Brian R. Gordon, CPA

Gaming Industry: Performance Review

With another year officially in the books, some of the world’s largest publicly traded gaming operators reported on their fourth quarter earnings and aggregated results for the year. Companies with operations in Macau benefitted from the significant bounce back in gaming revenue, as the region posted $33.2 billion in annual gaming revenue, a 19.1 percent increase compared to 2016. The year-end revenue total marked the best for the world’s largest gaming market since 2011, when revenues increased 41.7 percent to $33.3 billion. In Nevada, the world’s second-largest gaming market, gaming revenues also reported their highest annual growth rate in six years, albeit at a much more modest pace compared to the Southern China resort city. Statewide gaming revenue increased by 2.8 percent in 2017 to $11.6 billion, matching the annual growth rate of 2011.

According to data reported in the recently released Nevada Gaming Abstract, revenues have experienced across-the-board growth, with non-gaming revenue sources becoming an increasing share of total revenue. Nevada’s gaming operators reported total revenue growth of 3.7 percent to $26.2 billion. The latest performance was an improvement from the 2.6 percent growth rate reported for fiscal year 2016. Notably, gaming revenue reported its largest year-over-year increase since 2007, growing by 3.2 percent to $11.1 billion (note the 2017 Nevada Gaming Abstract figures are fiscal years that were recently released in early 2018).

Each non-gaming revenue category also increased over the fiscal year, with total statewide non-gaming revenue growing by 4.1 percent to $15.1 billion. Similar to 2016, revenue generated by hotel rooms experienced the largest year-over-year increase in 2017, rising 5.8 percent over the fiscal year to $6.2 billion. Revenues sourced to the “other” catch-all category (e.g., retail, lease income) increased by 5.4 percent year-over-year, followed by beverage revenue (+4.2 percent) and food revenue (+0.5 percent).

The Las Vegas Strip accounted for two-thirds of total statewide revenue, producing $17.8 million in fiscal year 2017, an increase of 3.9 percent over fiscal year 2016. Gaming revenue increased 3.1 percent to $6.0 billion, while non-gaming revenue grew by 4.2 percent to $11.7 billion. The largest non-gaming revenue category was room revenue, which climbed 5.5 percent to $5.1 billion. However, the largest year-over-year growth was realized by the “other” category, which expanded by 6.1 percent to $2.6 billion. Beverage revenue climbed 4.0 percent to $1.3 billion, while food revenue rose 0.4 percent to $2.7 billion. Overall, the long-term trend of expanding non-gaming revenue shares for Las Vegas Strip operators continued, as non-gaming revenue increased from 65.8 percent of total revenue to 66.0 percent in the most recent fiscal year.

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In Downtown Las Vegas, total gaming operator revenue increased by 10.3 percent to $1.2 billion, reporting the best year-over-year growth rate since at least 1990. Much of that growth was spurred by an 11.6 percent expansion in gaming revenues, which climbed to $613.2 million. Recent investments and renovations played a role along with a new property opening likely classified in the submarket. Room revenue also reported a strong fiscal year, with revenue growing 11.7 percent to $239.3 million. The other revenue category (+8.5 percent), beverage revenue (+8.3 percent) and food revenue (+6.3 percent) each reported notable year-over-year growth.

MGM Benefits from National Harbor

Overall revenue growth for MGM Resorts International (MGM) continued through the end of 2017. While the victims and families of those involved in the tragic events of October 1st remain in our thoughts and prayers, the financial impact played a role in fourth quarter reported results.

Domestically, MGM generated net revenues of $1.9 billion in the fourth quarter of 2017, an increase of 5.0 percent compared to the fourth quarter of 2016. The increase in domestic revenue is partially attributable to the performance at MGM National Harbor. Despite this increase, domestic revenue contracted by 3.0 percent on a same-store basis.

For the year company-wide consolidated net revenue ended 2017 at $10.8 billion, a 14.0 percent increase from 2016. MGM’s wholly owned domestic resorts accounted for the lion’s share of total year-end net revenues of $8.3 billion, which were up 18.0 percent from the prior year. MGM China ended 2017 with net revenues of $2.0 billion, representing a 3.0 percent increase from 2016.

During the fourth quarter of 2017, adjusted property earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 1.0 percent over the prior year to $496.0 million at the company’s domestic resorts. In addition to modest domestic property EBITDA growth, MGM China contributed further gains by reporting a 7.0 percent increase in earnings to $147.0 million as compared to the same quarter of the prior year. Moreover, in the fourth quarter of 2017, MGM China reported a 25.0 percent increase in earnings compared to the third quarter of 2017.

