Inside Gaming

by , Aug 15, 2012 | 12:00 pm

Within a span of 16 hours last week, the two casino companies that operate half of all the Strip’s resorts told the investment community they had lost a combined $387.2 million during the second quarter.

Don’t expect to see that statement in the next “Come to Las Vegas” advertising blitz.

In reality, the quarterly net losses reported by Caesars Entertainment Corp. ($241.7 million) and MGM Resorts International ($145.5 million) did not entirely hinge on results from the Strip.

Caesars owns hotel-casinos in several regions of the U.S., including Atlantic City, where second quarter revenues faltered. As for MGM Resorts, results declined in Detroit and Mississippi while the company took a noncash impairment charge on its jointly-owned Illinois riverboat.

But to the investment community, the companies’ outlooks are entwined with the Strip’s fortunes.

Credit Suisse gaming analyst Joel Simkins said following MGM Resorts’ earnings release Tuesday that Las Vegas visitation had recovered since the gaming industry’s economic downturn. However, until U.S. gross domestic product trends accelerate, any significant Strip rebound is unlikely.

“We remain on the sidelines as MGM remains dependent on an improvement in Las Vegas trends,” Simkins said.

Caesars is a bit more complicated.

The company’s financial fortunes are tied not only to a Las Vegas recovery, but to stabile gaming trends in regional markets, planned casino developments in Ohio and Baltimore, and opening the $550 million Project Linq on the Strip in 2013. As the owner of the lucrative World Series of Poker, Caesars would benefit far beyond any other gaming company if federal legalization of Internet poker becomes a reality.

“While we don’t want to downplay the importance of current and near-term results, we believe investors will mainly focus on the company’s ability to execute on its playbook,” Simkins said.

Stockholders had far different reactions toward each company’s quarterly results.

MGM Resorts shares recorded their largest single-day price increase in nine months after announcing the quarterly net loss.

Caesars Entertainment’s price per share continued to languish roughly $1 below the company’s February initial public offering price of $9.

So where are the casino behemoths headed?

Combined, the companies have a staggering $33.3 billion in long-term debt; Caesars is at $19.9 billion, while MGM Resorts has $13.4 billion.

But they are also the corporate parents for some of the Strip’s best-known hotel-casinos.

Caesars Entertainment and MGM Resorts each own 10 Strip resorts. MGM’s properties have a combined 40,739 rooms; Caesars’ hotels house 23,140 rooms.

Caesars’ collection includes Caesars Palace, Harrah’s Las Vegas, Bally’s, Planet Hollywood and the Rio.

Bellagio, MGM Grand, The Mirage, Mandalay Bay and CityCenter’s Aria fly under the MGM Resorts flag.

However, more of MGM Resorts financial performance is tied to Las Vegas, due partly to the average revenues produced by each of the company’s hotel rooms in a single quarter, including room rates and customer spending. “RevPar,” as its known, is a nontraditional accounting measure analysts use to gauge profitability.

“The quarterly results support our bullish stance on the nongaming recovery in Las Vegas,” Macquarie Securities gaming analyst Chad Beynon told investors.

He said MGM Resorts was better positioned than Caesars to drive hotel room rates across various classes of properties – from Bellagio to Circus Circus – and to grow nongaming revenues.

“We continue to favor MGM over the more Asia-focused (Las Vegas Sands, Wynn Resorts) operators,” he said.

Beynon also follows Caesars, where legalization of online poker in the U.S. could breed success. Atlantic City, where the company’s revenues at its four casinos fell almost 9 percent in the quarter, will continue to be a drag unless a new opportunity emerges.

“The tough regional gaming environment reaffirms our belief that without federal online gaming legislation, the Caesars investment story remains challenged,” Beynon said.

MGM Resorts has one extra arrow in its quiver – a profitable resort in Macau.

During the second quarter, 30 percent of company’s quarterly revenues came from its controlling stake in the MGM Grand Macau.

After Las Vegas Sands and Wynn Resorts, which each have multiple Macau resorts, issued discouraging second-quarter reports loaded with concerns about the Chinese economy and increased competition, MGM Resorts gave Wall Street some good news with a 6 percent increase in revenues from its lone Macau property.

“MGM’s relative underexposure to Macau has become a focal point for bearish investors in recent quarters,” Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski told investors. “We get the sense that management has the property firing on all cylinders, generating results well ahead of its fair share representation.”

So in this tale of two casino giants, the edge seems to favor MGM Resorts.

Howard Stutz’s Inside Gaming column appears Sundays. He can be reached at or 702-477-3871. He blogs at Follow @howardstutz on Twitter.

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