The recovery in casino gambling in Macao always seems to be just around the corner, but it never quite arrives. Yet another plunge in monthly gambling revenue in October shows the rebound remains over the horizon and makes Las Vegas casinos the better bet.
For those resort operators like Las Vegas Sands (LVS -1.76%) and Wynn Resorts (WYNN -3.52%) that make most or virtually all of their money from the Chinese enclave, the losing streak is going to hurt for some time to come.
In contrast, the likes of MGM Resorts International (MGM -2.80%) and Caesars Entertainment (CZR -3.42%), which rely primarily upon Las Vegas and other regional U.S. gambling markets that are playing a hot hand, should be where investors put their money.
Macao's not the odds-on favorite
Macao's reported gross gambling revenue (GGR) last month tumbled to just 4.3 billion patacas, which is the local currency and is the equivalent of around $544 million, a 40% drop compared to last year and almost 26% below what the city took in the month prior.
It's the only place where it's legal to gamble in China, and Beijing has been watching the money flow in and out of the casinos with a wary eye. Over the years, it has imposed increasingly stringent regulations on casinos, gamblers, and the junket operators who ferry VIPs to and from the peninsula while lending them money to gamble.
The pandemic exacerbated the situation, as virtually all travel to the city was closed. And outbreaks of COVID-19 variants have led nearby provinces, where most of the travel to Macao originates, to restrict travel once more.
Las Vegas Sands sold all of its U.S.-based properties to go all-in on Asian markets, which at this point is essentially just Macao. It reported third-quarter revenue of $857 million last month. While that is nearly double the $446 million it took in for the same period in 2020, it remains far below the $3.2 billion it generated in 2019.
Similarly, Wynn Resorts just reported third-quarter revenue of $995 million, and while that's below the $1.6 billion realized two years ago, it is not as bad as what Sands experienced because of Wynn's Las Vegas operations, which represented almost half of this quarter's revenue. Typically Macao accounts for two thirds to three quarters of Wynn's net revenue.
Viva Las Vegas!
In contrast, casino operators with a greater U.S. presence are seeing a rebound. MGM Resorts saw revenue surge 140% year over year to $2.7 billion this past quarter, which is only 18% below 2019's $3.3 billion total. But more importantly, its Las Vegas adjusted property EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring, or rent costs) was 21% higher than two years ago, and regional casino EBITDAR was 29% higher.
And Caesars generated $2.7 billion in the third quarter versus $1.4 billion last year (because it merged with Eldorado Resorts in July 2020, there's no comparison to 2019).
In short, Las Vegas and various regional markets have done away with most restrictions on casinos, such as mask mandates and capacity restraints, which led gamblers to flow back into the resorts. And as vaccinations proliferate, even with the potential need for booster shots to follow, consumers are more comfortable being in large, crowded venues again.
Don't double down on Macao
Macao was once the world's biggest gambling market, and it might eventually regain such status. Yet with the possibility of Japan opening its doors to casinos in the next few years, along with Singapore and other Asian markets expanding their own gambling opportunities, high rollers might find these other venues more attractive since they won't be under the government microscope Macao faces.
For investors looking for top casino growth stocks, MGM Resorts or Caesars seem like winning hands, as do regional players like Boyd Gaming or Penn National Gaming.
The odds are against those resort operators that call China home, even figuratively, and should probably be avoided.