MGM’s EBITDA closed out 2017 at $2.8 billion, representing a 1.0 percent appreciation from the prior year. MGM’s domestic resorts continued to progress positively in comparison to prior years with an annual EBITDA of $2.5 billion (+22.0 percent from 2016, and +6.0 percent on a same-store basis). For comparison purposes, EBITDA for MGM China increased 1.0 percent from 2016 to $525.0 million at the end of 2017.

The latest quarter marks the first full year of operation for MGM National Harbor in Maryland after opening its doors on December 8, 2016. The $1.4 billion Washington D.C.-area property generated $186.9 million in net revenue, which contributed greatly to the company’s success during the year, and was the highest grossing resort in the company’s portfolio of properties. Despite a higher tax environment, MGM National Harbor achieved an 18.7 percent adjusted EBITDA margin.

On February 13, 2018, MGM Cotai officially opened its doors in Macau, China following a series of construction and government-related delays. MGM also continues its development of MGM Springfield in Massachusetts, a $960 million 250-room resort-casino slated for completion in fall 2018. MGM has expressed interest in expanding further into the Macau market, as well as eventually entering Japanese markets, provided that pending legislation is passed in favor of allowing commercial gaming in the country.

Sands Posts Outstanding Q4 Results

Las Vegas Sands (LVS) delivered another set of positive results for the fourth quarter of 2017, noting significant increases in company-wide net revenue and EBITDA attributable mostly to its international presence in Singapore and Macau. Performance of the company’s domestic portfolio of properties was less substantial, but remained positive to end the year.

Sands’ quarterly net revenue increased 11.7 percent from the prior year to $3.4 billion. While the company’s domestic properties performed positively and held their own during the fourth quarter, it was the company’s operations in Macao that particularly impressed. Company operations in China reported a 12.9 percent increase in revenues during the fourth quarter compared to the fourth quarter of 2016, driven primarily by results at Sands Cotai and The Venetian Macao. Sands’ Las Vegas operating properties also experienced increases in net revenue, up 2.4 percent from $412 million in 2016 to $422 million in 2017.

Sands’ year-end results were bolstered by outstanding performance of the company’s overseas properties in China and Singapore, which continue to account for the majority of the company’s net revenue. In 2017, profitability at Sands’ latest addition, The Parisian Macao, increased to $1.4 billion in its first full year of operations after opening in August 2016. Meanwhile, Marina Bay Sands in Singapore reported $3.2 billion in net revenue (+12.7 percent). For comparison, Sands’ Las Vegas properties posted combined net revenues of $1.6 billion (+5.3 percent) and Sands Bethlehem’s annual net revenue grew 1.4 percent to $579 million.

Sands’ overall adjusted property EBITDA reached $1.3 billion in the fourth quarter (38.9 percent margin), increasing 19.7 percent compared to the same quarter of the prior year. Sands’ domestic profitability increased 6.5 percent from $139 billion to $148 million (24.2 percent margin) primarily due to the continued performance of the company’s properties in Las Vegas, where EBITDA grew by 2.7 percent to $114 million. Sands’ company-wide annual adjusted total property EBITDA in 2017 was $4.9 billion (38.0 percent margin), up from $4.1 billion (36.8 percent margin) in 2016.

Wynn Earnings Rise at End of 2017

Wynn Resorts (WYNN) reported net revenues of $1.7 billion in the final quarter of 2017. These revenues represent an increase of 29.9 percent from the previous year, and were influenced primarily by revenue gains of $274.7 million from Wynn Palace in Macau and $120.2 million from Wynn Macau.

The company’s Macau properties reported fourth quarter net revenue of $1.3 billion, up from the $917.1 reported in the fourth quarter of 2016. Quarterly net revenue for Las Vegas operations finished down 1.6 percent to $377.0 million.

Net revenue for Macau and the company also capped off 2017 with a strong performance when compared to the previous year. Wynn company-wide net revenue came in at $6.3 billion, an increase of 41.2 percent, or $1.84 billion, from the same period of 2016. Macau operations accounted for the majority of the company’s annual revenue creation.

In the fourth quarter, Wynn’s adjusted property EBITDA was tallied at $480.2 million (28.4 percent margin), an increase of 40.9 percent, or $139.3 million from the same quarter of the previous year. EBITDA for Wynn’s Macau operations totaled $376.1 million, while EBITDA for Wynn’s Las Vegas operations fell to $104.1 million in the fourth quarter.

Wynn’s company-wide EBITDA increased a substantial 43.8 percent from $1.3 billion to $1.8 billion, a performance attributable to successes at overseas properties Wynn Palace and Wynn Macau. Wynn’s domestic operations reported a year-end 2017 EBITDA of $522.4 million, rising 10.0 percent from 2016.

Brian Gordon is a principal with the Nevada-based advisory services firm, Applied Analysis. Gordon has extensive gaming and leisure experience from an accounting, finance and operational perspective.