How long would you wait until you were able to make a profit on a very expensive piece of property? With the highly anticipated Resorts World Las Vegas, it will not be turning a profit on a net basis for at least a few years according to Nomura analysts.
The massive $4.3 billion venue is set to debut in the later half of this year, with construction on the west tower completed up to the 55th floor and then 52 floors are completed on the east tower. In addition, the main gaming area, poker room, and restaurants are also nearing the end of completion.
Even though the 3,500-room resort has moved along quite nicely through the issues caused by the coronavirus pandemic, it will still take some time for the property to become a moneymaker for operator Genting Berhad.
What The Metrics Are Saying
The researchers have a positive spin on this as they forecast that the venue will be able to generate earnings before interest, taxes, depreciation and amortization (EBITDA) around $82 million on the revenue of $350 million once it hits in 2022. These figures have the potential to grow past $112 million and $477 million in 2023.
It is good to see that Resorts World Las Vegas will be positive on an EBITDA scale but it is important to make note of the differences between EBITDA and net income. EBITDA is accepted as a financial reporting tool among the gaming industry, for example, since it accounts for fixed costs and the depreciation that companies can take on additional assets.
With net income, regardless of what industry, it is the cleanest perspective of a company’s profitability. This is argued since it measures profits or losses after expenses, taxes, depreciation and amortization.
Ideal Time for Profit
The Nomura analysts do not have an exact timeframe as to when Resorts World Las Vegas would be able to turn net income positive. However, they did say the venture will take a few years and that the venue will contribute six percent to Genting’s 2022 EBITDA.
Looking at its $4.3 billion price tag, Resorts World is the most expensive integrated resort found on the Strip. This price is slightly ahead of Cosmopolitan coming in at $4.18 billion.
With that being said, you can see that these are new waters with Resorts being the most expensive to set up. Estimated time frames for profit can be compared to Cosmopolitan, but it still potentially could be off.
Positive Outlook Ahead
Nomura’s outlook that it could take a few years for Resorts World Las Vegas to turn a profit is not really a knock on the venue or the operator. This is actually a middle of the road type of argument that is not meant to be negative.
On average, it can take several years for something like a high end integrated resort, like Genting’s new venue, to be up and fully operational. In that regard, it is not uncommon for venues like those to spend their first few years as losses for their respective operators.
You also cannot expect Resorts to hit the ground running on day one. High expectations will be there to please guests, but usually there is something along the way within the first year as new people adjust to the opening.
In addition, this is typically the case for any operating environment looking to make a great first impression. Whether the coronavirus pandemic hit or not, it would still have resulted in a few years otherwise.