Everyone knows that room rates in Vegas have taken a big hit. However, we thought it would be interesting to attempt quantifying the effect of lower ADR rates on EBITDA for the WYNN, MGM, and LVS.

Unlike occupancy, change in ADR is a direct hit to EBITDA. In the table below we illustrate the flow-through to gross profit of a theoretical ADR decline. In addition to direct room expenses, there is also overhead (reservations team, back office, front desk management, utilities, etc) which we believe comprises of about 90% fixed costs. Realistically, casino operators will try to cut costs to offset some of this pain, but a 50% rate cut may render many properties unprofitable.

As a point of reference the average ADR for the Las Vegas properties of WYNN, LVS, and MGM for the last twelve months was $295, $235, and $151 respectively. On Wynn’s pre-announcement conference call (or whatever it was) management spoke about room pricing of $169/$199 post Encore opening. If Wynn is charging under $200 a night at their properties, a 35% YoY decline, this bodes very poorly for LVS and MGM, as WYNN’s property’s typically set the ceiling on pricing.

We estimate that at a blended ADR of just over $210, WYNN’s consolidated EBITDA in Las Vegas will fall to below $200MM from a peak of over $400MM in 2007. For LVS, we believe that a 35% drop in rate will translate into an aggregate Las Vegas EBITDAR of approximately $240MM, down from our $409MM estimate for 2008. For MGM, our best guess is that rates will be off 30% to an ADR of just over $100 night causing Las Vegas EBITDA to plummet to approximately $825MM (pre-condo rentals) for 2009, down from over $2BN in 2007.

Is there a scenario where profitability drops to zero for these companies? Without factoring in changes in casino and other spending, we’ve carried the analysis to the break-even point for each company. WYNN, LVS, and MGM would have to see a further 25%, 45%, and 50% decline, respectively, in YoY ADR beyond our estimate to drive EBITDA to zero. A highly unlikely outcome but the fact that we are even having this discussion is telling. The good news is that free and independent room rates on the Strip appear to have stabilized recently, down in the 20-25% range over the past several weeks. Not good, but a little better sequentially and offering an ever so small ray of hope.

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more