In the blog "Stiffs & Georges" it talked about market caps for Wynn and MGM. What does this mean and what does it mean by saying Wynn could turn the tables on Kirk Kerkorian?
"Market cap" is short for market capitalization, denoting an equation whereby a company’s size is measured using the following formula: share price X number of shares issued = net worth. In other words, you multiply the price of one share by the total number of shares outstanding. As Investopedia put its, "If a company has 35 million shares outstanding, each with a market value of $100, the company's market capitalization is $3.5 billion (35,000,000 x $100 per share)."
Once the market cap has been determined, companies can be ranked as large-cap, mid-cap, or small-cap. There’s some disagreement as to the dividing line between small- and mid-caps: Is it $1 billion or $2 billion? But once you hit the magic $10 billion mark, you’re unquestionably a large-cap company.
Wynn Resorts has that distinction, with a market cap of $11.8 billion –- pretty impressive for a company with only two casinos, one in Las Vegas and the other in Macao.
By comparison, MGM Mirage, which bought out Wynn’s Mirage Resorts in 2000, has a market cap of roughly $9.7 billion, despite having dozens of casinos, 11 on the Strip alone.
Because Wynn’s market cap now exceeds MGM Mirage‘s, it gives CEO Steve Wynn the theoretically stronger hand when he needs to borrow money. Which also means that while MGM majority owner Kirk Kerkorian was able to take over Mirage Resorts at a time when MGM’s stock was robust and Mirage’s was weak, now it’s Wynn who’s on firmer footing (relatively speaking; we’re talking about two of the healthiest companies in the gaming industry here).
Not that Wynn is likely to flex his economic muscle by repurchasing his old Mirage properties. Unlike Kerkorian, who tends to buy and sell the same assets over and over, Wynn is a turn-the-page-and-move-on sort of CEO. He even dissed MGM’s Mirage-enhanced portfolio recently in USA Today.
As for other companies, Boyd Gaming hovers around small-cap status at $1.25 billion. This could make it a takeover target, as is happening to Ameristar Casinos ($786 million). Other small-caps include Pinnacle Entertainment ($731 million), while the Riviera’s $115 million puts it just above the dreaded "micro-cap" status. Penn National, however, which almost pulled off a takeover of Harrah’s Entertainment, is one of the mid-caps, at $2.6 billion.
Ironically, a company’s market cap may often well undershoot the physical value of its assets. Even in the current market, Boyd could probably fetch its $1.25 billion market cap just for its Borgata resort in Atlantic City alone. In addition, the 88 acres beneath Echelon could bring $3 billion or more at recent prices for Strip land.
At just over $7 billion, slot mammoth International Game Technology is firmly ensconced amongst the mid-caps, too. Chief rivals Bally Technologies ($1.8 billion) and WMS Industries ($1.6 billion) are in that gray area between small- and mid-cap bragging rights. Which means that IGT could buy and sell them both several times over –- at least if anti-trust issues weren’t liable to rear their not-so-attractive head, given IGT’s ongoing domination of the slot market.
But who’s the biggest of the big boys? Even though his stock price has been absolutely decimated in the last 12 months, down by as much as 79% at one point, it’s Sheldon Adelson’s Las Vegas Sands. Still, even with a market cap of $17.7 billion –- one of only two large-cap stocks in the gaming group –- Adelson’s been having trouble scaring up capital to realize his über-meta-resort plans in Macao. More proof, if anyone needed any, of how constricted the credit markets are right now. When Sheldon Adelson has difficulty borrowing $7 billion, you know it’s a tight squeeze out there.
