LEISURE LETTER (08/01/2014)



  • Aug 1:
    • BYI/SGMS call 8:30am:  , pw: SGMS
    • HLT 2Q call 10am: , pw: 67361605
  • Aug 5:
    • BEE 2Q call 10am:
    • RHP 2Q call 10am
    • MGM 2Q call11am:  , pw: 1985444


SGMS/BYI– SciGames will acquire Bally for $83.30 in cash per share or $5.1 billion in transaction value, including refi of ~$1.8bn of existing Bally net debt.  The combined company expect to realize $220m in annual cost synergies and $25m of annual capex savings by end of 2nd year following closing of transaction.  Scientific Games anticipates incurring $75 million of investment to achieve the cost synergies and $40 million in capital costs to complete the integration of the companies.  Upon closing of the transaction, Gavin Isaacs will continue as President and CEO of SGMS, and it is anticipated that Mr. Haddrill and David Robbins, Chairman of the Board of  Directors of BYI, will join the board of directors of SGMS, with Mr. Haddrill anticipated to serve as Vice Chairman.

Takeaway:  What a deal!  After hearing about consolidation since the 90s, two giants now control the North American slot space - GTECH/IGT and BYI/WMS/SGMS?


CCL- Princess Cruises reached an agreement with Fincantieri to build a ship to enter service in 2017. The 143,000gt vessel will be built at an all-in cost of €600m.  It will have 3,560 lower berths, and features the design platform introduced by sister ships Royal Princess in 2013 and Regal Princess, which entered service in May.  The €600m translates into $804m or $226,000 per berth. 

Takeaway:  Similiar to recent new ship deals from its competitors, the per berth is a little higher than previous years' orders, including the Regal/Royal Princess orders in 2010 (~$202k per berth).


Cruise promotions 

  • RCL – Royal Caribbean is bringing back two very popular sales starting August 1, 2014: Buy One, Get One 50% off or Third and Fourth passengers sail free.  The new sales are good for bookings made between August 1 and September 15, 2014 on all ships excluding Quantum of the Seas and Anthem of the Seas.  The deal applies to all sailings departing on or after October 15, 2014, excluding all sailings between December 15-31, 2014


Macau GGR (DSEC) – July GGR was down 3.6% YoY to 28.415 BN MOP (27.587 BN HKD, 3.56 BN USD).

Takeaway:  We estimate the last 4 days saw table revenue growth close to 15% in line with our expectations.


Russians (Macau Business) – Reuters says representatives of Russian banks have had meetings with potential investors in Macau, Hong Kong and Singapore about issuing bonds denominated in yuan.  But it quotes international bankers and authorities on the finance industry as saying banks and investors in Asia are reluctant to get involved.

 Takeaway:  Macau as a last resort financing destination


Packer (Macau Daily Times) – Australian casino operator James Packer is in supposed talks to develop a Las Vegas Strip resort on land once occupied by the New Frontier Hotel & Casino.  Packer bought a piece of a loan backed by the property and is negotiating a potential deal with other creditors including Oaktree Capital Group LLC.  Oaktree purchased the debt at a discount after plans by Israeli businessmen Nochi Dankner and Yitzhak Tshuva to build a Plaza casino resort there stalled.

Takeaway:  Packer has failed before, he will try try again.  Las Vegas gaming metrics have been healthy lately.


Light Rail Terminal (Macau News) – Macau’s long-delayed Light Rail Transit (LRT) system will only be fully ready in 2022 said Transportation Infrastructure Office (GIT) Deputy Director Andre Ritchie 

Takeaway:  It's a shame how long this project has taken.

Iowa – Gaming commission says no new casinos for 3 years

Takeaway:  You can't blame them.  The regional markets are too saturated.


Trump (New York Post) – If Trump wins the bid to buy NFL Buffalo Bills for over $1 billion, he will sell his minority stake in Trump Entertainment.  Trump has effectively been out of the casino business for several years as financial restructurings have left him with just a small percentage of Trump Entertainment.

Takeaway: The sale might just be enough to fund new uniforms...


Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye

Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

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