In a CNBC interview recently, tour and travel-package company Blueboard co-founder Taylor Smith said that millennials "aren't spending money on cars, TVs and watches. We're renting scooters and touring Vietnam, rocking out at music festivals, or hiking Machu Picchu."
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He would know. His company is one of many that have cropped up to build customized tour packages for people who want to go skydiving or white-water rafting.
Keep in mind, consumer spending accounts for about two-thirds of the nation's $10+ trillion GDP.
Investment banking firm Evercore conducted an illuminating study on this phenomenon. It separated the market into two broad groups. On one side are the businesses that sell things (traditional retailers and manufacturers, etc.). On the other are companies that sell experiences (travel agents, movie theatres, etc.).
They found that the second group has been enjoying superior revenue growth since 2003. In turn, shares in these companies have delivered much stronger total returns.
'Experiences' Are Delivering Superior Returns
Source: Evercore ISI Equity Research
As you can see, that performance gap has been widening dramatically over the past 24 months.
Profiting From Leisure And Entertainment
There is no shortage of entertainment-related investment prospects to consider, from airlines and hotels to media companies and theme parks. There's even an exchange-traded fund built specifically to cash in on this trend called the Invesco Leisure and Entertainment (NYSE: PEJ) fund.
In my premium newsletter, High-Yield Investing, we have some exposure through portfolio holdings that own everything from water parks to ski resorts to Top Golf complexes.
But my latest recommendation is focused on a segment that is more in tune with the 21-and-over crowd. I'm talking about casino gaming, which is enjoying a strong resurgence. In fact, net income among Las Vegas strip resorts tripled to $814 million in 2017 on revenues of $17.8 billion. That helped propel statewide gaming profits to a new record high, surpassing the last peak set in 2007.
A staggering 42 million visitors crowd into Las Vegas each year, and the overwhelming majority do NOT hit the jackpot. As I said, visitors left behind nearly $18 billion in the gaming Mecca last year. Surprisingly, most of that was spent outside the casino, not inside.
Annual gaming wins from table games and slot machines amount to $6 billion, approximately one-third of the total. That means two out of every three dollars was spent on lodging, food and beverage, clubs, show tickets and other activities.
Back in the early 2000s, I used to write a column called "The Gaming Investor" for Casino Player magazine. So, I had a front-row seat to this gradual transformation. The days of cheap drinks and 99-cent shrimp cocktails are sadly gone (although there are still deals to be had downtown on Fremont Street).
Once considered loss-leaders just to lure in gamblers, property owners have invested heavily to renovate and update their lounges, showrooms and buffets. These ancillary areas of operation now take in more cash than the casinos. Non-gaming revenues have accounted for more than 50% of the Las Vegas revenue pie for 19 straight years.
That doesn't mean that card dealers and croupiers are bored with empty tables. Casinos at the Bellagio, Venetian, MGM Grand and other big resorts are slammed most nights, despite competition from foreign destinations such as Macau for the play of wealthy customers. Far from drying up, Nevada gaming revenues have risen in six of the past seven years and now top $11 billion annually.
That's not exactly spare change.
Still, there are plenty of other visitors who arrive in town with a different agenda. They come mainly to cavort in clubs with friends, relax in private poolside cabanas, shop at the most exclusive retail outlets, and dine in five-star restaurants.
Take the iconic Wynn (Nasdaq: WYNN) Las Vegas. The amenity-laden resort and its sister Encore property generated $431 million in revenues last quarter. But only $135 million of that (31%) came from the casino. The hotel (which commands an average daily room rate of $340) produced $122 million in revenue; restaurants and bars tallied up $126 million, and retail/entertainment chipped in $49 million.
This isn't the Las Vegas Frank Sinatra knew -- or even the one that I marveled at for the first time in the late 1990s. Alongside high-rollers at the baccarat tables are affluent partygoers at the swanky XZ club who aren't shy about forking over $10,000 for a private VIP table. This one nightclub (located inside the Wynn) reportedly generates over $105 million in annual revenues.
This diversification of the revenue stream means more ways to separate visitors from their dollars -- and less reliance on Lady Luck (although we know the house always wins).
And the Las Vegas desert isn't the only place where players are handing over their chips. From Gulf Coast towns like Biloxi, Mississippi, to the Chicago suburb of Joliet, Illinois, there are thriving gaming markets scattered all across the country. Pennsylvania's 12 gaming resorts hauled in $3.3 billion in revenues last year -- a new record. Louisiana's riverboat casinos aren't far behind.
And don't forget about traditional racetracks, many of which have been converted into racetrack casinos, or "racinos."
More than 157,000 people attended the 2018 Kentucky Derby at Churchill Downs (Nasdaq: CHDN) to watch Triple Crown winner Justify. The iconic 143-year-old facility generates $900 million in annual revenue, with gamblers placing $11 billion in horse wagers industrywide each year -- not counting what they spend away from the pari-mutuel betting windows.
Roughly half of the country allows gaming in one form or another, generating huge tax revenues for state and local governments. And with the Supreme Court recently striking down the federal ban on sports wagering, many of these facilities could soon be taking their cut from the billions that used to be bet underground on the Super Bowl and other big sporting events.
The point is, Americans are spending a greater proportion of their disposable income on leisure and entertainment, just as casino resorts reinvent themselves with expanded activities that go far beyond just a roll of the dice or a few hands of cards.
In other words, companies like Caesar's Entertainment (NYSE: CZR) sit at the intersection of some powerful macro trends.
Interested investors may want to look into the stock. But unfortunately for income investors, operating these massive resorts requires equally massive daily expenses and capital expenditures, which is one reason why CZR doesn't pay a dividend.
But its landlord, on the other hand... Well, that's a whole different story.
I recently told my High-Yield Investing subscribers about this unique company, and added shares to our portfolio. It's structured as a real estate investment trust, owns 20 prime gaming properties in a dozen markets across the country, and pays a mouth-watering 5% dividend yield.
Unfortunately, out of fairness to my premium subscribers, I can't share its name with you today. But if you're interested in learning more, you can not only get the name and ticker symbol of this stock -- you can access my entire portfolio (along with a host of premium reports that are yours to keep) -- with a risk-free trial of High-Yield Investing. To check it out, simply follow this link.