Source: Las Vegas Sands.

The casino industry is relatively simple on the surface. A country or state legalizes gaming, casinos are built, visitors come to have a good time and lose money, and casino companies profit.

But reality is far more complicated than that. Generally, successful casinos are built in clusters like on the Las Vegas Strip, Macau, or (formerly) Atlantic City. This creates an entertainment hub that attracts a critical mass of visitors who pay for hotels, restaurants, and other entertainment.

So, if you're watching the casino industry, it's important to watch how these clusters of casinos are doing. That will tell you where you can make money.

The center of the global casino industry
No, the Las Vegas Strip isn't the biggest gambling region in the world; that title is held by Macau. This is a special administrative region next to Mainland China that allows gaming and draws millions of people hungry to gamble every year. Melco Crown (NASDAQ:MLCO), Las Vegas Sands (NYSE:LVS), and Wynn Resorts (NASDAQ:WYNN) generate most of their revenue there, and that's been a recipe for success for a long time.

But the last year has been a complete disaster for Macau because of a crackdown on corruption in Mainland China and worries about the economy there. You can see below that gaming has collapsed, and gaming stocks have fallen as a result.

Data source: Macau Gaming Inspection and Coordination Bureau. Chart by author. SMA = simple moving average.

If you're watching gaming, it's crucial to keep an eye on Melco Crown, Las Vegas Sands, and Wynn Resorts, because they'll tell you exactly what's going on in Macau. And that's the biggest gambling market in the world.

Keeping an eye on the Las Vegas Strip
In the U.S., the Las Vegas Strip is still the hottest spot in gambling, and that title has only grown with the collapse of Atlantic City. While Las Vegas Sands and Wynn Resorts actually call the Las Vegas Strip home, the two companies to watch in Las Vegas are MGM Resorts (NYSE:MGM) and Caesars Entertainment (NASDAQ:CZR).

MGM owns the most resorts on the Las Vegas Strip, including Bellagio, MGM Grand, Mandalay Bay, and half of CityCenter. Caesars Entertainment owns Caesars Palace, Flamingo, and the LINQ, among other resorts.

The thing to know and watch with these two companies is that they're losing money. Caesars' largest operating unit is actually bankrupt, and if creditors get their way, which I think they will, the whole company could soon be in bankruptcy.

MGM Net Income (TTM) Chart

MGM Net Income (TTM) data by YCharts.

In Las Vegas, investors should be watching whether or not MGM or Caesars can increase revenue and lower losses in the future. It may be too late for Caesars to survive, but an improvement in Las Vegas could lead to big returns for MGM Resorts, which is also getting a boost from its property in Macau.

Regional gaming is still big business, it's just not profitable
If you want to see a depressing casino business, look no further than regional players Boyd Gaming (NYSE:BYD), Pinnacle Entertainment (NYSE:BYD), and Penn National Gaming (NASDAQ:PENN). They're struggling with increased competition around the country and a weak consumer appetite for gambling.

PNK Net Income (TTM) Chart

PNK Net Income (TTM) data by YCharts.

That's resulted in long-term losses, and even consolidation among regional players probably won't help. These are the companies to watch for their smaller casinos around the country, but invest in them at your own risk.

The best stocks to watch in casinos
If you're getting into investing in casinos, the two places to watch closely are Asia and the Las Vegas Strip. These are where the most profitable companies in the industry still reside, and they have the critical mass to attract gamblers, partiers, and people who just want to be amazed by new casinos.