Wynn generates a majority of its revenue in Macau while Caesars is focused in the U.S. and Las Vegas in particular. Here's a look at how investors should be looking at the future of these two gaming companies.
Location, location, location
The gaming industry is all about location and the quality of resorts built in each location. And when it comes to quality, Wynn clearly has the upper hand against Caesars Entertainment.
In the fourth quarter, Caesars Entertainment said that Caesars Entertainment properties, which includes Flamingo, Harrah's Atlantic City, Harrah's Las Vegas, Harrah's Laughlin, Paris Las Vegas, Rio, LINQ Promenade, and the Octavious Tower at Caesars Palace generated $163 million EBITDA combined. It took 8 resorts, most of which are on the Las Vegas Strip, to beat the $114.6 million in EBITDA Wynn Las Vegas generated in the quarter.
If we look at Caesars Growth Partners, which includes Caesars Interactive, Bally's, The Cromwell, Harrah's New Orleans, Horseshoe Baltimore, Planet Hollywood in Las Vegas, and the LINQ Hotel the EBITDA number is $93 million for the quarter. Again, despite four large Las Vegas properties being included in the results the properties are not nearly as profitable as Wynn Las Vegas.
This doesn't include Caesars Entertainment Operating Company's results, primarily because the subsidiary is in bankruptcy.
Where Wynn has a real advantage is with its exposure to the Asian gaming market. Wynn Macau generated $148.9 million in EBITDA during the fourth quarter and the newly opened Wynn Palace generated $77.5 million in its first full quarter of operations. These two resorts alone nearly generate more EBITDA than all of Caesars' non-bankrupt assets right now.
Do you know what you're getting?
The big unknown with Caesars Entertainment is how the company's proposed acquisition of Caesars Acquisition Company (NASDAQ: CACQ) and the resolution of Caesars Entertainment Operating Company's bankruptcy will end up.
Bloomberg has said that current shareholders will only own about 22% of the company after the reorganization. And there will still be billions in debt, although the final numbers won't be known until the reorganization is complete.
Investors just don't know exactly what they're getting with Caesars Entertainment's restructured operations. And when you consider that the underlying assets after reorganization aren't the best in the industry (see above how they're underperforming Wynn) there's no real reason to be on a recovery.
Wynn has more growth opportunities
Caesars Entertainment's best case scenario is that it's restructured and eventually starts operating like a normal gaming company. But until it does, it won't be a preferred partner in some lucrative markets looking to expand gaming.
Japan's gaming market, in particular, has garnered attention from every large gaming operator, including Wynn and Caesars. But I would be shocked if the conservative Japanese government chose a company that bankrupted its largest operating unit after a leveraged buyout as the partner it wants as the face of gaming in Japan. And with a questionable balance sheet and a subsidiary in bankruptcy there aren't a lot of growth options available.
Wynn, on the other hand, just completed Wynn Palace in Macau, is building Wynn Boston Harbor, and may start construction on Wynn Paradise Park in Las Vegas later this year. These growth projects may hamper the company's ability to build in Japan, but they ensure growth through the end of the decade.
Wynn is clearly the better bet
Until Caesars Entertainment stabilizes with a solid balance sheet and no bankrupt units it's not a stock I would bet on. Wynn is simply the better stock and with growth projects ahead it could end up being a great value for shareholders. Steve Wynn has a long history of creating value in the gaming industry and I see no sign of that stopping right now.