals to investors. MPEL has all their casinos in Macau, MGM mostly in Las Vegas, Wynn has Macau and Las Vegas,

  • Report this Comment On April 14, 2011, at 11:24 AM, zed20001984 wrote:

    medicore? humm..pennstate has been the highest revenue grosser out there, it has surpassed atlantic city!

    Sinapore non stop profits,

    Macua..reprents 85% of LVSs earnings...MPEL is a smaller regional player...sure go for it...but it doesnt have the growth potential or upside as LVS or Wynn...

    vegas problems will only have negative effects on the small american will reduce competition for the big boys to flourish more...

  • Report this Comment On April 25, 2011, at 11:09 AM, stevecollins71 wrote:

    here's my take on it what is and has ruined vegas.

    1. California. All the hipster types have changed the flavor. They want places to be seen, they want two hour lines to wait in and clubs so exclusive that they can only facilitate 5-6 people at a time. Cali absolutely ruins any good thing anyone has going. Currently, they're all over Vegas.

    2. Probably the bigger reason, Vegas has changed. What you now get in Vegas you can get anywhere. World class chefs, gambling, family friendly entertainment etc etc. Almost any major city has that now. The days of cheap lodging and a cheap meal that will allow you to blow it all on the craps table are long gone. The average working class stiff has been essentially priced out of Vegas. Wages and income from places like Cali and from Europe have driven up prices so high that the sheer volume of middle America just isn't there anymore. The deals have also dried up and now Vegas is laboring under it's own weight just to breath. Add in corporate feel and corporate greed and you have the recipe for what is now Vegas.

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