The Only Thing Keeping Gambling Alive

Considering the average one is up about 85% for the last twelve months, one would think casino stocks - and the companies they represent - are on the mend like most everything else. So why then is Morgan Stanley (NYSE:MS) looking to sell its stake in the half-built Revel Casino in Atlantic City? Worse, why is Morgan Stanley willing to take a loss just to shed the property?

The first assumption might be that Morgan Stanley knows gaming is a dead industry, but that idea doesn’t jive with the fact that big-time casino operators Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) both saw better top and bottom lines last quarter than they did in the same quarter a year earlier… basic evidence that gambling is rebounding as well.

So why would Morgan Stanley want to cut bait now, when the end is actually in sight for Revel? The casino industry has wound up being a lot like the real estate. The three most important details are location, location, and location.

Not here, but there: The gaming industry may be on the mend globally, but you sure couldn’t tell it if you were in Las Vegas, Nevada.

In January, Las Vegas’ revenue fell 3.2% compared to January of last year. No, it’s not an earth-shattering plunge, and the Super Bowl fell in February of this year versus January of last year. Still, considering consumer spending has been up for months, a tepid January is a red flag; February’s preliminary numbers aren’t any more encouraging.

But Las Vegas isn’t Atlantic City? Fair enough, though investors should note Atlantic City’s gambling revenues were down 15% in February, further suggesting that all is not well for U.S. casinos. Snow storms were to blame for the dip, though it’s a lousy excuse….  the Atlantic City Ceasar’s managed to generate stable revenue in February, and good weather was actually blamed for last gusts 16% drop in gaming revenue. You can‘t have it both ways.

Where the action is: So if Atlantic City and Las Vegas are struggling, how did Las Vegas Sands and Wynn Resorts beef up their numbers over the last twelve months while Las Vegas itself – incredibly – managed to do worse in 2009 than it did in 2008? In a word, Macau.

For the better part of 2009, the growth of gambling in China’s Macau enclave was an investment-worthy venture that would boost the top and bottom lines for U.S.-based casino operators. Now, it’s the growth of the Macau operations that’s keeping Las Vegas properties afloat.

As an example, compare the tepid results above for January and February gambling in the U.S. (Atlantic City as well as Sin City) to the 70% increase in Macau’s gaming revenue Macau saw in February. There is no comparison….Macau is sizzling, while U.S. gambling is fizzling. Needless to say, Las Vegas Sands, Wynn Resorts, and MGM Mirage (NYSE:MGM) are more than happy to have some presence their.

Perhaps Morgan Stanley made the right choice by pulling the plug on the Atlantic City Revel.