Memorandum 15 April 2010 wild week on the strip
April 16th, 2010 at 11:05:01 PM
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MGM-MIRAGE stock soared on good news of a surge on the Las Vegas Strip, only to crash a week later.
• On 8 April the February Gaming revenue was released and it was the most positive news in several year. Strip-wide revenue jumped 32.9% (the largest monthly increase since November 1999). The January gaming revenue dropped only 3%, a relative good month relative to the previous year. March revenue has not been released yet.
• On 12 April Harrah’s announced that it was hiring 500 workers, presumably based on a positive first quarter in 2010.
• On 14 April MGM announced that City Center lost $255 million in the first quarter of 2010 Aria, reported an operating loss of $66 million, which included deprecation expenses of $54 million. MGM Mirage said occupancy at Aria during the quarter was 63 percent. In a news release of preliminary expectations of first quarter results MGM MIRAGE showed a reduction of operating income and EBITDA for every single one of its strip resorts relative to first quarter of 2009. No breakdown by gaming vs. nongaming revenue or room rate data was provided.
A table of first quarter operating income in 2010 and 2009 shows severe drops at Mandalay Bay, Luxor, and Monte Carlo. Circus Circus had an operating loss for the quarter (as it did in the 4th quarter of 2009).
It is difficult to reconcile what was looking like a positive quarter based on 2 months of gaming revenue with the drop in income for every single MGM-MIRAGE strip casino and the very severe drop in operating income for three of the casinos. The incredibly low occupancy rates for Aria Casino was unexpected. Nearly every analyst predicted a better return for this quarter.
Although a full analysis could depend on the release of room rates, and full gaming data, this memorandum will explain what is happening. It concerns the radical change in the importance of games on the strip in the last two years. Three charts are attached to this memorandum to help in visualization of the data.
Chart #1 depicts the Baccarat monthly revenue on the strip since 2006. The large month over month increases that began May 2009 are highlighted by a red arrows . Notice that June 2009 was actually only a relatively small increase over June 2008. Two significant observations are that Baccarat revenue can sometimes go contrary to visitation statistics. March is usually the busiest month of the year Vegas, but it is one of the worst months for Baccarat revenue. The nature of baccarat players is they probably prefer smaller crowds, and large numbers of tourists don’t play baccarat. It is very possible that when the March 2010 revenue numbers are released the baccarat revenue will be consistent with the revenue of the last four years.
The record breaking baccarat return in February of 2010 of $205 billion importantly was partly due to 17.04% win percentage. For the first time ever in decades baccarat revenue was nearly the same as slot revenue. The average percentage has been 11.6% for the last few years and has not exceeded 15.26% in the last five years, but has dropped as low as 5.50%. Because baccarat revenue comes from a comparatively small number of gamblers, some of whom are making very large bets, the win percentage is much more variable. With most other games, especially slots, the law of large numbers applies, and you will not see nearly as much variability. Baccarat revenue, because of the small numbers of players, is fundamentally very variable. As it becomes more and more significant to the overall revenue of the strip you will have unexpected highs and lows.
Chart #2 shows baccarat revenue depicted by the area graph. Slots are shown on the same graph, but use the right hand axis which is offset by $2 billion. The values depicted are the total of the trailing 12 months leading up to that month. This graph shows that Baccarat revenue dipped like everything else during the recession, but has now made a complete comeback and far exceeds the pre-depression revenue. Slot revenue began to decline in April of 2008 and has continued decline to the present with very few pauses.
Chart #3 shows baccarat revenue against blackjack and “other games” which includes race, sports, and all other table games. The decline in blackjack revenue is significant. First it began in October 2007, so it began declining much earlier than other games or slots. The only pause in the decline was for the first month (April 2008) that the movie 21 was in theaters. The percentage drop for blackjack far exceeds slots and other games (34% from October 2007 to February 2010). Since August 2009 Baccarat has displaced Blackjack as the big revenue earner on the strip, a position it has held for decades. Furthermore it is seen that nearly every other form of gaming is continues to drop (a slight upturn in “other games” in February of 2010 is largely due to strong Super Bowl betting). Primarily a good month on the strip has meant a good month in baccarat.
