LEISURE LETTER (08/20/2014)

Tickers: BYI, LVS, MGM, SGMS, WYNN, MAR, MTN

EVENTS

  • Aug 26:  Horseshoe Baltimore Opening
  • Aug 27:  BYI 2Q earnings
  • Aug 28:  Hollywood Dayton Raceway Opening
  • Sept 1/2:  Revel closes

COMPANY NEWS

AMAYA – Full Tilt began offering casino gaming to a small section of the player base. Amaya plans on pushing casino games as well as mobile offerings to the entire player base of Rational in the coming year. PokerStars will begin to offer casino games in Italy as well as Spain in the near future.  Amaya is also considering a sportsbetting business as well and has set aside cash to develop a sportsbook in-house or may considering buying an existing business.

Takeaway: The power of private equity meets online gaming.

BYI & SGMS – Received notice of early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to Scientific Games’ pending acquisition of Bally. The acquisition is expected to be completed in early 2015.

Takeaway: Early approval to the merger.

GTK:IM – During fiscal year 2014, the Indiana Lottery generated $254.6 million of net income. However, GTECH was required to produce net income of $256 million to the Hoosier Lottery during the 2014 fiscal year under the terms of its contract. As a result, GTECH must remedy the short fall with a $1.6 million make whole payment. 

Takeaway: The challenge of the lottery business becoming more evident as the competition for gaming wallet share intensifies. 

LVS & 1928:HK (Macau Business Daily) Venetian Macau has been authorized by the government of the Special Administrative Region to increase the number of exchange kiosks in the Sands Cotai Central casinos. The decision was taken on 14 July but has only just been announced in the Official Gazette. Since the beginning of 2013, The Venetian Macau has had permission to operate 9 exchange kiosks but now that number has been raised to 12. These kiosks buy and sell bills and coins in legal currencies as well as buying traveler’s cheques. The kiosks must comply with the rules defined by the Macau Monetary Authority

MGM – (Las Vegas Review Journal) In a letter dated July 28, 2014 but only recently released by New Jersey Division of Gaming Enforcement, MGM Resorts agreed to pay $150,000 while Tracinda will pay $75,000 in lieu of a formal complaint being filed in the matter as a means to resolve old issues as part of an effort by MGM Resorts to regain its Atlantic City gaming license. MGM Resorts is expected to appear in front of the New Jersey Casino Control Commission next month to seek reinstatement of its gaming license.

Takeaway: The relicensing process is almost complete.

WYNN & 1128:HK – doubled the 2014 annual cap on billing of design services by Wynn Design and Development LLC from HKD78.8 million (US$10.17 million) to HD156 million (US$20.13 million). Wynn Design and Development provides the group with design services in connection with the company’s projects in Macau, including the “development, design and construction oversight” of Wynn Palace and enhancement and renovation works at Wynn Macau.  The current three-year agreement with Wynn Design and Development and the Wynn Resorts group is due to expire on December 31

Takeaway:   Higher costs for Wynn Macau

MAR & PCLN Lodging Frenemies – (tnooz) Priceline via Bookings.com is quietly offering more "white label" services directly to hotel companies. The white-label offering is custom tailored to each particular hotel brand specifications. Marriott recently enlisted the Booking.com white label service with it's entire network of properties located in Italy having the entire search and booking functionality powered by Booking.com.  

Takeaway:  MAR more focused building the OTA relationship 

 

MTN – The ongoing lease disagreement discussions between Park City Mountain Resort and Talisker may be reaching an amicable conclusion.  At the end of last week the two parties requested a 9-day mediation extension through August 24. Originally, the mediation deadline for PCMR/Powdr Corp and Vail Resorts/Talisker to reach an agreement was Friday, August 15. If not agreement is reached, parties will present their arguments during a hearing in front of Judge Harris of the Utah Superior Court on August 27. 

Takeaway: Could a resolution be at hand?

 

INSIDER TRANSACTIONS:

H – Reissa Hozore, EVP, General Counsel and Secretary, on August 16, exercised (at expiration) 3,765 restricted stock units and simultaneously sold 1,218 shares at $60.09/share.

WYN – two transactions:

1) Thomas Anderson, EVP and Chief Real Estate Development Officer, on August 14, sold 34,459 shares at $79.50/share in the open market and now owns 60,985 restricted shares.

2) Franz Hanning, President and CEO Wyndham Vacation Ownership, on August 15, sold 18,409 shares at $80/share via a 10b5-1 trading plan and now owns 114,140 restricted shares.

Takeaway: More insider selling at WYN.

INDUSTRY NEWS

Japan Gaming Expansion

(Kyodo News) Hokkaido governor Ms. Harumi Takahashi toured Singapore’s Resorts World Sentosa casino property on Monday to have a better knowledge of its operations.  Ms. Takahashi also met with Jerry See, the head of Singapore’s Casino Regulatory Authority, the city’s gaming regulator. 

(Japan Times) Railway Keikyu Corp. said it is aiming to open an integrated resort facility featuring a casino to tap an increase in foreign tourists. Subject to the enactment of gambling bills, Keikyu plans to build the facility on Yamashita pier in Yokohama or in Tokyo’s Odaiba waterfront area before the 2020 Olympics. Keikyu set up a project team and formed a syndicate for the project with trading houses, developers and local businesses. It estimates that total investment will reach ¥500 billion to ¥600 billion (US$4.84 billion to US$5.8 billion).

Takeaway:  As we get closer to Fall 2014 decision time, Yokohama has been under the radar.


Ho Tram Strip (Forbes) profiled Chien Lee, his business background as well as his investment in Ho Tram Strip via NewCity Capital as helping to redirect and foster the business and marketing strategy of Vietnam's first integrated resort as a result of his prior roles with 7 Days Group and Asia Entertainment and Resources Ltd, now known as Iao Kun Group. Hokkaido is Japan's second largest island, the largest and northernmost of Japan's 47 prefectures, and its capital is Sapporo.

Takeaway: Time will tell if Ho Tram will be successful - especially given the increasing threat of competition from Japan and South Korea.


McCarran Airport Airlift – VivaAerobus, a Mexican low-cost carrier, will begin service between Monterrey and Las Vegas in December with four nonstop flights each week.

Takeaway: A positive for continued increases in visitation, especially from new feeder markets.

New California Native American Compact – The California legislature enacted a gaming compact with the Karuk Indians which will allow the tribe to build a casino in Yreka, California.  Yreka is located on Interstate 5, 22 miles south of the Oregan and California state line or 52 miles south of Medford, OR as well as 98 miles north of Redding, CA.  The casino will feature 1,500 slots and is scheduled to open autumn 2015.

Takeaway:  A needed boost for 2015 slot sales but how many will be used slots?

MACRO

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.