What happens in Vegas isn't staying there. Over the past few years, Las Vegas has been diversifying beyond just gambling into more family-oriented entertainment.
On this consumer goods episode of Industry Focus, we're breaking a cardinal rule and explaining what's happening in Vegas. Watch this video and join Vincent Shen and special guest host Seth McNew to find out why and how companies like Wynn Resorts (WYNN -0.53%) and MGM Resorts (MGM -2.52%) are making the shift to focus on family entertainment, how Macau's recent regulatory issues are tying into Vegas, and some of the most exciting new attractions coming to the Strip. Plus, our guest takes a look at what the three biggest companies in the city's gaming industry are doing today.
A full transcript follows the video.
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This podcast was recorded on June 28, 2016.
Vincent Shen: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market each day. It is Wednesday, June 22nd, and I'm your host, Vincent Shen. We're pre-recording the consumer and retail show for this week so I can round out what has actually turned into an informal sin stock trilogy from the past few episodes. First, it was talking about alcohol with Asit Sharma. Then we had the gun industry discussion with our intern Minashsha. Now, I have Fool.com contributor Seth McNew here in the studio with me to break a cardinal rule and tell some of the latest developments of what has been happening in Vegas -- not staying in Vegas anymore. How are you doing, Seth?
Seth McNew: Good, Vince, thanks for having me!
Shen: No problem. This is your first time on a podcast, right?
McNew: This is my first time with the Motley Fool podcasts.
Shen: Sweet! We've had two people this week who had their first time on the podcast in the studio here with us. I have to say, Seth, your experience with what we're talking about today with Las Vegas and the gaming industry there is particularly relevant because that's where you just came from, right?
McNew: Absolutely. That's right, I just moved back from Vegas just a couple weeks ago. I was there for the last couple months. I was working as an acrobat with Cirque du Soleil.
Shen: Yes, I love this aspect of it, because I think it really gives you some insight into the different things that some of our writers do. On the one hand, you're flipping through the air doing these awesome stunts, and on the other hand, you're giving us some really good insight. I know you cover some of the sports apparel companies, and also some of the gaming companies who we'll be talking about today.
McNew: I'm super lucky, because working as a freelance acrobat for a few years now, I've gotten to travel to Macau and Singapore and all these gaming hubs and report, meanwhile, on all these places and what's happening in the world in gaming.
Shen: Absolutely. Diving right into today, we're going to focus a little bit on how Vegas is becoming this changing environment, it seems. We'll look at some of the new developments there, and I'd love to hear about your first-hand experiences with them. Then, maybe we can talk a little bit about the companies, some of the specific bigger names like MGM and Wynn, what they're dealing with and seeing in Vegas, if that works for you.
Shen: Just to give everyone a brief overview, the idea is, ultimately, this isn't really the Las Vegas of the past, even a few years past. As Seth had explained it to me before the show, it's kind of like it's getting cleaner, it seems, maybe a little bit more upscale. We know that Wynn tends to cater to that kind of clientele, and he's definitely one of the leading names there. Some quick info that I had from the Las Vegas Convention and Visitors Authority. Since the turn of the century, about 15 years, visitor traffic to Vegas has been up about 20%, whereas gaming revenue is up about 25%, from $7.7 to $9.6 billion. But it's actually down from the peak, which they hit in 2007.
It seems like, from their visitor profile, where they lay out things like first-time visitors, repeat visitors, what they're doing, where they're spending their money, visitor profile shows average expenditures for food and drink is up 6.3% in the past four or five years. Spending on shows, which is something that you're intimately familiar with, is up 30.3%, really impressive there. And then, for sight-seeing, it's up about 45.1%. Shopping was down in 2015 compared to 2011, but the previous year actually showed growth of 15.8%. The last thing that really hammers this home is the fact that the percentage of visitors who gambled in Vegas was down 4% from 77% to 73% over the past four or five years.
In your view, are you seeing this in person, how things are changing in terms of these companies focusing on other areas outside of the casino floor?