To summarize, baccarat has become the dominant game on the strip. We don’t know how much the casinos are spending to bring in big time baccarat players (which may be affecting profits). Baccarat is has cleared $13 billion a year in Macau as of 2009 (which has more than doubled in three years). This value dwarfs the Vegas strip numbers which just cleared $1 billion for the first time in February of 2010. Inherit in this change is a volatility that will be unusually high. Win percentages are subject to wide fluctuations compared to more traditional games. The recent growth in baccarat sometimes masks the continued drop in other forms of gaming which has not shown any turn around. It becomes increasingly likely that a great month like February 2010 can be followed by a terrible month.
Slot revenue on the strip was $207.9 million for February of 2009, but it dropped $29.5 million in only one month. If the strip slot revenue continues to drop in March it may go lower than the record breaking “Gross Terminal Revenue” in Pennsylvania of $200.2 million for March. At this time, Pennsylvania has only slot machines and no table games. Gaming in PA only began in Nov 2006.
• On 8 April the February Gaming revenue was released and it was the most positive news in several year. Strip-wide revenue jumped 32.9% (the largest monthly increase since November 1999). The January gaming revenue dropped only 3%, a relative good month relative to the previous year. March revenue has not been released yet.
• On 12 April Harrah’s announced that it was hiring 500 workers, presumably based on a positive first quarter in 2010.
• On 14 April MGM announced that City Center lost $255 million in the first quarter of 2010 Aria, reported an operating loss of $66 million, which included deprecation expenses of $54 million. MGM Mirage said occupancy at Aria during the quarter was 63 percent. In a news release of preliminary expectations of first quarter results MGM MIRAGE showed a reduction of operating income and EBITDA for every single one of its strip resorts relative to first quarter of 2009. No breakdown by gaming vs. nongaming revenue or room rate data was provided.
A table of first quarter operating income in 2010 and 2009 shows severe drops at Mandalay Bay, Luxor, and Monte Carlo. Circus Circus had an operating loss for the quarter (as it did in the 4th quarter of 2009).
| CASINO OPERATING INCOME | 2010 | 2009 |
|---|---|---|
| Bellagio | $37,564 | $39,138 |
| MGM Grand Las Vegas | $18,383 | $20,159 |
| New York-New York | $11,013 | $13,318 |
| The Mirage | $9,819 | $13,054 |
| Excalibur | $8,238 | $10,748 |
| Mandalay Bay | $1,867 | $18,646 |
| Luxor | $1,437 | $8,477 |
| Monte Carlo | $456 | $23,302 |
| Circus Circus Las Vegas | -$3,646 | $411 |
It is difficult to reconcile what was looking like a positive quarter based on 2 months of gaming revenue with the drop in income for every single MGM-MIRAGE strip casino and the very severe drop in operating income for three of the casinos. The incredibly low occupancy rates for Aria Casino was unexpected. Nearly every analyst predicted a better return for this quarter.
Although a full analysis could depend on the release of room rates, and full gaming data, this memorandum will explain what is happening. It concerns the radical change in the importance of games on the strip in the last two years. Three charts are attached to this memorandum to help in visualization of the data.
Chart #1 depicts the Baccarat monthly revenue on the strip since 2006. The large month over month increases that began May 2009 are highlighted by a red arrows . Notice that June 2009 was actually only a relatively small increase over June 2008. Two significant observations are that Baccarat revenue can sometimes go contrary to visitation statistics. March is usually the busiest month of the year Vegas, but it is one of the worst months for Baccarat revenue. The nature of baccarat players is they probably prefer smaller crowds, and large numbers of tourists don’t play baccarat. It is very possible that when the March 2010 revenue numbers are released the baccarat revenue will be consistent with the revenue of the last four years.
