Motley Fool
0
All posts from Motley Fool
Motley Fool in Motley Fool,

How Worried Should Wynn and Las Vegas Sands Be About This New Casino?

There's a new casino opening on the Las Vegas Strip that could pose a real threat to the city's established players. Image source: Lucky Dragon.

Have Las Vegas casino operators missed a big opportunity? We know that Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN) made the most of China's decision to legalize gambling in Macau, building and operating multiple resorts there so that the tiny enclave now accounts for the majority of their revenues. Even MGM Resorts (NYSE: MGM), with a much smaller presence, still generates a sizable portion of its revenues from there.

According to their latest earnings reports, Sands derived 57% of its third-quarter revenue from Macau, Wynn got 62%, and MGM generated 20% of net revenue from the gambling oasis. But they may be missing a chance back home to leverage their investments.

Putting their cards on the table

Baccarat is the preferred game of Chinese VIP gamblers. As played in Macau (and in most other casinos around the world), the card game is purely one of chance trying to get the cards to add up to nine points. To entice the high rollers to their casinos, resort operators offer them special VIP rooms where they're able to play high-stakes rounds of baccarat. Although a corruption crackdown and a directive to appeal to a more mass-market audience has diverted their attention in recent periods, their reliance on VIP gamblers from the mainland remains in full view.

The casinos also sought to lure the high rollers to their Vegas properties using baccarat. According to data from the University of Nevada's Center for Gaming Research in Las Vegas, where blackjack (21) was once the premier Vegas table game, baccarat has since supplanted it.

Baccarat table. Image source: Caesars Entertainment.

In 1985, blackjack represented 77% of all casino games and over half of all table game revenues, but in the years since then, its prominence shrank to just 51% of casino games and just 27% of table win. In contrast, baccarat has soared in both popularity and importance, outearning blackjack every year since 2009. In 2015, baccarat generated almost $1.3 billion for Las Vegas Strip casinos compared to just $837,000 for blackjack, despite the latter having four times the number of tables in play.

While that pales in comparison to the amount of money dropped in Macau by VIPs, it shows how well casinos understand the importance Chinese gamblers are to their success even here in the U.S. In testimony before Massachusetts gaming commission several years ago, Wynn's president said more than half of its Vegas table game revenue came from Asia.

Image source: Lucky Dragon.

The odds are stacked against them

But a new casino opening its doors next month in Vegas thinks Wynn, Sands, and even MGM have it all wrong. While the major operators are focusing on VIPs, this new operator will be concentrating on middle-class Chinese gamblers.

The Lucky Dragon Hotel & Casino will be opening on the north end of the Strip on Dec. 3 and it's a casino unlike any other in Vegas. More modest than the typical garish resort, the Lucky Dragon will feature a 27,500-square-foot casino and a hotel with 204 total rooms on nine floors (but you won't find a fourth floor or a four in the room numbers as it is considered unlucky). There will also be an octagonal main bar (for good luck), a feng shui-blessed kitchen, and a dragon motif on the front.

More importantly, the casino will cater to middle-class Chinese gamblers who it expects will flood Vegas. "Let them fight over the 1%," the Lucky Dragon COO David Jacoby told the Los Angeles Times, referring to the casino heavyweights going after the high rollers, "and let us fight over the remaining 99%."

Orienting themselves for growth

There's good reason to think there will be a lot more 99%-ers, too. Beginning on Dec. 2, Hainan Airlines will be making the first direct flights from China to Las Vegas' McCarran International Airport, presumably carrying more than a few such gamblers.

Although the Lucky Dragon has the benefit of first-mover status in going after this burgeoning, but otherwise forgotten segment of the market, competition will soon increase. Malaysian Resorts World is building a $4 billion resort with 3,200 hotel rooms while ground was broken on a smaller $2 billion casino called Alon Las Vegas that's owned by Crown Resort. It's part owner of Macau's Melco Crown Entertainment as well as other resorts in Australia that count on Chinese gamblers for sustenance.

It likely won't be long before we see Las Vegas Sands, Wynn Resorts, and MGM Resorts begin offering opportunities in Vegas for Chinese gamblers, but until then, they might feel the hot breath of competition as the Lucky Dragon begins to roar.

10 stocks we like better than Wynn Resorts
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Wynn Resorts wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 7, 2016

 

Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.