Las Vegas Sands and Wynn Resorts Valuations Tank on Chinese Crackdown

The Chinese government’s threat of increased regulation on the casino industry puts several U.S. gaming companies in jeopardy.

Las Vegas Sands, Wynn Resorts, and MGM Resorts International all have a significant presence in Macau, a Chinese special administrative region that is also the world’s largest casino gambling market. But planned growth in the region was thrown into jeopardy last week after Lei Wai Nong, Macau’s economy and finance secretary, announced the government would strengthen its oversight on the casino sector.

Casino stock prices nosedived as a result, with Macau casino operators losing as much as a third of their value, or $18 billion, in a single day as a result. U.S. casino operators in the region lost a combined $4 billion in valuation following the news.

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Las Vegas Sands and Wynn Resorts may be the biggest losers in the long run due to their particular focus on the region. Wynn Macau share prices dropped 34 percent last week while Sands China shares dropped 28 percent.

Las Vegas Sands made plans earlier this year to sell its Venetian Resort Las Vegas and the Sands Expo and Convention Center for $6.25 billion. The plan was to vacate its namesake city and focus growth on Asian markets like Macau. Wynn Resorts took out a $1.5 billion credit line amid its tanked stock price.

Wynn Resorts’ market capitalization, or valuation, fell 8 percent on the news from Macau while Las Vegas Sands saw its valuation sink to the lowest rate seen in more than a year.

“You won’t see U.S. companies get kicked out of Macau, but you’re probably going to see margins that are really going to be hurt here,” Edward Moya, a senior market analyst at data and analytics firm OANDA, told Skift. “You’re probably going to see that this is just going to eat away at all that revenue that they were used to seeing.”

What Goes Up, Must Come Down: The Chinese government crackdown might seem like a case of shooting oneself in the foot. Macau surged past Las Vegas in 2006 to become the world’s largest gaming destination in terms of revenue, and it maintained a lofty peak over Sin City in the years leading up to the pandemic.

It’s no wonder Las Vegas Sands wanted to focus on Asia: The company made $8.8 billion in revenue off its Macau properties in 2019 compared to $1.8 billion in Las Vegas, according to filings with the U.S. Securities and Exchange Commission.

Wynn Resorts had an $805.5 million operating income for its Macau properties in 2019 compared to $123.3 million in Las Vegas.

Increased Chinese regulation on the gambling hub is the latest push by the government to crack down on what it perceives as social vices. Restrictions on how long children under the age of 18 could play video games rolled out last month, and gambling oversight is a timely next step: All Macau casino licenses are up for renewal next year.

The government has tried to crack down on what it perceives as illegal high-stakes gambling in the region for years, but what this latest round of regulation could look like — a 45-day review period of the industry began last week — remains vague.

Moya said it is likely the government wants a bigger piece of the revenue pie from operators, particularly the major companies from the U.S.

“China is showing frustration that Macau gave up 50 percent of the revenues to U.S. companies,” he added while noting too many jobs and too much investment has already taken place for there to be a complete exodus from the market.

Diversify, Diversify, Diversify: This might seem like a textbook case of learning why it’s never a good thing to place too many eggs in one basket.

In the months leading up to the heightened regulation news, Las Vegas Sands was pumping more capital into Macau. The company was beginning to open in phases the Londoner Macau — a $2.2 billion UK-themed resort with replicas of the House of Parliament, Big Ben, and 600 suites, including 14 designed by soccer star David Beckham.

Wynn Resorts unveiled its own $2 billion expansion plan for the region in 2019. All that investment may be why it isn’t as simple as just migrating resources into a different market like Singapore, where Las Vegas Sands is underway with a $3 billion expansion to its massive Marina Bay Sands casino resort.

“If you start over and go to another region, you’re going to have to invest a lot of capital to bring up operations in another country. But it’s all about the people. Macau attracts the high rollers,” Moya said. “I’m a Jersey boy. So to me, Atlantic City was not that bad. But you go to Las Vegas, and it’s like, ‘Wow.’ And that’s kind of like for the rest of the world: Macau was ‘Wow.’ Everything else is kind of like Atlantic City.”

A Win for MGM: One U.S. casino company that might have a leg up on the competition is MGM Resorts International. While the company still has a presence in Macau — one it deems “critical” — its revenue stream is still significantly more weighted toward Las Vegas.

Further, its asset-light strategy of late, where the company has sold off its real estate to investors while retaining an operations agreement, has been more about investing in online gaming platforms rather than mega-resorts in Macau.

MGM still announced plans to expand its existing properties in Macau in recent years, but these plans involve smaller growth than some of the projects announced by competitors like Wynn and Las Vegas Sands. MGM Resorts’ biggest expansion talks lately for Asia centers on Osaka, Japan, rather than the Chinese region.

MGM Resorts CEO labeled the move as the company’s “diversification into Asia” on the latest quarterly investor call.

Outsite Booms Amid Global Rally Around Remote Work

The delayed — even indefinite — return to the office from major corporations like Facebook and Microsoft is a boost to the concept of remote work as well as the companies aimed at capitalizing on the trend.

Outsite, a hospitality brand geared toward traveling remote workers, opened 16 new locations since the end of last year across the U.S., Latin America, and Europe. Launched as a co-living concept in California in 2015, Outsite features private guest rooms to stay as well as shared coworking spaces in markets like Lisbon, Los Angeles, and Bali.

Some of Outsite’s growth over the last year might be chalked up to the world embracing remote work and the digital nomad lifestyle, but the expected return to offices this fall had many travel analysts anticipating some degree of a retraction back to more traditional working models. But Outsite isn’t seeing any downturn.

Revenues are above pre-pandemic levels, and the company’s Lisbon location, the company’s largest venue which averaged 75 percent occupancies pre-pandemic was at 95 percent for August and into September.

“August was absolutely amazing for us,” Outsite CEO and co-founder Emmanuel Guisset said in an interview with Skift. “It was the best month we’ve had in terms of revenue since the start of the company.”

No Need to Shift Business Strategy: Guisset doesn’t see any reason to shift gears, even if there is a return to the office. Along with the co-living venues, Outsite is rolling out Outsite Cowork Café, a standalone coworking concept aimed at remote workers.

Even with some level of return to office expected in coming months, Outsite anticipates an increase in its occupancy rates and revenue per available room — the hotel industry’s key performance metric — will continue to increase over the next three to six months.

There is a general sense coworking concepts, best known by brands from bigger companies like WeWork or IWG, will fare well in the post-pandemic working environment due to more workers and employers catering to flexible work environments.

“The extension of the work-from-home experiment doesn’t change that much for us because we’ve already seen the concept work for the last 18 months and we know it’s here to stay,” Guisset said. “Our record occupancy levels across the board, especially in lifestyle cities like Lisbon which struggled at the beginning of the pandemic, are testimony that the societal shift towards remote work is happening and on a global scale.

Best Western CEO David Kong Isn’t Done With Hotels

Longtime Best Western CEO David Kong announced last week his plans to retire by the end of this year, but don’t take this as a sign the industry veteran is leaving the hotel orbit entirely.

Kong, who became CEO in 2004 and oversaw Best Western’s growth from one brand to 18, previously worked at Omni Hotels & Resorts, Hyatt, and as a hospitality consultant at KPMG.

“I’m retiring from Best Western, but I’m not retiring to just go play golf,” he told Skift with a laugh. “I have some runway left, and I want to continue to contribute.”

Read more from Kong’s interview with Skift and his legacy here.

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