Gambling Stock Roundup: Penn National & Caesars Entertainment Work Toward Recovery, Macau Still a Concern

Share prices of most casino operators are going downhill as Macau and Las Vegas continue to disappoint. Gambling revenues in Nevada declined 3.7% for the month of August, while Macau is likely to see the fourth consecutive month of revenue decline in September.

Not surprisingly, the companies operating in the regions are busy coping up and doing their best to overcome the situation. While Penn National Gaming Inc. (PENN) is gearing up for the opening of Plainridge Park Casino next year, Caesars Entertainment Corp. (CZR) is leaving no stone unturned to re-organize its capital structure and get rid of its debt. Meanwhile, Wynn Resorts Ltd. (WYNN) and MGM Resorts International (MGM) both sued individuals/firms that damaged their reputation (Read last to last week’s development: Gambling Stock Round Up for Sep 22, 2014)

Recap of the Week’s Important Stories:

1. According to the Nevada Gaming Commission, gaming revenues in Nevada declined 3.7% to $920.2 million for the month of August. This was the first decline following three consecutive months of growth, 0.7%, 14.4% and 8.1% in the months of July, June and May, respectively. We believe the decline was due to the end of the summer tournament season in Las Vegas. (Read: Nevada Revenues Fall in August After 3 Months of Growth)

2. Macau, the only place in China where gambling is legal, is bearing the brunt of UnionPay restrictions, which were imposed as a part of the government’s crackdown on corruption. This includes restrictions on VIP gamblers to stop billions of dollars from being siphoned off illegally from mainland China to Macau. This has primarily affected footfall in the casinos. As a result, some gamblers are moving to Philippines and Vietnam to try their fortunes. Per media reports, though mass markets are offsetting the impact to some extent, 2014 could be the worst year for Macau.

The region has posted a decline in gross gaming revenues for the past three months and the trend is expected to continue in September. There is a faint ray of hope with the Chinese week-long national holiday beginning this Wednesday, Oct 1. A few analysts expect the region to record a slight improvement during this phase. However, a few others believe that vacationers traveling at this time would be more interested in family oriented activities and may avoid gambling altogether.

3. Penn National Gaming is working toward the opening of the Plainridge Park Casino scheduled to open in June next year. The company also announced the opening of the Plainridge Park Casino Career Center for the casino to be opened in Plainville, MA. The company is accepting applications for 500 permanent jobs the casino scheduled to be open in June next year. The construction of the casino is more than 50% complete and the company has already employed 400 construction workers and plans to employ 600 more for the same purpose.

The company began the construction of the casino in Mar 2014 after receiving aGaming License from the Massachusetts Gaming Commission in February. Post construction, the casino would feature a fully integrated 106,000 square foot racing and gaming facility including live harness racing and simulcasting with 1,250 slot machines, a dining restaurant, a sports bar, a food court, a banquet room, 620 structured and surface parking spaces and many other such amenities.

4. Wynn Resorts has reportedly filed a lawsuit in the federal court in San Francisco against hedge fund short-seller Jim Chanos for falsely charging the casino operator of violating a U.S. anti-bribery law. The company indicated that in Apr 2014, Chanos misguided several people stating that the company has violated the federal Foreign Corrupt Practices Act in an “invitation-only” event in Berkeley, CA.

In one other such development, MGM Resorts filed a trademark lawsuit in the U.S. District Court in Las Vegas against Lutz and Gomez, co-owners of M'Life Wellness LLC and M'Life Nevada LLC, for intending to open a marijuana dispensary under the trademark M'Life. The company has claimed that M'Life Wellness and related businesses have chosen a name that is very close to its M life customer loyalty program. The company launched its M life customer loyalty program in 2010 and has spent millions of dollars to promote it.

5. Caesars Entertainment announced in a SEC filing that it has granted the most senior lenders of its largest unit, Caesars Entertainment Operating Company (:CEOC), a right to receive first claim to potential payments. Consequently, these lenders will get the first right to possible proceeds from lawsuits brought against the company, including for claims it fraudulently moved assets away from investors. The company was reportedly sued by note holders in August who said billions of dollars of assets were fraudulently transferred out of CEOC to keep the properties out of the reach of creditors.

These senior creditors include holders of bank loans and Caesars’ $2.1 billion of 11.25% first-lien notes due 2017, $1.25 billion of 8.5% first-lien securities and $3 billion of 9% first-lien bonds that mature in 2020.

Over the last few weeks, this debt-ridden company is reportedly in serious talks with its creditors to restructure a portion of its $24.2 billion long-term debt. It is working constructively with creditors to deleverage its most indebted unit and is planning a reorganization that would create a sustainable capital structure.

Caesars has not been able to post profits for a very long time, failing to recover from its debt load since the recession. The company also made attempts to get rid of its debts earlier as well.

Performance

Share prices of most of the stocks declined last week. Notably, Caesars Entertainment and Caesars Acquisition Company (CACQ) were the two biggest losers over the last one week as well as over the last 6 months period. In the last five trading sessions, Caesars Entertainment lost 5.6% followed by Caesars Acquisition that declined 3.8%. Over the last six months, all gambling stocks have declined with Caesars Entertainment and Caesars Acquisition declining 35.6% and 32.9%, respectively.

Company	Last Week	Last 6 months
WYNN	-0.4%	-12.7%
LVS	-0.6%	-18.1%
MGM	-2.3%	-7.4%
MPEL	-2.1%	-25.8%
CACQ	-3.8%	-32.9%
BYD	-2.3%	-17.3%
CZR	-5.6%	-35.6%

What’s Next in the Gambling World?

Full House Resorts Inc. (FLL), Pinnacle Entertainment Inc. (PNK), MGM Resorts and Las Vegas Sands Corp. are set to participate in the 2014 Gaming Investment Forum and The Global Gaming Expo Conference scheduled from Sep 29 to Oct 2, 2014 in Las Vegas, NV.

We note that gambling stocks have oscillated between gains and losses in recent sessions and investors can expect such movement in the coming days as well.

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