Caesars Entertainment (NASDAQ:CZR) has been in serious trouble for the last couple of years, with quarter after quarter of decreasing revenue, net losses, and way too much debt. Now that the company reportedly faces a bankruptcy filing and struggles to make payments on its massive debt load, there seems to be little hope of things turning around.
Now it faces even more trouble in the form of a new megaresort coming to the Las Vegas Strip courtesy of Genting, a Malaysian company that operates Resorts World locations around the world, including the highly successful Resorts World in Singapore and Resorts World Casino New York City, which boasts the highest-grossing slot-machine parlor of any U.S. property. Now, Genting is nearing the first phase opening of its Resorts World Las Vegas.
Caesars is nearing bankruptcy
Caesars struggled massively in 2013. But toward the end of that year, CEO Gary Loveman, in an attempt to reassure worried investors, said that "conditions the company faces today are better and not worse than they have been before," and that "We're much better structured. There is nothing that would trigger a liquidity crisis." He even said bankruptcy reorganization was "not an option." With Caesars having lost money every year since 2009, with an especially bad start to 2014 with a 50% income decline in Q1 of FY2014, and substantial losses in Q2 and Q3 (Q4 results have not been released yet, but are expected to follow this trend), it's not surprising that Loveman was wrong.
In 2013, Genting announced that it had purchased a plot of land on the Vegas Strip owned by Boyd Gaming Group that had been vacant since 2008 (when the U.S. recession halted much of the construction in Vegas). Following that purchase, Genting announced plans to build Resorts World Las Vegas, its second major U.S. resort after Resorts World Casino New York City.
At an estimated cost of $4 billion, this new Las Vegas resort looks to be one of the most incredible additions to the Strip in years. Guests will be able to stay in one of 22 villas or more than 3,000 rooms, spend time at 45 shopping and dining locations, and, of course, gamble at the 3,000 table positions across 100,000 square feet of space. All of that is included in phase one of the resort, expected to be complete by the end of 2016 (which the company expects to maintain even though construction on the site has yet to actually start). By the expected completion of the whole project in 2017, the Asian-themed resort will reportedly include three hotel towers, one of the highest observation decks in the city, a giant exotic aquarium, live pandas, a terracotta warrior exhibit, and a replica of the Great Wall of China.
Genting has properties in Malaysia, Singapore, New York, and the Philippines; a cruise line operating out of Hong Kong that features onboard gambling; and soon other Asian locales including in Macau, South Korea, and potentially Japan. It has proven a fierce competitor for U.S. gaming companies already in Singapore and New York. Its expansion into Las Vegas means the resurgence of gaming and hotel revenue for companies such as MGM Resorts International will be spread thinner.
Here's why Caesars should be particularly worried about this coming resort. Fitch Ratings analysts reported that the added room capacity of Resorts World Las Vegas will probably drive down average daily room rates for nearby casinos. While Caesars struggles just to minimize losses, much less drive a profit, loss of revenue could spell disaster. Since Caesars has most of its portfolio in Las Vegas and relies heavily on its Caesars Palace property there, new competition in the next one to two years could dash the company's last hope of turning a profit anytime soon.
Bradley Seth McNew has no position in any stocks mentioned. The Motley Fool is short Caesars Entertainment. 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.