The Next Las Vegas Megaresort Could Shift Power on The Strip

By Markets Fool.com

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Venetian and Wynn Las Vegas used to be alone on the north end of the Las Vegas Strip. Now they're becoming the center of the action. Image owned by The Motley Fool.

A decade and a half ago, the land north of Caesars Palace and The Flamingo was the forgotten section of the Las Vegas Strip. Mirage was there, and Las Vegas Sands' The Venetian was just opening, and while the latter drew convention business it felt like it was a world away from The Strip's hottest hotels. Bellagio, Mandalay Bay, MGM Grand, and even New York-New York were the city's hottest properties, and the south end of The Strip seemed like it would be the center of Las Vegas for decades, especially with all of its development potential.

But the north end of The Strip got a boost from Wynn Resorts' Wynn Las Vegas and Encore, and Las Vegas Sands added Palazzo to its property. Meanwhile, some of the casinos on the south side slowly deteriorated; now if you have a lot of money to spend in Las Vegas, you are more than likely going to stay at the Bellagio or north.

The tectonic shift in The Strip's core may not be over, either. The next megaresort is being built across the street and a block north of Wynn Las Vegas, pulling most well heeled visitors even further north. And it's shifting the power on the Las Vegas Strip. For investors, the trend is worth keeping an eye on.

Location, location, location
The truth in Las Vegas is that a single resort's potential is only as good as its surroundings. The Palms, which was the hottest resort in town for a few years, didn't have much staying power and ran into financial trouble in 2010. Stratospherehas gone through bankruptcy, and Downtown Las Vegas has had a long history of financial trouble. So being in the center of the action is key for casinos.

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In the 1990s and early 2000s, MGM Resorts and Caesars Entertainment merged with competitors and acquired as many resorts as they could from the intersection of Flamingo Road and Las Vegas Boulevard south. The result was a critical mass of casinos from Treasure Island to Mandalay Bay.

But that critical mass of resorts soon began aging, and while the consolidation was going on, Wynn Resorts and Las Vegas Sands were building the new high-end future of Las Vegas on the north end of The Strip. If the numbers below are any indication, they're putting the south end of The Strip to shame.

Location

2009 EBITDA

2014 EBITDA

Change

Mandalay Bay

South

$159.9 million

$175.6 million

9.8%

Luxor

South

$76.2 million

$70.1 million

(8%)

Excalibur

South

$72.1 million

$68.2 million

(5.4%

New York-New York

South

$78.6 million

$95.1 million

21%

MGM Grand

South

$214.4 million

$252.9 million

18%

The Venetian-Palazzo

North

$259.2 million

$314.0 million

21%

Wynn Las Vegas

North

$244.1 million

$515.2 million

111.1%

Source: Company earnings releases and SEC filings.

Not only have The Venetian/Palazzo and Wynn Las Vegas outgrown their southern counterparts, their absolute numbers crush them. Those two resorts generated $829.2 million in EBITDA -- a proxy for cash flow generated by a resort -- last year, beating the five most southern resorts owned by MGM Resorts by $167.3 million. And that gap is about to get worse.

Resorts World Las Vegas as seen from the Las Vegas Strip. Image source: Genting Group.

The megaresort that will change The Strip
These trends are important, because the next megaresort on the Las Vegas Strip is now finally under construction. Genting Group is building Resorts World Las Vegas on the site of the abandoned Echelon Place on the northeast corner of Desert Inn Road and Las Vegas Boulevard. The $4 billion resort will have 3,500 rooms, 100,000 square feet of gaming space, and an amphitheater among its features. And James Packer of Crown Entertainment purchased the land directly across from Wynn Encore for a planned resort that hasn't yet been announced.

These projects will pull even more visitors to the north side of The Strip, away from MGM Resorts' center of gravity and toward Wynn Las Vegas and The Venetian/Palazzo complex. It will be a critical mass of resorts with high-end rooms, convention space, nightclubs, and all the gaming you could want.

If the center of Gravity in Las Vegas does shift from south of Flamingo Road to north of it there could be long-term consequences for the companies with resorts in the area.

A reason to be cautious about Las Vegas today
The table above shows just how the trends in Las Vegas can change, and if you're looking at shares of MGM Resorts, you should keep in mind that nearly all of its properties are on the south side of The Strip. That could be on the long-term decline as visitors trend to the north side where newer resorts are located.

For Wynn Resorts and Las Vegas Sands, Genting's resort is likely a welcome sight. It should bring more visitors to that end of The Strip, although early on it could also dilute the high-end visitors they already draw to The Strip.

Bottom line, the balance of power is shifting to the north side of the Las Vegas Strip, something that once seemed improbable.

The article The Next Las Vegas Megaresort Could Shift Power on The Strip originally appeared on Fool.com.

Travis Hoium owns shares of Apple and Wynn Resorts, Limited. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. The Motley Fool is short Caesars Entertainment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.