• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

The Las Vegas locals market is not like the other regional markets. As we showed in our 11/26/08 post, “A POSITIVE CATALYST? THAT WOULD BE A GAS!”, the macro factors driving gaming revenues in the regional (riverboat) markets have been housing prices, gas prices, and unemployment levels. In Las Vegas, housing is the only macro variable that matters.

On the surface, this looks pretty bad for Boyd Gaming and Station Casinos, both of which have significant exposure to the LV locals market. The sharp decline in gas prices probably won’t help this troubled market. Changes in gas prices have had an immaterial impact on gaming revenues historically. The reason is probably that since Nevada is an unlimited license jurisdiction, unlike other markets, most Las Vegas residents are probably only a die’s throw away from a casino.

Of course, the more obvious piece of the bad news puzzle is housing. The LV housing index has fallen on a year over year basis since February 2007, and the YoY change is down sequentially for a whopping 48 consecutive months. The good news is that Las Vegas housing prices began declining much earlier than the average US market and there are some signs of stabilization. Prices barely fell in October vs. September. Prices have been down so much (30%+) and for so long that gaming revenues probably already reflect the housing impact. Analysts’ projections probably do as well.

The positive for Boyd is that expectations for the LV locals market are very low. Moreover, it’s main competitor in the market is Station Casinos, a private company near bankruptcy. Whether Station goes into bankruptcy or not, Boyd has a huge competitive advantage because of its liquidity. See our recent post, “HOW TO STEAL MARKET SHARE”. Station doesn’t have the cash to upgrade the slot floor or be competitive on the marketing/promotional front. Boyd does.


Locals LV revs track housing prices very closely