Courtesy of reader and 12631 member “Rosenrush,” here is an excellent comment to my earlier post on the weakness we seen in both Macau and Las Vegas-related casinos:
Rosenrush
You can look to several reasons for the potential weakness in casinos…the primary catalyst right now is the crackdown on illegal funds flowing through Macau casinos. This is why you are seeing such pronounced weakness in names associated with Macau. There are estimates that up to 60% of the money wagered there is connected to the triads or other illegal means. By eliminating that stream, performance will suffer. Also note that there have been hints that they are going to get tougher in Vegas as well, which will also hurt.
Next, you have new competition coming to Vegas, although most isn’t in the immediate future…SLS just opened and is sure to take some of the young money, specifically from the nighlife, which has proven to be very profitable for WYNN (XS, Surrender) and LVS (Lavo, TAO). Resorts Worldwide opening in a few years is going to take a huge chunk of the asian high limit market away from everybody, although I’m not sure anybody is specifically worried about it just yet.
Next, you have some companies building ferris wheels as their saving grace, which is clearly not working. CZR is a short from now until bankruptcy. Any shot higher is a chance to short more.
For those interested, I would add that any bump in the Macau road is likely to be short-lived, so I’m more hesitant about shorting WYNN, LVS, and MGM for very long.
Specific to MGM, it is also worth noting that with the closing of 3 AC casinos (Trump Plaza, Revel, Showboat), the Borgata is going to gain it’s fair share (or more) and will likely contribute more than expected to MGM. Also note that they have a lot of new growth coming in the next couple of years, with casinos in Boston and DC likely to do very well.
Final note on CZR, the fact that they are bragging about doing 50 capital markets transactions in recent history should tell you how desperate they are to keep the company floating. They’ve done an amazing job, but eventually the music stops and there aren’t enough chairs. It’s worth noting that because of the heavy leverage, any good news can cause a quick pop…but as I said earlier, unless that news is some massive fundamental shift, all pops are opportunities to reload short positions.