McNew: Absolutely. I think, even if you had been in Vegas 5-10 years ago, you would really see a change now. It's much more family focused. The casinos are really cleaning up a lot. Even out on the Strip, everything's cleaned up a lot. There's a lot more options, as well. Once you get there from the airport, it used to be that you would go straight to the casino tables. Now there are so many more options. You have a really nice hotel, you go see a show, you have a nice dinner. Then, gambling might be a small part of that. But definitely not the entire trip.
Shen: OK. For gaming revenue, I think I saw somewhere that the portion of the amount of money that, basically, the city and Clark County are drawing in has decreased. And a lot of that comes from the new developments such as the arena that opened recently. I think we've seen some of these. What do you think so far? Can you describe them a little bit, and what your experience has been?
McNew: Yeah. What you're talking about, that gaming revenue, from the last time I read on that LVCVA, that's down to about a third of the total revenue that the city brings in.
Shen: Which is totally surprising when you think about Sin City, because it's always seen as the gambler's paradise, but obviously that's no longer the case.
McNew: Yeah, one third of the people are much more interested in going and having all these other options to do, other than just gaming.
Shen: And some of those options are...?
McNew: You mentioned the Arena. The Arena just opened up in April. This is MGM's new vision for that part of the Strip. That's on the very south end of the Strip. There's a whole area outside that they call the Park, and it has restaurants and shops and bars you can hang out at. And the Arena itself is this massive, gold bronze structure that seats 20,000. In there, you're going to have concerts, conventions, and hopefully an NHL team.
Shen: That seems to be the big push from when I was doing the research for this show. That might be the first major sports team to actually get in Las Vegas, because you guys don't currently have any other major franchises.
McNew: Right. So they're pushing to have an NHL team there, and it sounds like it's going to happen.
Shen: They're pretty close to closing a deal?
McNew: Yeah, it's between them and a couple other cities, but it sounds like Las Vegas is going to get it.
Shen: That seems kind of giant to me. When you came into the office today, you were saying how the weather is so incredible around here, because it's 115 degrees, right?
McNew: Yeah, it was really hot when I left Las Vegas.
Shen: In that kind of environment, to have ice hockey, professional ice hockey, seems kind of funny.
McNew: Yeah, but, it's so hot outside, and every building you go into is just a refrigerator. That's great.
Shen: You mentioned the Park a little bit. It seems like, with the restaurants and the little bit of shopping there, it almost feeds into the new Arena, and they kind of feed into each other.
McNew: Yeah. I think that's also part of MGM's plan. They're planning to have some little residential spaces there as well, making it a community within the Las Vegas Strip, so you don't just have all these massive casinos. Here, you have this nice outdoor area, some nice small restaurants and bars, a little bit more outside walking space, so people can walk right up to the Arena, and there's going to be some residential spaces. More outside use.
Shen: This is kind of coming from left field here, but how familiar are you with the geography of the Strip? I know that things have changed a little bit. I think in the 90s, when I went there as a little kid, it used to be that the MGM Grand and Caesars Palace were the focus of the Strip, and where a lot of the action was. But Steve Wynn kind of changed it up when he opened up the Wynn Resort, and also the...what's it the other one called?
McNew: The Venetian is there on the north end.
Shen: Yes. So that, in the north end, it seems like that is becoming more of the nexus of [where] all the activity is. Do you feel like traffic is generally pushing up toward the north end, for example?
McNew: Yeah. It's interesting, because the Strip itself is about four miles long. It's quite a big piece of land. But on the south end, which is where T-Mobile just built the Arena, MGM is really just dominating that area. As you go north, you have the Bellagio, all these other MGM resorts. And then, on the other side, you have the Wynn, and you have Venetian and all these other casinos. Also on the north end, Resorts World Las Vegas is being built. This is by the Malaysian company Genting. It keeps getting delayed, but eventually, it's going to be a massive casino.
Shen: I've seen a little bit about this. Can you tell the listeners what to expect? I think, last I saw, they were putting like $4 billion into this. It's a huge project!
McNew: Right. And it's massive, it's such a big piece of land there. It does seem that it's been halted, or slowed. You barely ever see construction crews out there. It might just be that they're waiting for some sort of certification or something. But it's going to be huge. It's a huge plot of land, it's right across the street from the Wynn.