The record breaking baccarat return in February of 2010 of $205 billion importantly was partly due to 17.04% win percentage. For the first time ever in decades baccarat revenue was nearly the same as slot revenue. The average percentage has been 11.6% for the last few years and has not exceeded 15.26% in the last five years, but has dropped as low as 5.50%. Because baccarat revenue comes from a comparatively small number of gamblers, some of whom are making very large bets, the win percentage is much more variable. With most other games, especially slots, the law of large numbers applies, and you will not see nearly as much variability. Baccarat revenue, because of the small numbers of players, is fundamentally very variable. As it becomes more and more significant to the overall revenue of the strip you will have unexpected highs and lows.
Chart #2 shows baccarat revenue depicted by the area graph. Slots are shown on the same graph, but use the right hand axis which is offset by $2 billion. The values depicted are the total of the trailing 12 months leading up to that month. This graph shows that Baccarat revenue dipped like everything else during the recession, but has now made a complete comeback and far exceeds the pre-depression revenue. Slot revenue began to decline in April of 2008 and has continued decline to the present with very few pauses.
Chart #3 shows baccarat revenue against blackjack and “other games” which includes race, sports, and all other table games. The decline in blackjack revenue is significant. First it began in October 2007, so it began declining much earlier than other games or slots. The only pause in the decline was for the first month (April 2008) that the movie 21 was in theaters. The percentage drop for blackjack far exceeds slots and other games (34% from October 2007 to February 2010). Since August 2009 Baccarat has displaced Blackjack as the big revenue earner on the strip, a position it has held for decades. Furthermore it is seen that nearly every other form of gaming is continues to drop (a slight upturn in “other games” in February of 2010 is largely due to strong Super Bowl betting). Primarily a good month on the strip has meant a good month in baccarat.
To summarize, baccarat has become the dominant game on the strip. We don’t know how much the casinos are spending to bring in big time baccarat players (which may be affecting profits). Baccarat is has cleared $13 billion a year in Macau as of 2009 (which has more than doubled in three years). This value dwarfs the Vegas strip numbers which just cleared $1 billion for the first time in February of 2010. Inherit in this change is a volatility that will be unusually high. Win percentages are subject to wide fluctuations compared to more traditional games. The recent growth in baccarat sometimes masks the continued drop in other forms of gaming which has not shown any turn around. It becomes increasingly likely that a great month like February 2010 can be followed by a terrible month.
Slot revenue on the strip was $207.9 million for February of 2009, but it dropped $29.5 million in only one month. If the strip slot revenue continues to drop in March it may go lower than the record breaking “Gross Terminal Revenue” in Pennsylvania of $200.2 million for March. At this time, Pennsylvania has only slot machines and no table games. Gaming in PA only began in Nov 2006.
April 18th, 2010 at 5:32:33 PM
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Quote: NEW YORK (TheStreet)
Casino stocks are rallying following a massive rebound in gaming revenues on the Las Vegas Strip.
MGM Mirage(MGM) is the biggest gainer in the sector, hitting a 52-week high on Thursday of $15.05. Currently, shares are up 9.4% to exchange hands at $14.61.This comes as Las Vegas Strip reports a whopping 32.9% spike in gaming revenue in February to $568 million, driven by the Chinese New Year, which fell on Feb. 14 this year compared with Jan. 26 in 2009. MGM, of course, has the greatest exposure to the Las Vegas Strip.This news is also helping to boost Boyd Gaming(BYD), which is soaring 6.1% to $11.53.
Earlier this week Macau also reported that gaming revenue in February surged 70% to $1.69 billion. This is good news for Macau-centric casinos like Melco Crown Entertainment(MPEL), which is rising 3.8% to $5.52 and Las Vegas Sands(LVS), which is seeing shares grow 4.5% to $23.95 in afternoon trading.Sands also said on Wednesday that it will resume construction on a new 300-room hotel tower at its Bethlehem casino in Pennsylvania. The company also said that it expects table games to launch in the casino starting in July.
