LEISURE LETTER (08/14/2014)



  • Aug 14:
    • Revel Auction Proceedings
  • Aug 19-21:
    • Hedgeye Cruise Pricing Update
  • Aug 19:
    • Galaxy Entertainment Group 2Q results 5 am


BYI – Foxwoods Resort Casino announced it will implement Bally Technologies award-winning mobile concierge platform to offer its patrons a feature-rich mobile app.

Takeaway: a small but important mobile platform win for BYI.


IGT – IGT and Macau-based casino multi-game manufacturer LT Game Ltd announced a three-year distribution agreement for North America and Macau whereby IGT will distribute LT Game’s live and electronic table game systems in the U.S. and Canada, while LT Game will serve as distributor for IGT’s slot machines in the Macau market, Paradise Entertainment Ltd, the parent company of LT Game, said.

Takeaway: IGT has under performed in Macau and Asia


MGM – announced plans to spend "HKD800 million each year for the next two or three years to renovate MGM Macau".  The renovations involve a total of 27 separate projects over the next three years, including the creation of a new smaller an more intimate upper level gaming space, expand the retail space as well as the food and beverage section, while 600 rooms in MGM will also be refurbished.

Takeaway: Looks like maintenance capex to us in the face of the new Cotai supply. 


SGMS – announced an extension of its contract with the Minnesota Lottery to continue as a provider of instant lottery games. Under the agreement, the Company will continue as the secondary instant game provider to the Minnesota Lottery for two additional years beginning July 1, 2014.

Takeaway: a positive contract extension for SGMS.


FCH – filed an indeterminate amount mixed shelf offering for common, preferred stock. depository shares and warrants.

Takeaway: Seems like a standard operating procedure and not a precursor to an offering given the company's plan to sell assets and pay down debt.


PCLN – announced a proposed private offering up to $1 billion principal amount of Convertible Senior Notes due 2021 to qualified institutional buyers pursuant to Rule 144A. The Company plans to use the net proceeds from the offering of the notes to repurchase up to $375 million of its outstanding common stock in privately negotiated, off-market transactions, and remaining net proceeds will be used for general corporate purposes, which may include repaying outstanding debt, repurchasing additional shares of the Company's common stock and corporate acquisitions.

Takeaway: At the end of Q2 2014, PCLN had $3.5 billion of cash on its balance sheet, but subsequent to quarter end on July 24th PCLN completed the acquisition of OpenTable for $2.5 billion and borrowed $995.0 million under the revolving credit facility. As of June 30, 2014, PCLN had $654.5 million remaining on its currently share purchase authorization.


Macau Non-Gaming Development (Macau Business Daily) Paramount Hotels and Resorts is considering Macau for a new hotel and resort development. On May 7th, Paramount Hotels and Resorts began the brand and logo registration process in Macau. Paramount Hotels and Resorts was founded in April 2012 after company chairman Ghassan El Aridi acquired the rights to create it from the Viacom group, parent of Paramount Studios, in March 2012. Currently, the company is involved in four resorts: in Hainan (China), Dubai (United Arab Emirates), Langkawi (Malaysia) and Riyadh (Saudi Arabia). The company, however, is planning to expand its operations further in the near future.

Takeaway: We found it interesting the Paramount Hotels and Resorts web-site includes many subtle references to Asian culture.


Japan Gaming Expansion – Genting Singapore categorically denied ever talking with USJ regarding a partnership to develop and integrated resort in Japan and namely Osaka.

Takeaway: A very loud denial from a very quiet company and CEO.


Manila Junkets – Recent market commentary indicated a number of the Manila casinos are offering junkets 50% versus 40% or 42.5% revenue share in Macau.

Takeaway: Such arrangements do however carry more risk for junkets than traditional rolling chip commission if the players have sustained wins, and both sides to the deal must also cover expenses including any taxes and player reinvestment costs


Singapore - Genting Singapore sounded cautious in its forward looking commentary on the earnings conference call.  Excluding a large impairment charge, Genting's EBITDA was better than expected.  However, the outlook was not rosy and writing off VIP bad debts should always cause some concern.

Takeaway: Marina Bay Sands (LVS) is much more conservative on VIP credit so not much of a read through there.  However, Genting's outlook suggests difficult market conditions will continue.


Atlantic City Summit – New Jersey Governor Chris Christie will convene a bipartisan summit of state and local leaders on September 8th to address the future of Atlantic City. The summit is expected to bring together a group representing a mix of state and local policymakers and stakeholders and officials, including state legislative and Christie administration officials, county and local government officials, Atlantic City’s casino industry and labor representatives, and nonprofit organizations dedicated to the city’s revitalization. Individuals with experience and expertise of New Jersey’s gaming, sports and entertainment issues will also be part of the summit, a news release stated.

Takeaway: Too little too late.


Nevada Foreclosures – During July 2014, mortgage lenders filed 1,037 notices of default to begin foreclosure proceedings, an increase of 128% year-over-year.  This compares to foreclosure starts of 284 to 708, during the first six months of 2014. Anecdotally, Southern Nevada's negative equity rate has dropped from 70% in 2012 to 35% in July 2014 as median home prices have appreciated. 

Takeaway: A headwind to the locals recovery and in line with our July 16th note, "LV LOCALS: THE MIRAGE OF A RECOVERY", which covered the potentially deteriorating Las Vegas housing situation.


Venice Bans Cruise Ships – Italian officials have again ordered a halt to large cruise ship traffic in Saint Mark's basin and the Giudecca Canal in Venice. According to regulations passed in 2013, no cruise ships over 96,000 tons will be permitted to sail in the Venetian lagoon, and the number of cruise ships weighing 40,000 tons or more must be reduced by 20% of the current volume.  About 650 cruise ships call on Venice annually.

Takeaway: A negative for Mediterranean itineraries due to ship reroutings. Officials reversed the March 2014 ruling which suspended restrictions banning large ships.


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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