Sheldon Adelson, the CEO of Las Vegas Sands (NYSE:LVS), made clear last month that the resort company was in the market for an acquisition. Pointing to Sands' size and financial strength, Adelson told analysts he's not abandoning new developments, but "it does mean that we're interested in M&A."

It would have to be the right target in the right market, namely Asia, and be a resort operator that could complement Sands' own operational attributes. John DeCree, an analyst at the boutique investment bank Union Gaming, thinks Wynn Resorts (NASDAQ:WYNN) would be the perfect target for Adelson.

Let's look at why Sands might make a play for Wynn, but also why it likely won't.

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Image source: Getty Images.

Macao for the win

Both Sands and Wynn derive most of their revenue and profits from Macao, and Sands expects the city to bounce back sharply from the COVID-19 pandemic once quarantine and travel restrictions are lifted. Adelson sees Macao growing much more quickly than Las Vegas.

Over three-quarters of Wynn's EBITDA comes from Macao, where its 20% share of the VIP market is second only to Galaxy Entertainment (OTC:GXYEF). Morningstar says Wynn generates between 25% and 30% of its Macao EBITDA from the high-roller segment.

In contrast, Sands generates 59% of its total EBITDA from Macao, and another 31% comes from Singapore. Yet it captures a greater percentage of the premium mass market and non-gambling market, or about 30% of its casino win in Macao, according to DeCree, making Wynn complementary to its business there.

Hurdles in the way

The problem with Sands buying Wynn is that, as DeCree notes, it would give Sands an outsize share in Macao, growing its dominance from 24% to 40%, which would undoubtedly raise objections from regulators. Shedding either Wynn Macau or the Cotai Palace might alleviate the concerns, but it could also make the acquisition less attractive.

Gambling traffic has migrated from Macao to the adjacent Cotai region, and the Palace has increased its room market share to 9% from 6%. Being forced to give up the Palace would mean Sands gets the lagging Wynn Macau, while keeping the Palace might not alleviate concerns over concentration of share since the Sands has several properties of its own in Cotai.

The gambling market in Macao has also shifted away from VIP play to the mass market, and though importing high rollers to the region isn't going to vanish (meaning operating margins should remain high and fairly stable), the real growth opportunities are in Sands' own mass-market play.

Not only that, Wynn Resorts says it's not interested in industry consolidation efforts, but rather wants to focus on running "industry-leading" properties "and take market share as we open." Besides, there might be better targets for Sands elsewhere.

Other chances for growth

DeCree pointed to both Okada Manila, an operator in the Philippines, and Australia's Crown Resorts as possible secondary targets for Sands, though both have weaknesses as well.

Okada, for example, gives Sands exposure to a third Asian market, something Adelson is obviously fond of. The analyst believes Manila "possesses many of the same supply driven attributes that made Macao an attractive investment opportunity 15 years ago," and the completion of Okada's final hotel tower gives the resort operator the opportunity to take advantage of a market ready to grow.

Yet it is also small by comparison, providing only $300 million in EBITDA, which makes it just interesting enough to consider. But with the Philippine market not as well regulated as other regions, it could be a barrier to consideration.

Australia, on the other hand, would provide a well-regulated gambling market with access to the Asian VIP market, and Crown is a world-class fixture that is finishing its $1.5 billion Sydney project. 

But Crown Resorts is embroiled in an investigation over its ties to reputed Chinese criminal syndicates (or triads) that extends back to when 18 of its employees were arrested in China over Crown's marketing tactics. While the resort operator denies any knowledge of such criminal connections, Sands might not want to sully its own reputation.

Don't bet on it

Japan had been the obvious choice for Las Vegas Sands to expand further in Asia, but the resort operator took itself out of the running last week for a casino concession there. That means acquisitions are on the table, but as Adelson noted last month: "I'm not going to give up on developing integrated resorts. I'm going to add on to our strategic thinking."

Wynn Resorts might be a candidate, but investors should probably expect Las Vegas Sands to make a play elsewhere.