UBS upped its price targets on Wynn Resorts and Las Vegas Sands to $95 and $24, respectively. The firm maintained its buy rating on Wynn, but downgraded Sands to neutral from buy. Wynn is advancing 4.4% to $85.25 in morning trading. This rally isn't just limited to casino operators, as slot machine makers are also getting in on the action. International Game Technologies(IGT) is jumping 3.3% to $20.04, WMS Industries(WMS) is inching up 1.6% to $44.19 and Bally Technologies (BYI) is increasing 3% to $41.73.
-- Reported by Jeanine Poggi in New York
I'm not getting any response on the initial post. So I put up this article written on 9 April. There was a huge boom on the stock rally based on the high February returns. MGM Mirage(MGM) stock hit record highs. The corporation had to release a press release saying every single casino lost money on the strip (and some very badly). I am trying to explain what may have happened. Any insight is appreciated.
April 18th, 2010 at 7:36:35 PM
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Wonder how much longer mgmt thinks that offering 6:5 BJ is going to increase their take. Is anybody shocked that BJ continues tanking, even though it used the be "THE" game on the strip?
April 18th, 2010 at 9:07:21 PM
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Frank,
One statistic that I like to track rather than total win is total "money in", which truly reflect how much people are gambling rather than how much the people are betting. I know that the casino counts on revenue to reflect their health, but for me, there is an element of luck to this. I would rather look at the total amount of money people are gambling with to reflect the health of the strip casinos.
What this graph shows is the year over year "money in" growth from 21, Baccarat, all other games, all table games, and slots for all strip casinos only. Money in is simply the total revenue divided by the "% win" columns. It is similar to slot handle.
Bacarrat (in red) is extremely volatile. When a game is that volatile, the reason is (I think) the ability of the casinos to bring in whales to bet massive amounts of money. For Baccarat, this makes sense... the game is played in high roller rooms using huge denominations of money by a few players. What this shows is that a casino's fortunes (or demise) is determined by its Blackjack figures. Vegas' 2010 February revenue is a record for the strip, and MGM's statement that all of their casinos are not doing well might reflect that MGM is not getting the Baccarat revenue that Sands or Wynn might be getting. Note that the peak in "total money in" for Baccarat was December 2009 with 1.323 billion in money in (52.6% of all games). Despite February's revenue in baccarat being 50 million higher, the percent win was also a lot higher, but only 1.204 billion in money in was from bacarrat (49.9% of all games).
Bacarrat Year over Year "money-in" has been exceeding the 21 and other table games numbers consistently since about July 2008. Blackjack has only consistently been the trailer since about the same time. If you look at the Blackjack line (light blue) and compare it to the green line (all table games) or the dark blue line (all other table games), you see quite plainly that 21 has only been trailing (in money in) consistently since about November 2008. For me, this trend shows that 21 is the game that is suffering due to the recession (not because it's 6-5). Perhaps 21 is the common game played among the middle class and it is those people who are affected the most from the recession. Before November 2008, 21's decline was at the same rate or better than "Other Table Games" which to me indicates that 21 is still as popular a game in the casino compared to the other games offered when you factor out baccarat (with the exception of the past 14 months). I don't buy the 6-5 argument for 21's demise over the last year because it's been around for quite some time. I think it's because 21 is the casino game subject to the most recessionary pressure. Maybe because it's a quick game compared to other games, or the buy in is higher, the limits are higher, or it's played more by the 'pleasure' gambler who is hit most by the economic downturn.
What's quite promising is that since about September 2009, the year over year decrease is declining, and finally in February 2010, there was year-over-year growth in "money in" for all games, including 21 and Slots (though revenue was lower, the win % was also lower, meaning that more money was actually handled). So I think the Vegas at bottom at this point but signs are looking up.
One statistic that I like to track rather than total win is total "money in", which truly reflect how much people are gambling rather than how much the people are betting. I know that the casino counts on revenue to reflect their health, but for me, there is an element of luck to this. I would rather look at the total amount of money people are gambling with to reflect the health of the strip casinos.
