he possible return of bankrupt Cosmopolitan Resort Casino and Fountainebleau are also wildcards. Add the fact that convention and group business are expected to remain dull in the first half of the year. Then factor in that Las Vegas has experienced 22 consecutive months of declines in gambling revenue.
Atlantic City remains the most distraught market, followed by Connecticut, Southern California and Southeast Florida - with the Midwest offering the greatest potential for 2010 casino growth. "In Atlantic City, I foresee less capacity, or one or two casinos closing," Dennis Forst, analyst at KeyBanc, says.
Even Macau, one of the few international areas seeing growth in gambling, comes with uncertainty. While revenue in the Chinese gambling enclave is expected to rise by 10% next year, according to Fitch Ratings, there is no guarantee what restrictions the Chinese government will place on visas.
"The biggest demand declines related to the recession are behind us, but operating trends will remain weak, especially early in the year," says Mike Paladino, analyst at Fitch Ratings. "[Next year] will be a story of further stabilization, while in 2011 we will start to see a recovery."
While stocks in the sector surged in 2009, led up by Wynn Resorts and Las Vegas Sands, Foster expects these companies to underperform in the next three to six months. Aside from a few events, he claims, the rally has been mostly unwarranted. With a strong presence in Vegas it is feeling the pangs of dwindling demand and increasing supply. Its high exposure to Macau, however, is viewed as a positive. Sands owns about 70% of the market in Macau.
In November, Sands' initial public offering of its Macau assets garnered us$ 2.5 billion, ranking as Hong Kong's most lucrative deal of the year. Proceeds from the deal will be used to resume development on the Cotai Strip, where it currently has three halted projects. Still, coming to market on the heels of Dubai World's debt crisis was a blow to the stock, and shares fell as much as 15% on its first day on the Hong Kong stock exchange.
Sands is focusing most of its attention internationally.
Aside from Macau, its next venture will come from Singapore. After a year delay, the us$ 5.4 billion Marina Bay Sands is expected to open in the first quarter of next year. Singapore recently legalized gaming and, unlike Macau and Vegas, lacks significant competition. Other than Marina Bay, the hub will have just one other casino, owned by Genting Group, which is also launching in early 2010. This could potentially be one of the biggest events for the casino industry next year, other than CityCenter.
All eyes will be on MGM Mirage's CityCenter development in 2010. The massive casino and hotel will not only be a bellwether for MGM, but for the entire Las Vegas strip, as well. The biggest fear in the casino market is of supply outgrowing demand in Vegas, and CityCenter will surely steal market share away from Wynn Resorts and Las Vegas Sands, as well as cannibalize MGM's own portfolio.
Still, MGM assures that there is enough business to go around. The company expects CityCenter to increase visitation to Vegas by as much as 10%. CityCenter alone will add 6,000 rooms, or 4.2% to the market. In order for MGM to unload its condos at CityCenter it had to reduce prices by 30% and offer financing for buyers. And, clearly, any company with such a massive portfolio in Vegas should be approached with caution in the New Year.
The debt crisis at Dubai World, co-owner of CityCenter, has also raised eyebrows. Investors feared Dubai World would back out of the deal or promptly sell its half. But MGM said Dubai World has already paid its share and so far appears it will retain its stake in CityCenter. Dubai World also holds a us$ 26 million stake in MGM.
Of all casino companies, Wynn Resorts may be the one most susceptible to CityCenter, says Chris Jones, analyst at Telsey Advisory Group. Encore, which opened at the end of 2008, has been a bigger struggle than the company expected. And while Wynn could see a boost from the opening of Encore Macau in mid-2010, that can't be viewed as a guarantee win. Still, Wynn saw significant success with its Macau IPO in September, raising us$ 1.9 billion.
There is plenty of upside to Penn National Gaming in 2010. The Midwest, where a bulk of Penn's casinos are located, has seen flat visitation rates and spending. In comparison to other local markets and the Vegas strip, that is actually viewed as a positive. Smaller-cap casinos, like Penn, Isle of Capri Casinos and Ameristar Casinos, didn't have as big of a stock run as larger companies in 2009. These casinos also have less exposure to vulnerable areas like Vegas and Atlantic City, making them safer bets, Forst says.
There are similar approvals pending in Ohio, Kansas City and Pennsylvania; Penn has one casino in Pennsylvania and is in the process of developing in Kansas City. Also in 2009, Missouri and Colorado markets received a lift from the easing of game restrictions; Penn owns and operates two casinos in these states, and this benefit should roll over into 2010.
One event, though, that could potentially hurt Penn's stock is its battle for bankrupt Las Vegas casino/hotel Fontainebleau. Penn lost its bid to billionaire investor Carl Icahn, although Penn might not be done with the deal.
Boyd Gaming is currently ensconced in its battle to acquire rival Station Casinos, which filed for bankruptcy in July. On Thursday, Boyd upped its ante for Station to us$ 2.45 billion from its prior offer of us$ 950 million. But while purchasing Station would give Boyd a greater share of the Las Vegas market, CreditSights analyst Chris Snow says the deal could also pose a financial risk for Boyd.
It continues to face pressure from the deteriorating Las Vegas locals market and has halted construction on the strip. Boyd also co-owns the Borgata Hotel Casino & Spa in Atlantic City - and there has been a constant decline in demand in the New Jersey gambling hub, as consumer spending wanes and new competition arises.
Indeed, Atlantic City continues to lose share to the New York market, which is ramping up its offerings, and could soon award the license for the Aqueduct racetrack. Delaware is also expanding gaming, while Maryland recently legalized gaming, and is getting closer to implementation.
Likewise, there is pending approval for Pennsylvania to add table games to its casinos, which could negatively affect Atlantic City. And there is speculation that Massachusetts may also approve gaming legislation over the next several years.
There are clearly pressures facing Boyd, but although shares of the firm have sold off dramatically in the last several weeks, they are still up 70% in the year-to-date period. For its part, Fitch Ratings continues to have a negative outlook on Boyd, as it writes: "primarily because the Las Vegas local market is expected to underperform many other markets in 2010 and 2011."