There are really only two main areas that make up the bulk of casino investment decisions: Las Vegas and Macau. There are other important gaming regions in the world, like Singapore and the U.S. East Coast, but Las Vegas and Macau make up the biggest bets for top gaming companies like MGM Resorts International (NYSE:MGM) and Las Vegas Sands (NYSE:LVS).
Both of these companies have resorts in both Las Vegas and Macau, but with different size bets and plans for each area. Las Vegas Sands is a definite bet on Asia, with the majority of its total revenue coming from Macau. MGM is more of a wager on the U.S., with most of its revenue coming from Las Vegas.
For investors wondering which region to bet on -- and which company to invest in -- here's one way Macau has a big advantage over Las Vegas. Nearly half of the world lives within a 5 hour flight.
Las Vegas, the empire in the middle of nowhere
It's amazing that Las Vegas ever became what it is today. The city has a very interesting history. It's like a mirage in the desert -- which is literally where MGM's Mirage hotel and casino name comes from.
Regardless of the fact that Vegas is in the middle of a desert, it has thrived. People travel from around the globe every year to visit Vegas and enjoy its splendor. Total tourism in Vegas continues to climb, and in 2014 it welcomed a record 41 million visitors who spent an average of $723 each.
Yet it's not easy for most of the world to get to Las Vegas, and international visitors have been only about 17% of the total over the last few years. California is relatively close to Las Vegas, but the furthest places in the U.S. are nearly 6 hours away. Internationally, Las Vegas is a long trek from almost all major cities.
Macau's advantage: half of the world within a 5 hour flight
Like Las Vegas, Macau also has a very interesting history, from Portuguese-ruled trading post of the colonial ages, filled with pirates and brothels, to its return to China only 15 years ago. Over the last decade, Macau has become a casino hub that in 2013 produced 7 times as much total gaming revenue as Las Vegas.
While Macau is very small, with fewer than 600,000 permanent residents, it has one major advantage over Las Vegas. Macau is strategically located centrally to the most populated areas in the world, particularly China. But it's not just China's 1.4 billion people and growing middle class that are close to Macau. There are many other countries and densely populated major cities nearby. In fact, 1 billion people live within a 3 hour flight of Macau, and more than 3 billion live within a 5 hour flight. That's nearly half of the world's population in less flight time than New York City to Las Vegas.
But Macau has been a terrible bet over the last year, right?
After such an amazing 2013 and start to 2014, no one really expected the major downturn that would come to Macau's gaming economy in the past few quarters. The issues there are due mostly to the campaign China's president has taken against corruption, which has driven down the VIP segment that had been behind the majority of gaming revenue in Macau in the past.
But what makes Macau look like a long term bet even now is the mass-market segment. While the VIP segment is declining, the mass market segment is growing steadily, up nearly 20% year over year for the last few quarters. It's this segment that will drive more substantial increases for companies going forward.
The growing number of Chinese citizens who now have the ability to travel outside of the Chinese mainland has driven growth for Macau and the gaming companies there in the last few years. According to research by Nielsen Group, 83 million Chinese traveled outside of the mainland in 2012, but by 2018 that number is expected to double.
Macau as a long term bet still looks good
It's good for Macau that half of the world lives in highly accessible locations, but of course the majority of those people are at income levels far below the average income level of the main travelers to Las Vegas. Yet, thanks to the exploding middle classes in these Asian countries, the future of Macau could include more profits than ever.
It's true that Macau's performance has weighed down the gaming industry lately. But the important trend is that the mass-market segment -- driven by such a large nearby population and the growing middle classes of those densely populated countries -- could continue to drive long-term growth in Macau well ahead of what you might find in Las Vegas.