VanEck Vectors Gaming ETF

The Macao region relies heavily on the Chinese mainland, as it garners the huge majority (about 67%) of its visitors and VIP gamers from China and its neighboring countries.

Wynn Resorts’ (WYNN) share price plummeted 6.1% immediately after its 4Q14 results. However, the share price should gain momentum once new resorts are open.

Melco Crown Entertainment’s mass market table games segment is still the major driver in Macau. In 2014, Macau’s visitation increased by 7.5% YoY.

On February 25, 2014, MPEL’s board declared a special dividend of $0.1147 per share. The dividends were paid to shareholders on April 16, 2014.

Rolling chip volume refers to the amount of non-negotiable chips wagered and lost by the rolling chip market segment. It’s largely represented by VIP players.

For the full year ending December 31, 2014, Melco Crown Entertainment reported net revenue of $4.8 billion—down 5.9% YoY.

Established in 2004, Melco Crown Entertainment (MPEL) owns, develops, and operates casino gaming and entertainment resort facilities. It’s focused on Asia.

On the Las Vegas Strip, the total casino revenue fell 16.4% to $555 million in December 2014. Baccarat gambling accounted for the largest share of the decline.

Las Vegas’ lodging market occupancy level remained well above the US historical norm. The average occupancy at the Las Vegas Strip was ~78.4% in December 2014.

Today, a number of US-based casino companies have operations in foreign markets—like Macau. Also, they’re developing new properties in Macau.

WYNN’s hotel occupancy increased at Macau and Las Vegas in 4Q14. Macau had 98.6% and Las Vegas had 82.1% compared to 96.7% and 80.8%, respectively, in 4Q13.

WYNN’s adjusted property EBITDA fell a whopping 29.3% year-over-year to $352 million, the biggest year-over-year fall since the second quarter of 2009.

WYNN’s VIP table games drop in 4Q14 was $20.7 billion, 39.9% lower than 4Q13. Drop is cash and net markers issued and deposited in a gaming table drop box.

Wynn Resorts (WYNN) operates Wynn Macau and Wynn Las Vegas, with casino hotel resorts in Macau, China, and Las Vegas, Nevada.

Las Vegas Sands’ adjusted property EBITDA at Marina Bay Sands in Singapore doubled, reaching a property record of $518.5 million, up ~100% year-over-year.

Las Vegas Sands (LVS) has a huge potential for future growth in Japan, which could be as big as Macao. It also may expand to South Korea and Vietnam.

Las Vegas Sands’ (LVS) share price plunged immediately after its 4Q14 earnings announcement last week, but it gained 3.1% as of February 3.

Three Wall Street analysts have rated Las Vegas Sands (LVS) stock neutral or hold, and eight have assigned the stock a buy or overweight rating.

Las Vegas Sands has a greater forward dividend yield than the S&P 500’s (SPY). As of January 27, LVS’s 2015 forward dividend yield was 4.6%. SPY’s was 2.1%.

Sands China Ltd. (or SCL), a subsidiary of LVS, dominates the hotel market in Macao with 9,277 hotel rooms, or 38% of Macao’s four- and five-star hotels.

Las Vegas Sands will burn huge cash in 2015 to fund development of The Parisian Macao in 2015 and 2016 and the St. Regis property at Sands Cotai Central.

Las Vegas Sands’ revenues for 4Q14 were $3,416 million, down 6.6% year-over-year, mainly due to a 15.9% year-over-year decrease in the Macao operations.

An overview of Las Vegas Sands (LVS) shows that the company currently owns 70.1% of Sands China Ltd., which operates LVS’s four Macao properties.

On a year-over-year basis, real disposable income increased 2.9%. More disposable income boosts consumer buying power.

Macau’s annual inflation rate was recorded at 6.05% in December 2014. Macau’s inflation rate was 5.59% for December 2014.

China’s disposable income per capita remained almost flat at 6,800 Chinese yen on a YoY basis for the three months ending in December 2014.

In 2006, Macau overtook the Las Vegas Strip as the world’s largest gaming market.

Members of management owning shares of their company shows confidence in the firm’s direction and outlook.

Price performance Let’s explore the five-year share price performance of Melco Crown Entertainment (MPEL) relative to its peers, as well as the broader market that includes SPDR S&P 500 ETF (SPY). Share prices of gambling stocks collapsed heavily over the last three to six months. This drop largely resulted from the Chinese government’s crackdown on corrupt officials, which negatively […]

Melco Crown Entertainment’s City of Dreams fifth tower is in progress and is anticipated to open in the first half of 2017.

Net income attributable to Melco Crown Entertainment for 3Q14 was $132.2 million, as compared to net income of $179.4 million in 3Q13.

Gaming promoters generate most of Melco Crown Entertainment’s rolling chip play amounts, contributing a major portion of MPEL’s casino revenue.

Melco Crown’s increased capex primarily resulted from the development of Studio City and various City of Dreams projects, including the fifth hotel tower.

