Sands Cotai Central

Sands Cotai Central in Macau. Image: Las Vegas Sands.

It's hard to say that a resort that generated $710.9 million in cash flow over the past year -- as measured by EBITDA -- is a disappointment, but that's the case with Sands Cotai Central. The resort is supposed to be an anchor in the Las Vegas Sands' (NYSE:LVS) domination of Macau, drawing thousands of mass-market visitors each day. But the result in 2015 has been less than investors may have hoped for.

What made Sands Cotai Central disappointing in 2015
To understand why Sands Cotai Central was disappointing we need to put its results into context. Gaming revenue in Macau was down 36.2% through the first three quarters of 2015 as VIPs fled the market, and it's no surprise that all resorts are feeling the pinch. But Sands Cotai Central was supposed to outperform rivals by catering to mass market gamblers -- gaming revenue is down 31.5% among mass market gamblers compared to 41% in the VIP segment. But performance hasn't been as you might expect. 

If you look at the 2015 numbers, you can see that in many ways Sands Cotai Central is outperforming the broader Macau market, but not by much. So far this year, gaming revenue is down 33.7%, and EBITDA and operating income have fared even worse.

 

Q1-Q3 2015

Change Y/Y

Gaming Revenue

$1.45 billion

(33.7%)

Net Revenue

$1.68 billion

(31%)

EBITDA

$490.6 million

(37.2%)

Operating Income

$259.1 million

(53.8%)

Source: Las Vegas Sands Q3 2015 earnings report.

The results aren't as bad as those of some competitors, which is a testament to Las Vegas Sands' strategy of dominating Macau's mass market. But they're down more than The Venetian Macau, Four Seasons Macau, Las Vegas properties, or Marina Bay Sands. That's what makes it the worst resort in Las Vegas Sands' portfolio.

Las Vegas Sands The Parisian Rendering

New competition like The Parisian could pull gamblers from Las Vegas Sands' older casinos in 2016. Image: Las Vegas Sands.

2016 brings new challenges
2015 was something of a mixed bag for Las Vegas Sands, depending on how you look at it. Macau was down, but not as much as rivals, which is good and bad. But 2016 brings new challenges from stronger competition.

A full year of operations at neighboring Studio City and Wynn Resorts' Wynn Palace opening in the middle of the year will pull visitors away from Las Vegas Sands resorts on Cotai. Even if gaming revenue flattens out, those two resorts could cannibalize results in 2016. 

In many ways, it would be surprising if Sands Cotai Central didn't see a further decline in 2016, just based on growing competition in the region. 

Las Vegas Sands has unknowns ahead
None of this is to suggest that Sands Cotai Central was a bad resort in 2015 -- it's still going to generate over half a billion dollars in EBITDA for the year. And the fact that it was Las Vegas Sands' worst performer is a testament to the company's strength both in Macau and in its other markets. But this will be a resort to watch in 2016 because it has a close proximity to new competition and could indicate whether the company's results continue to slide or turn higher.

It's possible outperforming the broader Macau market won't be in the cards next year for any of Las Vegas Sands' casinos, something to keep an eye on.

Travis Hoium owns shares of Wynn Resorts, Limited. The Motley Fool has no position in any of the stocks mentioned. 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.