Las Vegas recorded a record number of visitors in 2015. Visitation increased 2.5% over 2014 to a whopping 42.3 million tourists. And yet, gambling revenue has stayed almost stagnant. As gambling loses its luster, casino companies like MGM Resorts International (NYSE:MGM) and Las Vegas Sands (NYSE:LVS) are betting big on the new, non-gaming economy.
The non-gaming economy
Las Vegas brought in 1.2 million more tourists in 2015 than in 2014. Even then, gambling revenue grew only 0.7% during the same period with revenue actually falling 0.4% year-over-year on the Strip, helped somewhat by an increase in the smaller downtown area. So where are these tourists spending their money instead?
Las Vegas has been experiencing an economic shift in recent years toward an increasingly non-gaming market. Hotels, restaurants, and live entertainment revenue have been growing at faster rates than gambling. The most important trend is the rise in convention space usage. During 2015, convention attendance surged more than 13% in Las Vegas over 2014. Over 21,000 conventions and business meetings were held during the year, hosting nearly six million convention attendees.
MGM Resorts and Las Vegas Sands are two companies that are making a bet on this shift in spending -- here's how these two companies are positioning themselves for the future.
MGM upgrades near completion
MGM not only has more properties and hotel rooms than any other company in Las Vegas, it also has the most total square feet of convention space available. MGM just completed its upgrade to the Mandalay Bay Convention Center in January, which now has over two million square feet of total meeting space. The company recently announced that it will be expanding its convention space at its Aria property as well.
The company is also nearing completion of its massive multi-purpose arena near the strip. MGM teamed up with Anschutz Entertainment Group, or AEG, to build this 20,000-seat complex as the setting for conventions, large meetings, concerts, sporting events, and more. The arena is scheduled to open in April 2016.
Las Vegas Sands ups its ante
Las Vegas Sands has suffered the past 18 months as Macau, its main market for gaming revenue, has been declining rapidly. Perhaps that's part of the reason Sands is rushing to get in on these non-gaming opportunities in Las Vegas. The company recently announced plans to be part of a group building a $1.2 billion outdoor stadium just east of the Las Vegas Strip.
The stadium is likely to be the home of the University of Nevada, Las Vegas NCAA football team. It could also be the home to a future NFL team, something Nevada has never had but many are eagerly pushing for. However, it would also have many other purposes from concerts to political conventions.
A savvy long-term bet
This change to a non-gaming focused economy is important for Las Vegas as a long-term investment. Gambling revenues have stagnated, and as we have seen in Macau, they can be subject to outside risks like government regulation. However, Las Vegas now has a much more diversified economy with a broader focus on serving other needs. For investors, that should be welcome news. Companies like MGM Resorts, and more recently Las Vegas Sands, are taking advantage of this switch to diversify their own businesses and could see major gains by pivoting toward this growing market.