MPEL derives ~94% of revenues from casino operations. Its casino business gross margin is 50% for the trailing 12-month period ending September 30, 2014.

Melco Crown Entertainment has two casino-based operations—City of Dreams and Altira Macau—and noncasino-based operations at its Mocha Clubs.

Scientific Games shares fell by ~15% in the three days following the merger. That’s typical when a company acquires another company for a premium.

The executive management team of SGMS includes President and CEO Gavin Isaacs and Executive Vice President and CFO Scott Schweinfurth.

Bally provided internal financial projections estimating its unlevered free cash flow to help Macquarie Capital assess its discounted cash flow.

Macquarie Capital’s opinion was provided to Bally’s board of directors in connection with its financial evaluation of the merger consideration.

Merger evaluation The Bally Technologies, or Bally, board of directors closely evaluated the proposed merger with Scientific Games (SGMS) and the transactions contemplated by the merger agreement. The board considered a range of factors before approving the merger agreement and recommending that Bally’s stockholders vote to approve it. Merger consideration The $83.30 per share offered to holders of Bally’s common stock […]

Scientific Games, WMS Industries, and Bally each have unique portfolios with a wide variety of player preferences that could help drive revenues.

Scientific Games expects to achieve ~$220 million in cost synergies and $25 million in capital expenditure savings by consolidating operations.

Scientific Games agreed to buy WMS Industries for $1.5 billion, emerging as a global supplier of lottery equipment and slot machines to casinos.

New York City-based Scientific Games offers customers a fully integrated portfolio of technology, platforms, content, and services.

In 1975, slot manufacturer Bally Technologies became the first gaming company to be publicly traded on the New York Stock Exchange.

In its merger agreement with Bally Technologies, Scientific Games agreed to acquire all outstanding Bally common stock for $83.3 cash per share.

The initial term of each lease will be for 15 years with four five-year renewals. CZR will guarantee payments and performance of the OpCo’s obligations.

These creditors of CEOC could recover their investment through a combination of cash and new debt issuances of the restructured entity.

On December 22, 2014, CZR and Caesars Acquisition Company (CACQ) entered into a definitive agreement to merge in an all-stock transaction.

The increase in US public debt threatens the nation’s economic growth. The country would have to increase taxes. This would decrease personal disposable income.

An increase in disposable income boosts consumers’ buying power. It increases the probability that consumers will spend on leisure activities.

In the US, consumer sentiment is tracked by the Consumer Sentiment Index, or CSI. The final reading on the overall CSI was 88.80 in November 2014.

New Jersey allows gambling on casino games and poker. Currently, it dominates the market. It has ~90% of total US online gaming revenue.

Baccarat gambling is a high-stake table game. It’s more popular in the Asian markets than in the US. VIP Baccarat represents nearly two-thirds of the gaming revenue in Macau.

US casino operators are considering REIT spin-offs to achieve higher valuations. Real estate is a main income source. REITs distribute at least 90% of their taxable earnings to shareholders.

Casino operators may want to add more non-gaming amenities in 2015. This will strengthen customer spending after a year of slow casino revenues.

According to Macau’s Statistics and Census Service, or DSEC, visitors increased by 11% year-over-year, or YoY, to 2,654,180 in October 2014.

Macau’s gaming forward EV/ EBITDA multiple has been declining since January 2014. Analysts started to reduce the EBITDA estimates due to key issues in Macau.

Macau’s gaming slowdown may continue into 2015. It’s due to a lack of new resorts. Macau’s casino gambling revenue is expected to keep declining until mid-2015.

Casino gambling is spread across major destinations around the world. Casinos, at major destinations, are being influenced by certain factors. This is hampering industry growth.

Anthony Sanfilippo is the chief executive officer of Pinnacle Entertainment (PNK). He has more than 30 years of gaming entertainment experience.

Pinnacle Entertainment (PNK) has approximately 59.2 million outstanding shares, with free float of 57 million shares. Institutional investors hold around 122% of the float.

The short-interest ratio for Pinnacle Entertainment (PNK) dropped from 13 days as of October 31, 2014, to five days as of November 14, 2014.

Capital employment Casino companies fund their acquisitions with a significant amount of debt capital. ROIC (return on invested capital) is an important metric that shows how effectively a company makes use of its capital. To calculate ROIC, divide EBIT (earnings before interest and tax) by the employed capital. A higher ratio denotes that more profit […]

Pinnacle Entertainment (PNK) has a massive debt-to-equity ratio of 15.4. This indicates that PNK is very aggressive in financing its operations with debt.

The current ratio for Pinnacle Entertainment (PNK) had declined severely to 0.7 as of September 30, 2014, from 2.9 as of December 31, 2012.

Wall Street analysts expect Pinnacle Entertainment’s adjusted net profit for 2015E to be about $92 million with a growth rate of 34.9%.

Revenues for Pinnacle Entertainment (PNK) are mostly cash-based. Customers wager with cash or pay for non-gaming services with cash or credit cards.

Pinnacle Entertainment’s compounded annual growth rate of adjusted property EBITDA over a three-year period ending on December 31, 2013, stood at 20.2%.

