- This is a gross exaggeration I know, but I am increasingly alarmed by the junket price war. Our sources indicate that LVS may have boosted its commission again, from 1.25% of roll to 1.3%, and I think that MGM may have moved even higher than LVS. No indication on Crown but if I had to guess I'd say MPEL will or already has followed suit. The first exhibit examines the relationship between escalating junket commission rates and declining theoretical EBITDA margins on VIP revenues. I estimate the casino's break even on VIP business around a commission rate of 1.5%.
- No word yet on WYNN but I'm skeptical that they can hold out any longer. WYNN has proven to be the best operator in Macau and their performance resilient despite an uncompetitive junket rate. At some junket rate, price will win over product, at least with some junkets and players. I'm not sure we are there yet but any market share loss or softening of its junket position could be a major dent to this Bugatti. WYNN's stock has been a massive outperformer relative to the group and deservedly so. Could WYNN's stock become a victim of its own success? Follow the junket rates and market share.
- Todd Jordan Managing Director Gaming/Lodging/Leisure
Additionally, Pike Place was outlined as one of SBUX's turnaround initiatives to improve the customer's coffee experience. After launching Pike Place, SBUX had stopped brewing a second roast in the afternoon so the company will now resume brewing an additional bolder coffee along with it.
Although SBUX also stated that overall [Pike Place] has had impressive success, this customer demand for more of the familiar, bolder roasts might signal that Pike Place is not providing the sales lift management had hoped for. We will learn more about Pike Place's initial performance when the company reports it 3Q08 results as the brand was only launched at the beginning of the quarter. On a more positive note, it is impressive to see such a quick response on the part of management to meet its customers' requests, which is reflective of the company's renewed customer focus.
Here are the levels to watch:
1. The SP500 level i issued wednesday, 1322
2. The VIX, breaking out through 22.21
3. The US Dollar Index breaking the 73.04 line
Gold works today. So does cash. Manage risk; this is not a time to take it.
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In 2007, rooms and F&B contributed 40% of revenues and 38% of total departmental profits in Las Vegas, big contributors for sure. Room rates are already under pressure and casinos won't drop occupancy to hold rate. ADR's are the highest margin revenue source in Vegas. Do you see where I'm going? I'm not sure F&B traffic and pricing can hold up in this environment either. Restaurant traffic certainly hasn't across the country.
My partner Keith McCullough constantly reminds me that context is not just the last few years. Context in this case is at least 15 years. Unfortunately, when it comes to margin mean reversion, this context is not very comforting.
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