Set adjacent to the strip, MGM and AEG's newest attraction is the biggest thing coming to Vegas. Photo: ArenaLasVegas.com
Las Vegas had a record number ofvisitors in 2014 -- more than 41 million. Yet gamingrevenue in 2014 declined slightly compared to 2013, and is still below where it was in 2007, its peak before the recession of 2008.
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However, this isn't necessarily a bad thing. In fact, the decrease ingaming could be a positive for Las Vegas as the total economy therecontinues to grow with less focus on gaming and more focus on other attractions.
The next biggestthing being built in Las Vegas isn't a casino -- it's a multi-purpose arena being constructed by MGM Resorts International and Anschutz Entertainment Group, or AEG. This massive 20,000 seat arenawill be the biggest in Las Vegas, and will help to drive even morenon-gaming growth in Las Vegas for years to come.
A rendered view of what the arena is expected to look like when it opens. Photo: ArenaLasVegas.com
The new Las Vegas ArenaThe arena will be adjacent to the strip, on a plot of land between Frank Sinatra Drive and the New York-New York Hotel & Casino. With a 20,000 seat capacity, this arena will be bigger than MGM's other two Vegas arenas: MGM Grand Garden, which seats about 15,000, andMandalay Bay Events Center, which seats around 12,000.
The arena is set up to host everything from rock concerts to hockey games, and anything in between. The arena includes luxury suites, club seating, and more to help it stand out even further for a diverse range of Las Vegas audiences.
MGM expects a total cost of $350 million for this arena. It already issued new debt to finance this project last year. The project is expected to be completed in spring 2016, and you can even watch the day by day construction of the project on its website.
Bringing more entertainment to Vegas than everThe Las Vegas Convention and Visitors Authority predicts that Las Vegas will reach 45 million annual visitors in the next couple years, spurred on by the growing number of venues and attractions. Companies like Cirque du Soliel, artists like Britney Spears, and even sporting events like the national championships of table tennis are seeing Las Vegas as one of the best places to bring audiences and fans together.
Example of a music festival in Vegas in 2016. Image: ArenaLasVegas.com
This new arena will be a destination for sports, music, performances, and conventions. MGM says that the Las Vegas Arena doesn't need a major sports team to call the arena home, something that usually makes having an arena of this size economically viable. Instead, the company is confident that it will utilize the arena with plenty of other attractions -- including major sporting events featuring teams based outside of Nevada -- to make this new attraction very profitable for the company.
Gaming declines, for the betterIn 2014, gaming revenue made up about one-third of the total tourism economy of Las Vegas, its lowest level in recorded history. For the future of Las Vegas and the resort companies located there, this is a good thing. Instead,the entire non-gaming resort economy, especially hotel and convention usage revenue, is spurring new growth for these companies.
Las Vegas citywide hotel occupancy reached nearly 87% in 2014, which according to Travel Agent Centralis 20 percentage points higher than the national average, meaning Las Vegas has higher hotel occupancy rates than any other destination in North America.
When it comes to these non-gaming growth drivers in Las Vegas, MGM is by far the leader. With 27% of the total hotel rooms in Las Vegas, MGM's revenue per available room, or RevPAR, at its Las Vegas resorts rose more than 6% in 2014 over the prior year. With remodeled properties like the The Delano at Mandalay Bay (completed in late 2014), expect these numbers to increase in 2015.
Source: MGM Q4 earnings report
A long term bet on MGM and Las Vegas?There are a few concerns with MGM that keep me from investing in the company yet. For one thing, MGM is still reporting net losses each year, and its net loss of $150 million in 2014 made it one of the worst performing companies in its industry.
Furthermore, the company is financing much of its Vegas growth -- not to mention its two new casinos in the U.S. Northeast and a very large resort in Macau that will cost nearly $3 billion -- with new debt. MGM is already the second highest leveraged company in the industry, and taking on new debt without first becoming sustainably profitable could be dangerous.
However, entertainment, convention, and hotel revenue is driving new growth in Las Vegas now. The coming Las Vegas Arena is one more example of how MGM is the clear winner from this Vegas growth trend. If MGM can prove the viability of its new business model in Las Vegas and return to profitability, it could be a great long term bet for investors.
The article The Next Biggest Thing To Hit Las Vegas In Years Is Not a Casino originally appeared on Fool.com.
Bradley Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.
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