Pinnacle Entertainment (PNK) incurs direct costs in gaming, food and beverage, lodging, retail, entertainment, and other areas.

Pinnacle Entertainment’s gaming revenues represented 89% of total revenues generated by the company for the trailing twelve months ending September 30, 2014.

Pinnacle Entertainment (PNK) recently completed the acquisition of Ameristar Casinos for a total consideration of $2.8 billion. This transaction added eight properties to PNK’s portfolio.

Pinnacle Entertainment owns and operates a poker tour as well as various gaming entertainment properties. The company also manages a racetrack.

As of November 28, 2014, Pinnacle Entertainment’s one year forward EV/EBITDA stood at 9.2x compared to its peer group average of 7.6x.

During 3Q14, Pinnacle Entertainment (PNK) repaid ~$116 million of total debt from its cash flow from operations. It accomplished this with the help of efficient cash flow and working capital management as well as reductions in its growth capital commitments.

Pinnacle Entertainment reported financial results for the third quarter ended September 30, 2014. The company had net revenues of $568.3 million, up 35.7% year-over-year.

Wynn Resorts (WYNN) has entered into floating-for-fixed interest rate swap arrangements in order to manage interest rate risks related to certain of its debt facilities.

During the years ended December 31, 2013, 2012, 2011, 2010, and 2009, Wynn Resorts paid cash dividends totaling $7.00, $9.50, $6.50, $8.50, and $4.00 per share, respectively.

Wynn Resorts was exempted from Macau’s 12% complementary tax on casino gaming profits taxes for the years ended December 31, 2013, 2012, and 2011. For 2014 year-to-date, Wynn Resorts was exempted from the payment of such taxes totaling $80.4 million.

Wynn Resorts (WYNN) earns its revenues through casinos, hotels, food and beverages, and entertainment and retail operations.

Wynn Resorts derives 71% of its revenues from Asia, while casino companies like Las Vegas Sands (LVS) and MGM Resorts International (MGM) derive 80% and 34% of their revenues, respectively, from Asia.

REITs generate income by collecting rent and pay out at least 90% of taxable income in the form of dividends to shareholders. By converting CEOC into a REIT, the beneficial holders of CEOC’s senior secured credit facilities would receive a 100% recovery in cash and debt.

The market reaction may have been caused by what CZR’s share price could be based on its standalone capacity, after it becomes detached from its highly leveraged unit, CEOC. Offloading the unit could serve as a boon to CZR’s profits after interest expenses, and possibly boost its earnings per share.

CZR’s estimated total capital spending for 2014 is expected to be between $990.0 million and $1,105.0 million. Future capital spending will be primarily related to renovations for The LINQ Hotel.

Caesars Entertainment Corporation (CZR) derives ~36% of its revenues from non-gaming operations including hotel, food and beverage, entertainment, and other non-gaming amenities.

Food and beverage revenues decreased by 3.9% quarter-over-quarter to $396 million. The revenues increased by ~9% YoY for the three months ending September 30, 2014.

Casino revenues contribute ~58% to MGM’s total revenues. Main floor, or mass-market table games, recently dominated at major casino resorts.

Net revenues for 3Q14 increased by 0.9% on a year-over-year (or YoY) basis. On a YoY basis, quarterly revenues were driven by mass market growth.

The management of a publicly traded company is responsible for creating shareholder value. Strong management is the backbone of any successful company.

Currently, New Jersey dominates the online gaming market. About 90% of the total U.S. online gaming revenue is derived from the state. Nationally, poker represents about one-third of the total online gaming winnings.

The casinos in the Las Vegas Strip clearly benefit from high-end Baccarat play. Over the last four years, Baccarat revenue ranged from 43.5% of table games revenue in 2011 to 48.2% in 2013.

Xi Jinping—the Chinese President and General Secretary of the Communist Party—recently launched an unprecedented anti-corruption campaign. This campaign investigated and prosecuted hundreds of officials across the nation.

Texas Pacific Group and Apollo Management took Harrah’s Entertainment, now Caesars Entertainment, private in a leveraged buyout deal valued at $30.7 billion in 2008.

Recently, Caesars Entertainment (CZR) closed down its profitable Atlantic City casino Showboat, which had operated for 27 years.

Caesars Entertainment’s first trade day was one of the best initial public offering performances in the history of the U.S. stock market.

Casinos’ popularity is growing. This suggests that people like to gamble occasionally. Unfortunately, they don’t always win. For most of the people, the real fun is playing the game—not necessarily winning.

The development of gaming entertainment can create tens of thousands of jobs. It can generate substantial amounts of tax revenue. Gaming can attract massive amounts of foreign investment. It can also create tourist destinations. The market is expected to grow in the future.

Casino tourism revenues can provide major benefits for cities and entire countries. As a result, governments want to encourage and attract casinos. The potential for tax revenues is one of the main drivers behind the growth in the casino industry. National and state governments worldwide are more willing to legalize and license online gaming operators.