Major Las Vegas casino operators Wynn Resorts, Las Vegas Sands, MGM Resorts and Caesars Entertainment have recently reported their third quarter financial results which serves as an opportunity for them to share performance over the past 3 months with investors. There were some pretty significant trends of note across the board that we thought were worth addressing.
When we refer to RevPAR, it is in reference to Revenue Per Available Room. Essentially, the nightly amount of money generated by the hotel divided by all available room nights whether they were sold or not. Low occupancy rates and discounted pricing both negatively affect RevPAR.
The 3rd Quarter was SOFT for business on the Las Vegas Strip
Caesars and MGM both discussed headwinds in Las Vegas – Caesars noted that “Las Vegas, revenues fell 2.4%, attributable to soft demand. Adjusted EBITDAR (profit) declined 7.5%” as compared to the same quarter last year. Additionally, Caesars noted that weak room demand, leading to a 3.6% decline in revenue per available room earned or RevPAR, was “primarily attributable to lower rate in occupancy due to weak demand in the leisure segment driven by fewer citywide events year-over-year”. Essentially, blaming lack of demand for rooms on a less than robust events calendar. They do, however, expect the 4th quarter to be much stronger and bookings are tracking ahead of pace.
MGM Resorts also posted a year over year decline in RevPAR primarily due to event and convention timing. CEO Jim Murren was asked if consumers are pushing back on resort fees on the Strip. Murren responded by reiterating how price competitive Las Vegas still is for convention bookers and that when compared to cities like Orlando or Chicago, Vegas is still a cheaper option. While Vegas is still considered a value destination, the response seemed to brush off concerns that leisure travelers are fed up with the nickel and diming of ever escalating fees.
Our take is that MGM and Caesars are either blowing smoke or completely oblivious when it comes to soft room demand in the past quarter. It seems a bit absurd to blame the event calendar exclusively for the decline in demand for rooms and RevPAR. Keep in mind the US is in the midst of a historic stock market bull run, experiencing record unemployment and consumer confidence is at an all-time high. Weak demand should not be an issue.
The topping on the earnings cake was Wynn Resorts which posted a whopping 37% decline in EBITA (profit) in the third quarter this year vs. the same quarter last year. The profitability free fall from $151 million in Q3 last year to $95 million in the same quarter this year was blamed primarily on baccarat win and major players bouncing around to competing properties.
If room demand and casino winnings are soft now, can you imagine how ugly things will get when Resorts World and Drew bring thousands of new rooms on line?
Nevada Gaming Control Board Reporting Tells the Story
Casinos report their gaming win to the Nevada Gaming Control Board on a monthly basis. For the 3rd quarter ending September 30th, which is the quarter casinos are reporting earnings for now, the Las Vegas Strip gaming win was down 7.22% overall vs. the same quarter a year ago. Compare that figure with surrounding areas and the Strip’s growing problem is clear. Casinos in Boulder saw a gaming win increase of 7.64%, Downtown Las Vegas’ win increased by 7.25% and North Las Vegas’ gaming win was up 9.35% compared to Q3 of 2017. It would seem that everyone in the neighborhood is performing better than the big boys on the Las Vegas Strip. Ironically, the neighboring casinos are posting stronger hotel demand and gaming win gains have looser slots and more manageable fees. Coincidence?
Most Vegas observers can see clear as day what is driving the soft results on the Strip. Las Vegas used to make the little guy feel like a king, a somebody. Now, you pay $40 to check into your hotel room an hour and a half early. Once Vegas FEELS like a value destination again people will come.
Wynn Resorts will scrap Steve Wynn’s Paradise Park Lagoon which was planned to replace the golf course saying “we weren’t really interested in building a large public swimming pool for the Las Vegas Strip”. Instead, Wynn will move forward with additional convention space and re-open the golf course after restoring the holes that were ripped up.
What is to become of the 38 acres Wynn purchased across the street? Wynn is just beginning the “design and development” phase in 2019 to determine what a new integrated resort will look like. They anticipate that design timeline to take 2 years.