Why Gaming Will Win

I’ve been singing the praises of Las Vegas gaming companies for over a year now. MGM, Las Vegas Sands and Harrah’s have all rewarded those who heard those praises with big stock gains. But valuations have been pushed up because of astronomical land purchase values in Las Vegas and speculation in Macau. $30 million an acre is now the going rate in Sin City. But these prices can’t grow forever. There’s seriously no way Vegas can grow enough to support those values. Right?

Party right. See everything is a market. The market is hot right now with wealthy people and companies flush with money ready to buy into gaming. But it doesn’t have much room to go up. So if these gaming companies are going to grow they’ll have to suck more money out of their properties or find other cash flow.

Getting more money out of existing properties might be a stretch. $300 a room is mighty expensive and is already pricing most people out of the market. You simply wouldn’t have the great Las Vegas we have today if every room is that expensive. So room rates probably don’t have much upside. Gaming will grow at it’s current rate around 10%. So sucking more out of a property is pushing it.

There must be other ways to grab revenue. Which brings us to that lovely debate about online poker. A year ago congress essentially banned online poker but the debate has started to gain some momentum with executives from MGM saying it’s only a matter of time before it’s legal again. Of course regulated and taxed in some way. But if this happens it isn’t Party Poker or 888 which will win out it’s companies like Harrah’s and MGM. They have brand names, casinos, hotel rooms all which can turn into comps for the big spending players.

It was only a few years ago that Party Poker went from start-up to $10 billion in market cap. If poker were legal MGM alone could gain $15-20 billion in market cap from online poker.

It may take time but it’s a big win if online poker is legalized. I am still high on LVS but I don’t recommend MGM right now. If online poker laws change that may change my tune. It’s a huge opportunity. Hopefully congress comes around.