The Las Vegas Strip's gaming revenue plunged 8.9% in January to $554.8 million, a terrible start to 2018. While one month doesn't make a trend, in the past three months, revenue has fallen 6.1%, and over the past year, revenue is down 0.7%.
So it's clear at this point that something isn't going well on the Las Vegas Strip, and gaming investors should take notice. MGM Resorts (NYSE:MGM) and Caesars Entertainment (NASDAQ:CZR) are highly reliant on Las Vegas for revenue, and both Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) have major presences there as well. Here's the biggest reason for the Las Vegas Strip's string of bad luck, and some insight on when it might turn around.
Not all casino games are created equal
You may not know where to find a baccarat table in Las Vegas, but the game accounts for More than $1 out of every $3 of table games revenue on The Strip. It's even bigger than blackjack.
But over the past year, the amount of money it rakes in from baccarat is down 14.1% to $1.09 billion. Over the past three months, revenue from the game is down 28.2% to $292.7 million.
This one game is almost single-handedly driving Las Vegas' revenue decline over the past year. And there may be a good reason for that.
Macau's gain is Las Vegas' loss
Baccarat is by far the favorite casino game of Asian gamblers, accounting for nearly 90% of all gaming revenue in Macau. It may not be as popular among American gamblers, but when high-rollers from Asia come to Las Vegas, that's what they play. And they're clearly not coming as often as they used to.
Some of the declines can be accounted for by looking at Macau's gaming growth. In 2017, baccarat play rose 20% to $29.4 billion in the Chinese territory. A chunk out of that likely would once have followed to Las Vegas.
Will Asian players return to Las Vegas?
What's encouraging for Las Vegas Strip operators is that most other games are doing fairly well. Slots play was up 2.4% over the past year to $3.22 billion in revenue, and blackjack revenue rose 2.5% to $913.5 million. These are favorites of American gamblers and they're the ones who will drive non-gaming revenue in hotels, restaurants, and nightclubs.
The loss of high roller baccarat players is significant, but it also comes and goes for gaming operators. And while a company like Wynn Resorts, which caters to high-end baccarat players, may suffer the most downside in Las Vegas, it'll more than make up for that with gains in Macau. The same can be said for Las Vegas Sands' business.
While Las Vegas's gaming revenue decline may look disturbing on the surface, it's fairly focused in the volatile baccarat market, where gamblers are shifting to Macau as a destination of choice. Such swings in baccarat play have happened before; before long, the Las Vegas Strip's luck will turn around.
10 stocks we like better than MGM Resorts International
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and MGM Resorts International wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 5, 2018