Macau's resort landscape has grown substantially in the last year, even though its gaming revenue has suffered so much since 2014. Fool contributor and former Macau local Seth McNew gives insights on what companies like Las Vegas Sands (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN), Melco Crown (NASDAQ:MLCO), and MGM Resorts International (NYSE:MGM) are betting on going forward.
A full transcript follows the video.
This podcast was recorded on Jan. 25, 2017.
Vincent Shen: Moving on now to your travels a little bit, let's first go to Macau. I've had you on here before as like my insider having lived there for a little bit, and experience again now at the newest resorts that have opened from Wynn and other major casino operators in that region. What did you see?
Seth McNew: Macau has grown so much since I lived there. It was great to be back. The city looks completely different. There are tons of new resorts open, but what struck me is, it didn't seem to have that many people. Having come from Vegas, the resorts look amazing and the whole area, and Macau has really grown up. It's just not like packed streets like you'd see in Vegas. That was a bit of a concern, but the resorts themselves ... I went to each of the new resorts. I'd say the two that really struck out were the new Wynn Palace which is just opulent and incredible. There's a gondola that takes you from the front side of the lake all the way up to your room. Inside it's just like you'd expect from Wynn. It's beautiful in its design. Great shopping, great casinos. There's not really a lot of entertainment aspects of it outside of the shopping and casinos, but that's kind of Wynn style.
Moving on to Las Vegas Sands though, this was my favorite, it's the Parisian. It's kind of this French inspired resort. A 50%-scale Eiffel Tower right outside. You walk in, there are mime shows, there are clowns walking around. The place is the most interesting casino I've been in any country yet.
Shen: Did you notice at all, I think, a big trend that people have talked about in Macau was the decline of what was previously the segment that really drove business there which was the VIPs. Did you feel like as these resorts, the industry overall tries to target what they call the mass market gamblers a little bit more. Did you see that actually when you were at the resorts in terms of the tables, the clientele there? Did you feel like you saw a lot more high roller VIPs which you might expect at Wynn, known for its opulence versus some of the other resorts or anything like that?
McNew: Yeah. I think that gets back to kind of how the companies even before Macau taking it's dive pitched to their audience. Wynn is much more upscale kind of VIP experience, as it is in Las Vegas. Las Vegas Sands has always been kind of more of that mass market, but even more so now you really see that divide where when you go to the Parisian, that's the Las Vegas Sands, when you really see that it's entertainment first and gambling second, where the Wynn still feels the other way. It still feels gambling first, entertainment second.
Shen: Okay. For the market overall, do you feel like it's finally at that point where people are seeing that recovery after a year, year and half, two years at most of ongoing declines. Month over month seeing their overall gaming revenue in that region fall by pretty significant amounts. How are the numbers now for that region looking?
McNew: It was actually a little longer. I think it was 26 months of year-over-year declines since 2014. Actually, January was the fifth month in a row of year-over-year increases, at 8%, nothing to shake a leg at. It's definitely starting to grow again. Full year for 2016 was still down 3% over 2015, but analysts are expecting that 2017 will return to growth for the first time in a while. I think that's looking pretty good.
For how much gambling revenue Macau still has, which is about three times as much as Las Vegas, it still just has a lot fewer visitors than Las Vegas has. I think ramping up the number of visitors with things like governments having better policies toward visitation, more entertainment-focused things to the mass market. I think we're really going to see a change there in the next couple of years.
Shen: Just to add some context if you haven't been following the situation, I feel like overall, tourist traffic levels to that region took a dive overall once the Chinese government kind of cracked down on some of the VIP gaming. This was around more issues with like money laundering and essentially the ultra-wealthy in China taking their money out of the country and using Macau to kind of cycle it through. The President and the rest of the Government had a real crack down policy on that which really shifted things from Macau resorts catering to VIPs, to trying to reach a wider audience.
McNew: Yeah, and it actually wasn't just the VIPs, it was even just travel restrictions for all people from mainland China going into Macau for amount of time they could spend, how often they could return to Macau. Those regulations kind of eased up a little bit in 2016 which helped those numbers to grow a little bit, but as we saw in December, there was news that the Chinese government was going to restrict ATM withdrawals, which again sent each of these stocks down. We can see that it's still volatile there. I'm trying to understand what the government policies will be, but as of right now, it still looks pretty positive.