Shen: It's supposed to be a combination of hotel rooms, tons of hotel rooms being added, and then also convention space and things like that. Touching on what you mentioned, hitting beyond casinos.
McNew: Right, and they're talking about having a Great Wall replica, live pandas. This is Asian-theme resorts. They have a Terracotta Warrior exhibit. So, a lot to see there other than the casino. It kind of caters to, seemingly, the same audience that Wynn does, which is kind of a more upscale audience.
Shen: Those are some of the new developments and construction that's open, these projects that these companies are focused on. Let's hone in on the companies themselves. Is there anybody you'd like to start with?
McNew: Yeah, MGM. When you talk about Las Vegas, MGM is the one who's dominating there right now.
Shen: Of course.
McNew: Especially in terms of hotel rooms. They have more than a quarter of the hotel rooms in Vegas. And that's---
Shen: Oh, that's their share?
McNew: Right. So when you talk about MGM's new development, and when you see MGM continuing to put out things like the Arena, continuing to build new convention centers at places like Mandalay Bay, they're really focusing on Las Vegas, which is different than other companies, like Las Vegas Sands (LVS 0.70%), which is very focused on Asia right now, building in Singapore and Macau.
Shen: Do you feel like Las Vegas Sands, as a result -- especially because a lot of people who follow this industry know that Macau, being such an important hub for these companies, the fact that it has been struggling so much over the past year and a half, they're taking a bigger hit as a result.
McNew: They are. Las Vegas Sands is the one who has put the most investment into Macau. I think if things turn around in Macau, which it looks like it's starting to already this summer, I think you're going to see those companies that have put the most investment there getting some returns on that finally. But it's a very different play, when you're talking about the U.S. market, which is very much more focused on entertainment and hotels and nice restaurants. The Macau market is very much VIP gaming. You're seeing this odd switch of which companies are focused more on the actual gaming, like Las Vegas Sands, and which companies are focused more on the full entertainment.
Shen: Yeah. In the end, it seems like Macau's transition mirrors somewhat, maybe not to the same extent, what's happening in Vegas, in that they're understanding that once the government administration started cracking down there on some of the VIP gaming, they knew they needed to be able to diversify a little bit their revenue base. A lot of these companies and their stocks have taken a hit after what happened in Macau, and seeing, every month, those year-over-year declines in the gaming revenue.
McNew: Absolutely. The government is really working on that in China, to make sure Macau diversifies further. They're so close to mainland, the Zhuhai area. They're building a new theme park there as well. So they're really focused on making sure that becomes a family resort island, not just this gaming mecca.
Shen: Absolutely. We touched on MGM a little bit, and some of the developments that they had, and their dominance, like you mentioned, on the Strip. Who else?
McNew: Wynn is also developing a lot in Las Vegas. They were another company that got hit really hard in Macau. I think they've been happy to switch some focus to Las Vegas right now. Their resort there, they're building a new lagoon, a new big golf course. They had one already, but they're building a bigger one out there. They're definitely putting a lot of investment in there. I think they understand the risk of when that Resorts World casino opens right across the street, they're going to have to have something to offer.
Shen: OK. I recommend to our listeners right now who haven't seen it yet -- Wynn recently had an investor analyst day and a presentation. I think it's worth reading the transcript from that, if you can find a copy of it, because it is unbelievable, some of the things that Steve Wynn says. Every single time he gets on these conference calls, it is just...you don't know what he's going to say. But that's part of, almost, the cult following I feel he has among the gaming industry. He's really been a visionary, changing things up. When things were focused on the south side of the Strip, being able to push a lot of activity to the north side. The new resort that he's been developing in Macau, for example, definitely a visionary in the industry. But that call, it touches on some things like focusing on the more upscale clientele, and how that will always be their focus, because generally, even the people who don't necessarily fit that part of the market want to be in a place that feels luxurious.