What this graph shows is the year over year "money in" growth from 21, Baccarat, all other games, all table games, and slots for all strip casinos only. Money in is simply the total revenue divided by the "% win" columns. It is similar to slot handle.
Bacarrat (in red) is extremely volatile. When a game is that volatile, the reason is (I think) the ability of the casinos to bring in whales to bet massive amounts of money. For Baccarat, this makes sense... the game is played in high roller rooms using huge denominations of money by a few players. What this shows is that a casino's fortunes (or demise) is determined by its Blackjack figures. Vegas' 2010 February revenue is a record for the strip, and MGM's statement that all of their casinos are not doing well might reflect that MGM is not getting the Baccarat revenue that Sands or Wynn might be getting. Note that the peak in "total money in" for Baccarat was December 2009 with 1.323 billion in money in (52.6% of all games). Despite February's revenue in baccarat being 50 million higher, the percent win was also a lot higher, but only 1.204 billion in money in was from bacarrat (49.9% of all games).
Bacarrat Year over Year "money-in" has been exceeding the 21 and other table games numbers consistently since about July 2008. Blackjack has only consistently been the trailer since about the same time. If you look at the Blackjack line (light blue) and compare it to the green line (all table games) or the dark blue line (all other table games), you see quite plainly that 21 has only been trailing (in money in) consistently since about November 2008. For me, this trend shows that 21 is the game that is suffering due to the recession (not because it's 6-5). Perhaps 21 is the common game played among the middle class and it is those people who are affected the most from the recession. Before November 2008, 21's decline was at the same rate or better than "Other Table Games" which to me indicates that 21 is still as popular a game in the casino compared to the other games offered when you factor out baccarat (with the exception of the past 14 months). I don't buy the 6-5 argument for 21's demise over the last year because it's been around for quite some time. I think it's because 21 is the casino game subject to the most recessionary pressure. Maybe because it's a quick game compared to other games, or the buy in is higher, the limits are higher, or it's played more by the 'pleasure' gambler who is hit most by the economic downturn.
What's quite promising is that since about September 2009, the year over year decrease is declining, and finally in February 2010, there was year-over-year growth in "money in" for all games, including 21 and Slots (though revenue was lower, the win % was also lower, meaning that more money was actually handled). So I think the Vegas at bottom at this point but signs are looking up.
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You want the truth! You can't handle the truth!
April 19th, 2010 at 12:06:55 AM
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Quote: boymimboBacarrat (in red) is extremely volatile. When a game is that volatile, the reason is (I think) the ability of the casinos to bring in whales to bet massive amounts of money. For Baccarat, this makes sense... the game is played in high roller rooms using huge denominations of money by a few players.
...
Vegas' 2010 February revenue is a record for the strip, and MGM's statement that all of their casinos are not doing well might reflect that MGM is not getting the Baccarat revenue that Sands or Wynn might be getting.
Your statement above is absolutely correct. Baccarat is not governed as much by the law of large numbers and is extremely volatile. It is probable that given the explosion of baccarat play in Macau that Wynn and Sands are cornering the lions share of the play in Vegas by entertaining Chinese guests. It explains why MGM will sell its lucrative share of Borgata in AC for a chance to increase their investment in Macau. As I said earlier, Macau gaming revenue in the first quarter of 2010 exceeded the strip for the whole of 2009.
It also means that Baccarat revenue only goes so far. Bellagio dropped only 4% from last year. Aria may attract a lot of players, but no one is purchasing the hotel rooms (63% occupancy). And the real kick in the pants is Mandalay Bay/Luxor is dropped like crazy because it depends on well heeled convention goers , and not super rich baccarat players. Since basically room rates don't mean anything on this level, no player will stay at the Mandalay Bay.
But if you look at my first chart again you might see how I came to the conclusion that the March figures (which have not been released) probably tanked. In general March through June are not big baccarat months. So even though the Nov-Feb returns have been improving, I don't know if bottom has been reached.
