Weighing in ahead of Las Vegas Sands and MGM Mirage conference calls, J.P. Morgan analysts have some early projections. They remain bullish on Marina Bay Sands, although it may now open in late May. (Incredibly, Morgan says this one-month discrepancy is immaterial to cash-flow forecasts.) In Macao, ADRs remain soft — no surprise there — but convention business is expected to double from 2009. If so, heartiest congratulations are in order to Sheldon Adelson‘s management team.
It’s quantifiable: Sands Bethlehem is a dud.
Sands is predicted to beat revenue projections, thanks largely to Macao. The Chinese enclave represents 79% of 4Q09 cash flow. When you consider that Morgan is projecting Marina Bay Sands to surpass those numbers in seven months, in an untested market, S&G skepticism may be forgivable. The one spider at the LVS picnic is Sands Bethlehem, which isn’t even coming close to cash-flow projections (less than $10 million for the quarter). If that Pennsylvania trend doesn’t improve, Adelson is looking at a measly 5% return on investment.
Over at MGM Mirage, CEO Jim Murren can point to MGM Grand Macau‘s 12% ROI in the last quarter as vindication of his decision to bail on Atlantic City in favor of China. (In truth, the former was a lost cause the moment Pansy Ho refused to testify before the New Jersey Casino Control Commission, dumping the whole mess in Murren’s lap as she waltzed off into the sunset.)
Morgan predicts a nearly $40 million shortfall from Wall Street’s cash-flow consensus for tout MGM Mirage ($302 million). However, its analysts enumerate several positive auguries, including …
• Improved Chinese New Year and Consumer Electronics Show attendance.
• Room rates still declining — but more gently than before.
• Strong high-end play, especially from overseas “whales.”
• Re$ort fee$ (’nuff said).
• 90%+ occupancy last month at (unspecified) major MGM Strip hotels.
• “Bellagio‘s results remain strong,” trending upward from last year’s. He may have been gone a decade, but one of the key players in MGM’s continued success is the living ghost of Steve Wynn. If he wants to take credit for that, he’ll get no argument from this corner of the peanut gallery.
Gosh, a “measly” 5% return on investment? I’d say Sheldon is doing just fine in Pennsylvania. 5% in this economy is pretty darn good for most types of businesses especially in Pennsylvania, one end of the rustbelt that extends all the way to Southern California.
For casinos at least, 5% is considered quite poor. Ten percent for Red Rock Resort (in, obviously, a far more competitive market than Pennsylvania) greatly disappointed Wall Street. Fifteen percent ROI is the preferred rate of return (or was back when business was good). Wall Street became heavily invested in casinos because, 15 years back or so, they returned 20%. How times have changed.
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I can understand how Wall Streets’ expectations for casinos are higher than, say, customer staples or other non-leisure businesses but I still think that any analyist who expects any business in Pennsylvania to return much more than 5% these days is a bit of a dreamer. Casinos just are not all that much of a novelty anymore so even if and when, hopefully in my lifetime, the economy comes roaring back I doubt casinos will generate the same returns as in the good old days. In addition, the life cycle for casinos seems to be getting shorter.
Unfortunately for Sands, in this instance it has no one to blame but itself, Sheldon Adelson having predicted a 17% ROI in Bethlehem: https://www.lasvegasadvisor.com/stiffs-and-georges/?p=298