I've seen a little bit about their Paradise Park plans that you mentioned, where they want to change the golf course that's behind Wynn Encore, and open up this huge lagoon, do firework shows, potentially, on the lagoon, and you can do parasailing. There's just a crazy kinds of events with, of course, plenty of shopping, I think another thousand hotel rooms. That hasn't started yet, but again, that's kind of a push that Wynn is making in that region.
McNew: Right, absolutely. Just like MGM, they were wanting to diversify outside of gaming. I think this is the best way they can do it, take that existing property and really spice it up, make it a lot more interesting to people.
Shen: A quote from that transcript from Wynn: "There will always be that 40-odd million people here. What I'm saying is, I want to give them something to do. I don't give a damn if they put a nickel in the slot machine. I want them to pay my admission. I want them to stay in my rooms. I want them to drink my booze and eat our food." I feel like that's really indicative of the shift, again, from that casino focus. It was like everything else was there to sustain the gaming business. Now, it's much more symbiotic. They're sustaining each other, more so.
McNew: Sure. I think you see that switch in how it changed from the gambling industry to the gaming industry, and how now they call themselves "integrated resorts" instead of casinos.
Shen: Oh, yeah. Even like little things like that. Unless there's anything else about Wynn you wanted to touch on, maybe we could move on to Caesars (CZR) and some of the more not-so positive issues they've run into recently.
McNew: Yeah, Caesars is the most interesting company in Vegas right now. Everything they're going through with their potential bankruptcy is just fascinating to watch, every single week.
Shen: Can you give us, and the listeners who maybe haven't been following this, a quick rundown of what's going on?
McNew: Sure. I think, with Caesars, they only went public in 2010, and that's because, in 2008, they were bought out. So they were already under some $25 billion in debt. And they just weren't able to make it. They missed on Macau, they missed on all these growth opportunities, so they've just struggled. And then, in 2014, they started shuffling these liabilities into their subsidiary called CEOC. Then, in 2015, they let that go bankrupt. So now, all these bondholders are saying, "That's not fair, we're going to sue," so they started this lengthy battle, and it's been in the courts ever since.
The most interesting part is that one of the auditors, or whoever it is from the bankruptcy court who has to investigate this, came out with this scathing report about how it looks like Caesars is going to owe a lot of money to these bondholders. So he's giving them a certain amount of time that they're able to negotiate with the bondholders.
Shen: OK. Any view that a company coming out of this will be able to refocus and strengthen for its business? Or do you think that right now, the situation is still too tentative and uncertain?
McNew: It's pretty uncertain. It looks like they weren't going to be able to find a settlement with the bondholders. If that's the case, and the bondholders win their suit, the parent company is likely going to go bankrupt as well. And in that case, we'll see what rises from the ashes. If they are able to settle, and they're able to let CEOC go by the [wayside] and the parent company continue on, Caesars actually owns an incredible number of properties and a lot of assets that it looks like it could probably turn into another powerful company.
Shen: OK, that's definitely good information to keep in mind. Any other companies you wanted to focus on? Or any takeaways from your firsthand experience, having been there the past few months, that you think investors might be interested to hear?
McNew: Vegas is incredible. If you haven't been, it's so cheap to go. It's worth it as an investing tool to check out Vegas and see what's happening.
Shen: OK. I was blown away too, because you mentioned the flights from Colorado to Vegas, $25 one way. That is the same cost I pay for a bus ride back home. That really amazed me. You're absolutely right, it's definitely a nexus in that area, it seems, for entertainment, and it'll probably continue to be so for some time.
McNew: Absolutely, I agree.
Shen: Thanks a lot, Seth, for being here on the show. It was awesome having you on.
McNew: Sure, thanks for having me.
Shen: So, that wraps up our discussion for today. But you can continue the conversation with us via Twitter, @MFIndustryFocus, or you can send us any questions or comments via email to [email protected]. You can also enjoy the other great podcasts from The Motley Fool by checking out Fool.com/podcast. As always, people on the program may own the companies discussed on the show, and The Motley Fool may have formal recommendations for or against any of the stocks mentioned, so don't buy or sell anything based solely on what you hear on the program. Thanks for listening, and Fool on!