Caesars Entertainment (CZR) is in trouble following years of profit declines and taking on absurdly high levels of debt. Now that talk of filing for bankruptcy protection looms, Las Vegas investors should be looking to see which company could win most if Caesars ultimately loses.
Competitors like Las Vegas Sands (LVS 1.14%) , Wynn Resorts (WYNN -0.83%), and MGM Resorts International (MGM -0.58%) are ready to fill the gap and snatch up the growing number of visitors headed to Las Vegas if Ceasars shuts any doors, but which of these companies is positioned to win the most in Vegas if Caesars goes away?
If Caesars folds, MGM could win
Caesars gets around 50% of its revenue from its Las Vegas operations, particularly its iconic Caesars Palace resort directly on the Vegas Strip. Yet even with Las Vegas revenues near record highs following the 2008 financial crisis, Caesars still can't pull a profit. In recent quarters, when other companies have increased revenues and earnings consistently in Vegas, Caesars has posted as much as 50% year-over-year income declines.
Las Vegas Sands and Wynn are focused almost entirely on Macau. Caesars tried to build a presence in Macau, and at one point had property there, but the company's inability to get a gaming license from the local government, as well as extremely high debt, led to its selling the property. Because Las Vegas Sands and Wynn Resorts get around two-thirds of their global revenues in Macau, neither are much of a bet on Vegas. Therefore, any boost to competing Vegas casinos should Caesars collapse would have little effect on the bottom line of Wynn or Las Vegas Sands.
However, MGM Resorts could be a major winner in Vegas if Caesars were knocked out of the running. MGM has posted solid 2014 earnings on increased revenue and EBITDA at Las Vegas properties already, thanks to its more than 10 properties in Las Vegas. Combined, they account for more than half of the company's revenue. With its historically biggest Vegas competitor, Caesars Palace, potentially going bankrupt, MGM could be set to win even more in Las Vegas.
Vegas face-off: Caesars Palace vs. MGM Grand
MGM Grand and Caesars Palace have been two of Las Vegas' most iconic resorts for more than two decades. In terms of hotels, amenities, and casinos, the two resorts are equal by most visitors' and players' standards. Each offers a great location and brand strength, and each still seems to draw in plenty of players.
Why is MGM doing so well, while Caesars is continuing to lose? Non-gaming revenue seems to be the biggest reason.
MGM's hotel business makes up about 30% of its total Las Vegas EBITDA, and hotel rates are up from about $108 in 2011 to $130 this year. In addition, increased occupancy rates has helped to drive higher revenue per available room, or RevPAR. Analysts expect that MGM's room rates could grow to $160 by 2017, while maintaining high occupancy. Caesars has been much less successful at making its non-gaming operations so flush, and that has cut into the company's revenue potential and operating margins, continuing to drive net losses.
While Caesars Entertainment continues to fall prey to its terrible operating efficiency, industry-high debt load, and poor non-gaming revenue in Las Vegas, it's no wonder that the company is reportedly in talks of seeking bankruptcy protection. MGM Resorts is the Vegas leader already and no company seems as well-positioned to gain by Caesars' potential demise.