Casinos Bet Big on 7
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
You've probably never heard of Question 7 on the Maryland ballot. Why should you? If you own any of these casino stocks you should know more: MGM, Penn, Caesars, and Las Vegas Sands. Marylanders will vote on Tuesday whether a big Vegas-style casino could be built on National Harbor in Prince George's County, MD. as well as allowing table games and 24/7 operations.
MGM Resorts International (NYSE: MGM) and Penn National Gaming (NASDAQ: PENN) have spent millions in an unprecedented advertising barrage in the state. In prime time hours residents can see commercials pro and con literally every fifteen minutes, the robocalls are frequent, and there's a mailer about the referendum every other day.
As a stockholder or potential stockholder it's basically MGM vs Penn in a death match for Maryland's gamblers. Penn owns highly profitable casinos in adjacent West Virginia and in Northeast Maryland which would likely lose some Free State and Virginian gamblers. MGM would have a $800 million casino presence in the affluent metro DC region on the East Coast.
With 5 days left until the vote the numbers spent on ads have creeped up to $72 million. Penn has already spent $35.5 million on the Vote No on question 7 campaign which would effectively delay any expansion of table games and 24/7 operation in Maryland. More significantly, a no vote means the death knell for MGM's proposed National Harbor Casino.
It seems obvious what the stakes are, a no vote win means MGM effectively wasted 34 million dollars but a yes vote is a thumbs up for the stock. A yes on Question 7 vote win means Penn wasted over 35 million and possibly more by the Tuesday vote and will have a big name competitor in its territory.
Why has Penn been so vociferous against Question 7 when more than likely it would get table games for its Perryville, MD casino? It all comes down to a small harness racing track that Penn now owns, also in Prince George's County, Rosecroft Raceway, and Penn believes that passing Question 7 leaves them out of the running to build a casino at its Rosecroft property.
Penn, owner and operator of gaming casinos and parimutuel racetracks has a lot riding (pun intended) on this vote. It operates 28 facilities in 18 states and Ontario, Canada with 1.5 million sq.ft of gaming space. It had pretty much owned the mid-Atlantic until Las Vegas Sands Corp (NYSE: LVS) moved into Bethlehem PA, turning an old steel factory into a Vegas style casino. Las Vegas Sands just reported Q3 earnings on November 1 and their Macao market share grew 35%, the Board increased the dividend by 40% and net revenues were up 12%. Altogether, it was a very good earnings call. Interestingly, they spent only $4.8 million on capital expenditures at the Bethlehem PA casino during the third quarter. This a tiny fraction of what Penn and MGM have been spending on the Question 7 advertising juggernaut. I guess ole' Las Vegas Sands CEO Sheldon Adelson isn't worried about competition with his premiere East Coast property.
Caesars Entertainment Corporation (NASDAQ: CZR) has a small stake in this vote as it's building a new $375 million Harrah's casino near Baltimore, MD to open in 2014. It just reported earnings on October 31 which weren't as bad as expected. But fundamentals with this name aren't promising even with 52 casinos and 3 million sq. ft of gaming. Its debt is over $20 billion compared to just under $1 billion in cash and it has a negative EPS of $7.35.
Meanwhile, MGM also reported earnings on November 1 and missed estimates on revenues after beating the preceding two quarters. They reported Vegas was up and Macau looked good but this company still reported a worse loss than expected, like Caesar's. The company isn't quite as bad fundamentally as Caesars with a -1.23 EPS, but with the co-owned Borgata being shuttered and a no vote on question 7 MGM's share price could suffer.
As for Penn, it has a P/E of 18.14 and is off some 15% from its 52 week high of $46.55. CEO Peter Garlino did say on the third quarter earnings call that a defeat of the table games referendum would mean table games might be delayed for some time, but eventually the state would recraft the wording and offer up another referendum just on table games.
Who Wins?
Las Vegas Sands is really the best of breed here, even with a slightly higher P/E of 26.86, it offers a yield of 2.20%. Caesars is really on the ropes. It truly could go either way, a win for Penn or a win for MGM, and betting on Maryland voters is not my idea of a sure thing. I would hold off and just watch the table action. Remember what they used to say in Chicago to the voters, "Vote early and vote often!"
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