It's well established that Cotai is now the hottest market in Macau. Right now, Las Vegas Sands (NYSE:LVS) and Melco Crown (NASDAQ:MLCO) have a monopoly on exposure to Cotai on the U.S. stock market, and they've both generated outsized returns for investors.

What most people may not realize is that Melco Crown has actually outperformed Las Vegas Sands by a wide margin recently, both on the market and operationally.

MPEL Total Return Price Chart

MPEL Total Return Price data by YCharts.

Let's look at just how Melco Crown came to generate such great returns in Macau.

Melco Crown's key to growth
Las Vegas Sands has grown on Cotai through building new resorts, increasing the company's market share. Melco Crown, on the other hand, has taken advantage of the growing number of hotels in the area to attract more gamblers.

You can see in the table below that City of Dreams generated more rolling chip volume (a.k.a. VIP play) than Las Vegas Sands' The Venetian Macau and Four Seasons Macau combined. It also grew rolling chip volume far more quickly than either of Las Vegas Sands' casinos.


Q2 Mass Market Volume

Year-Over-Year Mass Market Volume Growth

Q2 Rolling Chip Volume

VIP Growth

City of Dreams

$1.11 billion


$24.8 billion


The Venetian Macau

$1.59 billion


$11.8 billion


Four Seasons Macau

$186 million


$9.9 billion


Source: Company earnings releases.

Note that Las Vegas Sands is growing more quickly in the mass market, but the reason Melco Crown is growing more overall is that VIP play is still about 70% of the volume in Macau. When all of the numbers are added up, City of Dreams' revenue growth of 41.3% is higher than 38.8% at The Venetian Macau or 3% at Four Seasons Macau, even including a very lucky quarter at The Venetian Macau.

Melco Crown's weak spot
Where Melco Crown doesn't stack up to Las Vegas Sands is in flowing revenue to the bottom line. City of Dreams' EBITDA margin was 31% last quarter compared to 40.3% at The Venetian Macau, which is why the former's EBITDA is still higher than City of Dreams'. The difference was partly due to good luck during the quarter, but this has been a long running challenge for Melco Crown. The company has improved margins in recent years, though it still isn't on the same level as competitors.

Foolish bottom line
Melco Crown has generated better returns because it is growing its VIP business more quickly than Cotai rivals. VIP gaming is still by far the largest portion of gaming in Macau that's resulted in strong revenue and EBITDA growth. It's a formula that investors are hoping will continue to work for Melco Crown.

Fool contributor Travis Hoium manages an account that owns shares of Wynn Resorts, Limited. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.