For the past few years Macau has been synonymous with investors looking for exposure to gaming companies. After all, in 2013 Macau's gambling revenue rose 19% to $45.2 billion, and some gaming executives expect the figure to grow to $100 billion by 2020. By comparison, the entire state of Nevada saw its gaming revenue grow 4.8% to $11.14 billion in 2013 with the Las Vegas Strip contributing only $6.5 billion of this.
From an investor point of view, Macau will clearly outperform Las Vegas when it comes to gaming revenue. However, MGM Resorts (NYSE:MGM) has ambitious plans to take over Las Vegas and offer non-gaming related products and services. Naturally, MGM is also investing heavily in the Macau region.
Macau has established itself as a true gambling destination for wealthy Asians who have little interest in non-gaming activities and just want to sit down at the baccarat and blackjack tables. Las Vegas, on the other hand, is a destination where non-gaming revenue continues to surge.
According to the University of Nevada, Las Vegas, the revenue pattern of Vegas has shifted as gaming has become less important to the overall revenue picture. The study concluded that "gaming win, as a percentage of total revenue, has declined over the past 25 years, chiefly because of the emergence of lodging, dining, and nightlife components of casino resorts as revenue centers."
How MGM Resorts fits into this
MGM Resorts noted during its first-quarter conference call that demand for conventions in 2014 is likely to be near historical highs with 16% of total room nights coming from convention demand. MGM Resorts currently offers lots of meeting space at its Aria, MGM, and Bellagio properties.
Assuming that demand for conventions continues to grow over the years, MGM Resorts has considerable advantages in the convention area. The company has committed to invest $66 million to expand the Mandalay Bay Conventions Center to 2 million square feet from 1.7 million square feet by 2016.
During the company's first-quarter conference call, James Murren, MGM Resort's Chief Executive Officer explained:
It's the corporate customers that have been really very vocal in telling us that they need more space, and we have the availability of land right there. And we think that's going to have a big impact of more carpeted space, more ballroom space, will drive a lot more F&B and high-margin business.
MGM Resorts will have the advantage of being able to spread business across the Strip as the company controls a very large percentage of the convention space across different properties. The company could be able to fully satisfy future demand without having to turn customers away, as the company said that it is seeing demand from unexpected sources.
MGM Resorts gave an example of a Fortune 100 tech company that is hosting an event for 17,000 attendees for the first time since 2008, which could indicate that Vegas is back, baby!
The competition is focused elsewhere
During Las Vegas Sands' (NYSE:LVS) first-quarter conference call the company didn't mention Las Vegas once, even though its CEO Sheldon Adelson jump-started his career with convention centers in Las Vegas. In fact, none of the analysts on the call directed questions toward the Las Vegas market during the Q&A session. This shouldn't be surprising as Las Vegas Sands derives approximately 9% of its total revenue from its operations in Las Vegas, which include its 1 million square foot Sands Expo Center.
Investors should find it reasonable to assume that Las Vegas Sands has no intention of expanding its non-gaming offerings in Las Vegas, including its St. Regis 400-unit $600 million condominium project that it has put on hold since 2008. Naturally, Las Vegas Sands is focusing on expanding its footprint in Macau and hopes to win a contract to operate a casino in Japan, where it plans to invest $10 billion.
Las Vegas Sands investors may not necessarily care where the company chooses to operate as long as the company continues to reward investors. Las Vegas Sands hasn't ruled out a special dividend in 2014 and has already repurchased nearly $1 billion worth of its stock through 2014, which implies that $500 million remains on its buyback authorization.
On the other hand, MGM Resorts investors should care where the company chooses to operate. The company is positioning itself to dominate the smaller, yet still lucrative Las Vegas scene while still holding a presence in the much larger Macau market. Given the fact that MGM Resorts is the smaller player in Macau, its shareholders should greatly appreciate any advantage it can reap on the global stage.