Peering Into 2016

What might happen in gaming in the new year

Peering Into 2016

Now that we’ve welcomed in the New Year, here’s a bit of what 2016 might have to offer gaming. So with that simple preface, here goes.

Las Vegas

The 2015 story was the resurgence of the Las Vegas Strip, with visitation hitting records and hotel occupancies soaring to near capacity on rising room rates.

Gaming volumes did not keep pace, as Las Vegas resorts continue their transition toward tourism with the casino floor as the centerpiece, but not the raison d’etre.

The question is, can growth continue in 2016?

The obvious answer is yes it can, if the American economy continues to improve and international travel continues its growth, which seems likely barring events that would shatter traveler confidence.

The Strip is undergoing something of a building boom again, but this time, it is targeted growth, not just more megaresorts on top of megaresorts.

Among examples: MGM Resorts expanding its Mandalay convention center and building a 20,000-seat arena, the touristy strip shopping added by Caesars at the Linq/Bally’s corner and by MGM along New York New York, and the new uber nightclubs capturing free-spending youngish visitors who aren’t necessarily gamblers.

Indeed, with no significant new casino hotel capacity coming online for several years, resort operators have pricing power.

The obvious beneficiary is MGM with its huge presence on the Strip. But Caesars might be a surprise under new CEO Mark Frissora, especially after it finally restructures.

Las Vegas Sands has the room and convention capacity to benefit, while Wynn has a small enough footprint to disproportionately prosper. Though the bigger fish for both companies is Macau.

U.S. Regional Gaming

Regional casino markets have also been recovering, though a number of them face increasing competition as the reality of cannibalization is now firmly established.

The stories here are the prudent operators, special situations and emerging companies.

The year is ending with Boyd and Isle of Capri producing surprisingly strong results. Neither should be a surprise. Both companies have long made clear their strategies of cost controls, lower debt and targeted capital projects. There is no reason to think those strategies shouldn’t continue to work in 2016.

Penn National can be added to that group with its own growth kickers—the Jamul Indian casino to open in San Diego County next year, and tapping the PENN database to infuse recently purchased Tropicana Las Vegas with players.

Pinnacle will also be worth watching as it enters a new world as an operator only, following its real estate spinoff with Gaming & Leisure Partners.

To be added to the list of those to watch is a familiar name, Station Casinos, as it returns as a public company just as Las Vegas has regained its old growth pattern.

Macau

The long, steep decline appears to be over.

The Chinese government has made its points, and any future tightening is likely to be relatively minor fixes to money laundering and public corruption campaigns.

Revenues have held fairly steady for several months now, and there is even some cause for optimism. The Macau government appears jolted into a more accommodative mood by losing a quarter of its economy in a single year.

A recent survey of Chinese mass-market gamblers by UBS shows they plan 2 percent more trips to Macau in the coming year, and they intend to increase their gambling budgets by 5 percent. More encouraging, it is the higher-end gamblers who spend around $9,800 per trip who plan to visit more often.

Unfortunately, this doesn’t mean that casino operators are out of the woods. Their problem is that they are all making multibillion-dollar investments in new resorts in a market that shows little sign of absorbing all of that capacity.

The megaresorts will be coming at a fast pace this year: Wynn Palace in June, followed by Las Vegas Sands’ Parisian and MGM Cotai.

The conventional—and maybe whistling-past-the-graveyard—wisdom is that all three will be OK: Wynn will be so fantastic it will take market share, Parisian will be a must-see property, and MGM Cotai will more than triple MGM’s Macau capacity, thus being transformational.

As plausible as all those premises happen to sound, we’ll wait and see. Even if they’re right, it might take several years to play out.

Emerging Asian Markets

If there is good news for Macau, it appears the surrounding countries trying to poach Chinese gamblers might have a tougher road than they had hoped.

The Philippines is off to a slower start than planned. It’s hard to believe many northern Chinese will want to visit Vladivostok when it’s 20 degrees below zero; a couple extra hours on a plane to Macau will be a lot more comfortable. Korea has potential to tap Chinese players, but that potential will be limited by governments: theirs in not allowing nationals to play at home, and the Chinese in recognizing the threat and throwing obstacles in the way of their players traveling to the Land of the Morning Calm.

Likewise, Vietnam is limited given infrastructure needs and by banning its citizens from casinos.

Finally, the same UBS survey that shows Chinese gamblers likely to start to return to Macau also showed the new markets don’t appeal to them much. If they are going to gamble internationally, the United States is their choice. And that is music to the ears of Macau operators, especially Wynn, MGM and Las Vegas Sands.

Next month, we’ll look at suppliers, interactive gaming and the rapidly evolving world of fantasy sports and eSports. 

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