Photo: The Motley Fool.
Generating a financial return on a casino in Las Vegas is harder than it seems these days. Caesars Entertainment's (CZR +0.00%) largest subsidiary is now in bankruptcy and lawsuits could drag down the entire company. MGM Resorts (MGM 3.39%) is still licking its wounds from the recession and its poorly timed CityCenter megaresort project. Even Wynn Resorts (WYNN 3.19%) and Las Vegas Sands (LVS 1.94%) aren't making as much money in Sin City as they would like.
But which company generates the best return on equity in Las Vegas? The answer is complicated.
Return on equity and the Las Vegas Strip giants
Calculating return on equity, or ROE, should be fairly simple. Just divide the company's net income by the shareholder equity and you're done. But ROE requires both returns and equity, something that doesn't necessarily exist in gaming right now.
You can see below that MGM Resorts and Caesars Entertainment are both losing money, so they certainly aren't generating positive ROE no matter how much equity they hold. But Wynn Resorts actually has negative equity, making the calculation impossible.
|
2014 Net Income |
Shareholder Equity |
ROE | |
|---|---|---|---|
|
Las Vegas Sands |
$2.84 billion |
$7.21 billion |
39.4% |
|
Wynn Resorts |
$731.6 million |
($28.8 million) |
n/a |
|
MGM Resorts |
($149.9 million) |
$4.09 billion |
-3.7% |
|
Caesars Entertainment |
($2.73 billion) |
($4.74 billion) |
n/a |
Source: Company SEC Filings.
Wynn Resorts has negative shareholder equity because it has borrowed billions of dollars to fund its resorts and paid out more than its original contributions and retained earnings in the form of dividends. That's what happens when debt markets are favorable and returns are high.
The Parisian is the next Macau resort from Las Vegas Sands. Image source: Las Vegas Sands.
Only Las Vegas Sands has a positive ROE -- a whopping 39.4%, driven by profits in Singapore and Macau. Since the comparison with Wynn Resorts isn't exactly an even one, let's look at return on total assets to see which gaming company generates the highest returns.
How much do casinos make from their assets?
When we look at Wynn Resorts' 2014 year-end asset base of $9.06 billion, we get a return on assets, or ROA, of 8.1%: not terrible considering the high level of low-cost leverage the company can use.
Las Vegas Sands ended the year with a much larger $22.36 billion asset base, but it returns 12.7%. Clearly, Las Vegas Sands has the superior returns, along with the leverage to goose those returns to the 39.4% ROE calculated above.
The best returns in Las Vegas are a world away
It's no coincidence that the Las Vegas companies with the best returns are actually generating more revenue in Asia than they are on The Strip. Macau and Singapore have proven to be a boon for gaming companies, delivering the financial strength we see from Wynn Resorts and Las Vegas Sands today.
When it comes to the best returns in Las Vegas, no player generates more than Las Vegas Sands, no matter how you're keeping score.
