Can Las Vegas Handle Another Billion-Dollar Resort?

[jay]

Can Las Vegas Handle Another Billion-Dollar Resort?
 
by Travis Hoium, The Motley Fool Dec 21st 2013 11:00AM
Updated Dec 21st 2013 11:02AM

The Las Vegas Strip is about to be transformed again, this time by one of Asia's largest gaming companies, Genting Group, which in March purchased the unfinished resort formerly known as Echelon from Boyd Gaming.
 
Genting plans to spend $4 billion to build a resort on the Las Vegas Strip's north end, catercorner from Wynn Resorts . Phase one is scheduled to open in 2015, and as long as the company can get a gaming license, I don't see why it wouldn't begin construction. 
 
The challenge for operators in Las Vegas is that supply already outstrips demand. MGM Resorts and Caesars Entertainment are still reporting quarterly losses because of high debt loads and slow growth in Las Vegas. Las Vegas Sands and Wynn are helped by most of their revenue coming from Macau, but Las Vegas hasn't been very impressive recently for either company.
 
Can Las Vegas really handle another megaresort? Let's look at the numbers and see how much Las Vegas needs to grow just to break even.
 
Balancing supply and demand
 Below, I've provided the gaming and nongaming revenue of Wynn Resorts and Las Vegas Sands in Las Vegas. Both companies operate large properties near where Genting wants to build Resorts World Las Vegas. If Las Vegas is going to handle a new resort, it will need to grow enough to handle another Wynn Las Vegas or The Venetian/Palazzo Las Vegas complex.

 
If we assume that the Las Vegas Strip will need to grow 10% just to break even by 2017 on the addition of Resorts World Las Vegas, the region would need to grow gaming 2.4% annually. But over the past 12 months gaming has grown just 2.1%, while growth was just 2.3% last year.
 
Taking a hit won't be a big impact to Wynn or Las Vegas Sands, but if the Las Vegas Strip needs to grow 2.4% annually just to break even, it will have a huge impact on MGM and Caesars. They can't make money as it is right now, and they would like any growth to flow to their bottom line.
 
Foolish takeaway
 I don't think Las Vegas is doomed if Genting builds Resorts World Las Vegas, but it certainly limits upside for MGM and Caesars in the region. Considering that regional gaming is struggling as well, Caesars has the most to lose of anyone.
 
This is just another reason investors should keep their gaming dollars focused squarely on growth in Asia and Macau.
 
 

[4 Deuces]

Interesting article.  Caesar's is also building The Linq and remodeling The Quad (formerly Imperial Palace).  They're already over $20B in debt and The Linq will add another half billion.

http://www.caesars.com/thelinq/

http://www.businessweek.com/articles/2013-10-17/caesars-expands-in-las-vegas-with-high-roller-linq-tourist-attraction

Tourism age groups are lower and gambling revenues are dropping.  Entertainment is slowly replacing gambling.  The "kids" come here to wander in drunken awe thinking that "whatever happens here" doesn't matter.  They play one quarter at a time.  I actually enjoy the local casinos better for gambling and The Strip for entertainment.

One thing that I think will help Las Vegas is they are advertising their ability to support the filming industry here.  More of Hollywood exposure will continue to make Las Vegas attractive.

:Dave