LEISURE LETTER (08/28/2014)

Tickers:  LVS, 880:HK, CHDN, RCL


  • Aug 28:  Hollywood Dayton Raceway opens
  • Sept 1/2:  Revel closes
  • Aug 28- Sept 2: July Nevada gaming revenues released


LVS – Metals Trader’s Brother Sued by Sands Over Gambling Debt(Bloomberg) 

Chen Jilong, a so-called premium casino player at Marina Bay Sands Pte, owes S$1.88 million ($1.5 million) and has refused to make payment, according to a lawsuit filed with the Singapore High Court earlier this month. The casino gave him S$3 million credit in November 2011, according to court papers.

Takeaway:  Will we see tighter credit requirements for premium/VIP players?


880:HK (Macau Business Daily) SJM casino workers from Grand Lisboa say they will clock in for work on Saturday morning, as usual. But they won’t deal cards to punters at their tables.  Some 1,000 dealers from Grand Lisboa are expected to go on strike at their place of work from Saturday morning, until Sociedade de Jogos de Macau (SJM Holdings Ltd) takes action to resolve their demands

Takeaway:  Labor issues persist



RCL (TTG)RCL CEO Richard Fain insisted the “price value” for Royal Caribbean’s latest offering was “astronomical”. He added that although he expected the new ship to be “nicely profitable with good margins”, he still believed prices for the lines’ cruises were currently too low.  “The UK is still a young market – not as much as Asia, but still relatively young, and it has a lot of growth potential,” he added.

Takeaway:  We agree with Fain.  Quantum will give RCL a nice boost but the core RC fleet is struggling with pricing in the Caribbean. 


Japan – Toru Mihara, a professor at the Osaka University of Commerce who helped lawmakers draft the casino bill, told reporters the government should tackle the issue of problem gambling through counselling and other means, and not by imposing a ban on local gamblers.  "I would estimate that about 80% of all visitors will be Japanese. The remainder will be foreigners," he said.


Separately, Mihara said that given the likelihood that the government will not submit other important legislation which would be given discussion priority, it’s highly likely that the casino bill will be passed by November.  Japan’s parliament is expected to convene for its fall session at the end of September and meet through December. The bill, called a promotion law, wouldn’t immediately lift the ban on casino gambling.  It would direct the government to craft another law to give the final go-ahead.

Takeaway:  Looking good for the fall...


Chui (Macau News) – Macau CEO Fernando Chui Sai On said that his second-term government would study the setting-up of a mechanism for non-local workers to “bow out” during an economic downturn to ensure that locals will have jobs.  He also urged citizens to have confidence in his government’s determination to guarantee local workers’ benefits and rights which would never be allowed to be undermined by non-local workers.

Takeaway:  Chui may need to be more flexible with foreign labor if the new Cotai casinos cannot find enough local croupiers or casino supervisors. 


Jobless (DSEC)  – Macau’s unemployment rate for May-July stood at 1.7%.  It has remained at 1.7% since Nov 2013.

Takeaway:  Persistently low unemployment increases upward pressure on labor and vulnerability of casinos to labor demands. 


Regionals & REIT Conversion (LVRJ) Reporter Howard Stutz is again fanning the flames of potential REIT conversions for both BYD and PNK with a recent story highlighting how various activist investors believe the real estate owned by Pinnacle Entertainment and Boyd Gaming Corp. is key to unlocking hidden value within the Las Vegas-based regional gaming operators. 

Takeaway: Mr. Stutz relies on dated news for his story which is only worth mentioning because based on our March 18, 2014 "EXPERT CALL: THE REIT STRUCTURE: A VIABLE ALTERNATIVE FOR BYD AND OTHERS" we have held the position a tax-free REIT spin-offs by BYD and PNK are virtually impossible to effectuate.  A taxable spin is possible and would be value creating, in our view.


Affinity Gaming Names New CEO – Las Vegas-based casino operator Affinity Gaming, a portfolio company of Z Capital Partners, has appointed Michael Silberling as CEO. Silberling will also be added to the board of directors. Previously, he worked at Caesars Entertainment Corp. Also joining the board are James Zenni, Andrei Scrivens and James Cacioppo. Affinity Gaming is a diversified casino gaming company headquartered in Las Vegas, Nevada. The Company’s casino operations consist of 11 casinos in four states, five of which are located in Nevada, three in Colorado, in Missouri and one in Iowa. 


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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