Direct costs relate to the specific product or output from which the company generates its revenues. Melco Crown Entertainment’s (MPEL) direct costs mainly comprise the following four cost components:
- food and beverages
- entertainment, retail, and other
More than 95% of Melco Crown Entertainment’s direct costs relate to casino operations. Companies like Wynn Resorts (WYNN), MGM Resorts (MGM), and Caesars Entertainment (CZR) incur ~80, ~66%, and ~76%, respectively, of their direct costs in casino operations.
Most of these expenses in the casino category of MPEL relate to gaming taxes, since MPEL is subject to Macau taxes based on gross gaming revenue. MPEL’s gaming taxes totaled $2,480 million, $2,025 million, and $1,949 million for the years ended December 31, 2013, 2012, and 2011, respectively. Accounting for ~50% of casino expenses, gaming taxes amounted to $1,228 million for the six months ending June 30, 2014.
ETFs such as the Markets Vector Gaming ETF (or BJK) and the Consumer Discretionary Select Sector SPDR Fund (XLY) help investors gain exposure to these casino companies.
MPEL’s room expenses comprise ~1% of its total direct costs, mainly representing the costs in operating its hotel facilities at Altira Macau and City of Dreams. These high-level complimentary hotel rooms are offered to gaming customers, and these costs are included in casino expenses.
Indirect operating costs
Other indirect operating costs primarily consist of payroll expenses, share-based compensation, marketing and advertising expenses, and professional fees that support continuing and expanding operations. These expenses are classified under general and administrative expenses.