How Small, Regional U.S. Casino Companies Are Beating The Biggest Names In The Business

As the S&P 500 marches higher and higher, the share prices of large-cap casino operators Las Vegas Sands Corp LVS, Wynn Resorts Ltd WYNN and MGM Resorts International MGM are down an average of 17 percent year-to-date (YTD).

At the same time, the share prices of small-cap regional U.S. operators Pinnacle Entertainment Inc PNK, Boyd Gaming Corp BYD, Penn National Gaming Inc PENN and Isle of Capri Casinos Inc ISLE have surged an average of 60 percent in 2015.

Industry Insight

Benzinga recently had the chance to sit down with Rick Carter, the co-founder of the Island View Casino Resort, to discuss exactly why smaller regional casino operators have been putting their rivals to shame in recent months. Mr. Carter was joined by Island View CFO John Bakley, who also formerly served as the Senior Director of Finance at Isle of Capri.

Island View is located in Gulfport, MS, and is one of the handful of casino resorts operating on the Mississippi Gulf Coast. The privately-owned resort opened up a new $58 million, 405-room beach tower in April of this year, increasing the resort's total room capacity by over 70 percent.

Despite the major increase in capacity, Island View has been flourishing since the new tower opened, and the tower has registered a 99 percent overall occupancy rate so far.

Macau To Blame?

One major factor in the underperformance of the large-cap U.S. operators is their exposure to the struggling Macau, China market. However, with Las Vegas Strip gaming revenue down more than 3.0 percent so far this year, there seems to be something more to the regional outperformance than just Macau.

A Good Time To Gamble

According to Bakley, even before the opening of the new tower, Island View had been experiencing the same type of success that the other regional operators have enjoyed so far this year.

He told Benzinga that the general strength of the U.S. economy and the boost to disposable income provided by low gas prices have been a big help to the U.S. gaming industry this year.

Nobody Told Vegas

Why have these strengths not translated Vegas Strip revenue?

Carter told Benzinga that Vegas is facing regional competition like never before. “Regional operators don’t take anything for granted. We know we have to get out there and fight for our customers.

” As more and more regional operators have begun providing world-class resorts just down the street, fewer Americans feel the need to hassle with traveling all the way to Vegas

“Knowledge of the local market is more important than anything else,” Bakley added. “Larger companies that have dictates from the corporate office have to follow that template wherever they are, and it might not apply in every market.” Bakley told Benzinga that smaller operations like Island View have much more flexibility when it comes to providing visitors with a unique, customized experience.

Resource Disadvantage

While local market knowledge and customization are two advantages to running a regional operation, Bakley admits that there are constant reminders that Island View is outgunned when it comes to the resources available to the larger companies.

For example, Caesars Entertainment Group CZR’s Harrah’s casino in Biloxi, Mississippi offers a rewards program that customers can use in New Orleans, Las Vegas and other locations.

Island View has its own rewards program geared toward its customer base, but it can’t offer the same types of travel incentives that large-cap public companies can.

Only Pick Fights You Can Win

However, Carter told Benzinga that Island View doesn’t dwell on the fact that it can’t compete with the large-cap operators on resources, market reach or certain reward incentives. Instead, Island View and other regional gaming companies accentuate the advantages of a smaller operation.

“Our core team’s been working together for 13 years. We live and breathe this. We are all a part of this market, and decisions are not being made by someone that’s 1,000 miles away,” Bakley explained.

According to Carter, Island View guests get an experience that can’t be found in Las Vegas or anywhere else in the country. “Island View specializes in southern hospitality. That’s what keeps our customers coming back.”