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The Big Two

Gaming’s two biggest personalities also run the most important companies; here’s how they stack up.

The Big Two

There’s more than one way to get to Heaven, Warren Buffett likes to say.

No one better illustrates the truth of that aphorism than Messrs. Wynn and Adelson.

These visionary CEOs have taken different paths in founding and building multibillion-dollar enterprises that have enriched investors manifold.

For Steve Wynn, Wynn Resorts, Wynn Macau, and earlier, Golden Nugget/Mirage Resorts, were built on meticulously designed and exquisite resorts catering to the most affluent patrons and the highest of the high rollers.

Sheldon Adelson built Las Vegas Sands and Sands China on a convention-centric business model, grand scale and the development of retail malls within casinos that can be sold off to help finance the next major project.

Some years ago, they playfully sparred over their different approaches, with Wynn famously saying that “bigger isn’t better. Better is better.” And Adelson responding that “bigger is better.”

The latest illustration of the success of their approaches was revealed in their first-quarter earnings releases, when both companies smashed expectations.

The sources of their successes were similar—rebounding Macau, ever-stronger Las Vegas and, for LVS, Singapore. The results in Macau were especially impressive as their new properties helped grow the market with minimal cannibalization.

EBITDA at incumbent Wynn Macau declined just 5.3 percent to $181.1 million. The new Wynn Palace generated $111.9 million, meaning combined EBITDA grew a whopping 53.2 percent over last year.

The story was similar for Las Vegas Sands. EBITDA on its much bigger base of Macau properties rose 20.5 percent to $624 million thanks to the $82 million contribution from the new Parisian.

And things promise to get even better. Wynn Palace has been greatly hindered by construction disruption as work on a light-rail system nearly surrounds the property, isolating it from foot traffic.

However, Steve Wynn, with his penchant for turning a phrase, said the situation will turn from “suffering… to relief” when the rail line is finished in coming months and starts delivering passengers to the Palace’s front door.

Likewise, all their properties will soon benefit from a new ferry terminal that will deliver passengers from Hong Kong directly to the Cotai section of Macau. Then, in 2018, the bridge connecting Macau to Hong Kong and the Chinese mainland will open.

Finally, both Wynn and Adelson say the Chinese and Macau governments are again supportive of Macau’s gaming industry, which, at least on paper, has barely begun to penetrate the huge Chinese market.

Then there is surging Las Vegas and the chance for major new markets like Japan.

If major new projects don’t happen, Wynn and Las Vegas Sands, and publicly traded subsidiaries Wynn Macau and Sands China, will have plenty of growing cash for dividends, share repurchases and debt reduction.

So, the outlook appears rosy for both companies. But a good company is not necessarily a good stock.

Both stocks are expensive, as the pre-first quarter ratios below suggest, so they could be range-bound for a while:

However, growth over time will bring today’s ratios down. Accelerated growth will bring them down sooner. Besides, paying a premium for quality can still make for a very rewarding investment.

So, long-term investors should be rewarded.

However, long-term can be an open question when the visionary CEOs are 83 (Adelson) and 75 (Wynn).

That raises the question of what happens when the visionaries aren’t there.

Each has a highly regarded Number Two— young Matt Maddox at Wynn and veteran Rob Goldstein at Las Vegas Sands.

Yet, almost by definition, the visionary founder brings qualities that even the best executives can’t replicate.

The good news for anyone considering Wynn or Las Vegas Sands is that Steve Wynn and Sheldon Adelson appear as enthusiastic and energized as any young Turk could be.

DoubleDown And Asia

IGT selling DoubleDown Interactive for $825 million at 10.5 times trailing EBITDA to DoubleU of South Korea gave a boost to stocks of other companies with social gaming operations.

But it also highlighted the great potential for social gaming in Asia.

Two statistics reported by Adam Krejcik of Eilers & Krejcik Gaming can illustrate the point:

  • Asia accounts for just 16.7 percent of global social gaming revenue on mobile devices, compared to 73.7 percent from North America.
  • Slot games generate 78 percent of all social gaming revenue.

Given Asia’s much greater population and the comfort Asians have with mobile devices, the potential for social gaming is clear.

Because it will have exclusive use of the vast IGT game library, South Korea-based DoubleU no doubt expects to grow far beyond last year’s $142 million of revenue.

That potential is, naturally, obvious to other Asian companies. That is why Shanghai Giant Technology paid $4.4 billion to Caesars to buy Playtika, the largest of all social gamers.

It is why fellow Korean company Netmarble paid $800 million for Canadian Kabam, and will amass what Krejcik says will be a $4.4 billion war chest for more acquisitions after it IPOs next month.

And there are plenty of companies to acquire in a very fractured industry where five publishers, as they are called, control more than 50 percent of the market—Playtika, Scientific Games, Zynga, Aristocrat and DoubleDown.

And with North America growth slowing, there could be incentive for some operators with tiny market share to sell, especially at valuations stimulated by the DoubleDown sale.

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