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Macau is booming and Vegas is glooming

9 August 2010

LAS VEGAS, Nevada -- So what did this round of quarterly earnings reports tell us about the gaming industry's health?

Macau is booming and Atlantic City is dying. The Strip has too many hotel rooms but there are slight signs of recovery. CityCenter has issues.

Anything else?

According to Janney Montgomery Scott gaming analyst Brian McGill, the Las Vegas locals market is "showing no signs of turning around."

Strene Agee analyst David Bain agreed. Recovery in the locals market would lag behind other regions until the Strip has a prolonged rebound.

"That could take a while," Bain said.

Which leaves Macau as the industry's bright spot.

Macau gaming revenues surged more than 70 percent in July from a year ago and were up more than 20 percent over June.

The numbers helped Las Vegas Sands Corp., which has three Macau resorts and is restarting construction on a Cotai Strip project that has been stalled for 21 months.

Wynn Resorts Ltd. opened its second Macau casino in April, saw revenues jump 74 percent in the second quarter and moved ahead with a planned Cotai Strip resort.

Both companies raised billions through initial public offerings on the Hong Kong Stock Exchange last fall.

Those facts have left MGM Resorts International Chairman and Chief Executive Officer Jim Murren envious.

The company owns 50 percent of the MGM Grand Macau and is completing its own Hong Kong market IPO, which will take place in the fall and raise up to $500 million. MGM and its Macau joint venture partner control a site on Cotai, but Murren won't discuss plans.

"We have always stated our goal is to have more than one property in Macau," Murren said.

MGM Grand Macau turned profitable in the second quarter, reporting operating income of $40 million, which reversed an $8 million operating loss from a year ago.

But even with its Macau presence rising, the assets aren't enough to carry the company forward. MGM Resorts is Las Vegas-centric.

Las Vegas Sands and Wynn each have two Strip resorts. MGM has 10, including CityCenter's Aria, which might have been cash-flow positive in the quarter if it wasn't for a low hold percentage in the casino.

As Las Vegas goes, so goes MGM Resorts.

Most analysts are cautious toward the Strip, which will add 2,000 hotel rooms in December when the Cosmopolitan of Las Vegas opens.

"We continue to be concerned by the excess supply in the Las Vegas market," said Deutsche Bank gaming Andrew Zarnett.