LogFAQs > #936123639

I think it's generally better to buy companies whose business you know yourself. Of course the riskier something is the bigger the upside is.

As far as the casino industry, my long run thoughts (on a timeframe of many years) about it in the US is that it is slowly killing itself. Nevada gaming revenues, even before this crisis, at the top of the longest bull market in history, still had not recovered to their record highs of 2007. And Atlantic City closed half its casinos and still can't get people in the door of the remaining ones. Young people just don't see gambling as a good form of entertainment/vacations. There is also increased competition from tribal casinos opening all over the country. The one big area of growth in destination gaming has been super high rollers from Asia, which makes the natural demand from the American market look even worse.

And this has been in the face of casinos making odds worse for players in order to chase short term profit. Nowadays in Vegas you have to bet pretty high to get the odds/treatment that used to be part and parcel of the experience. The problem is fleecing low rollers with bad odds is a recipe for disaster long term, because new gamblers tend to be young and not comfortable betting large amounts at first. The old model was get people in the door, some of them will win, and then they keep coming back, and bringing more money with them. The new model is get people in the door and fleece them for as much as you can get now.

15 years ago the standard house edge in Vegas for blackjack was 0.26%. That means if you bet $100, on average you lose 26 cents. Now if you want to play for less than $25 a hand at a touristy casino, it's probably going to be around 1.8%. Well, it's entirely possible for play for hours or days at a 0.26% house edge and go home a winner. At 1.8%, past a few hours you have virtually no chance of winning. So you lose, and conclude gambling is stupid, and don't come back.

The industry has supported itself by deriving an ever greater share of their revenue from non-gambling stuff, like hotel room charges, resort fees, shows, and restaurants. But why exactly do people need to go to Vegas for that? I feel like this isn't a good business model in the long run because they're replicable elsewhere.

The big players fall into two camps - WYNN and LVS have made a fortune from developing their operations into Asia which is such a big share of their revenue that I don't think they care that much about their US operations anymore. MGM and CZR are basically drowning in debt and are worried only about how to not go bankrupt in the short run. So no one is really thinking about the long term growth of Vegas.

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September 1, 2003; November 4, 2007; September 2, 2013
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