Author: David Mckee

Continuing JP Morgan‘s march through Las Vegas, senior analyst Joseph Greff met with Boyd Gaming CEO Keith Smith and CFO Josh Hirsberg. They seemed pleased, on the whole, marveling and the resilience of their customers, whose play was “amazingly consistent” no matter how many Covid-related mandates you throw at them. Downtown, they conceded was somewhat more of a challenge, given the lack of Hawaiian players. Spend per visitor, however, is above 2019 levels “which management attributed to a healthy consumer backdrop and a higher value customer coming through the doors.” This is some cooling-off in the regional markets, although Las Vegas locals and drive-in players remain stalwart. Boyd has even ceased marketing to low-value customers, what with Baby Boomers returning … albeit not yet at previous magnitude.

Management said it’s have trouble filling jobs, “noting that the shortage is somewhat limiting the amenities that can be offered.” That, in turn, is inhibiting revenue growth. Currently Boyd is at 60% of workforce strength compared to two years ago and “Surprisingly, the expiration of unemployment insurance/stimulus in some states has not resulted in people coming back to work.” Boyd is improving its profit margins by savaging marketing spending and relying less on full-time employees. (And they wonder why they’re having problems re-staffing.) Dark Eastside Cannery will remain so until January, possibly March. After all, it’s redundant to Sam’s Town next door, where business is “strong, but not overdone to level where additional capacity is needed.” A final bit of good news is that Boyd has gotten its leverage down to 3X equity or thereabouts, another sign of a company that rarely strays from sound business fundamentals.

JP Morgan analysts, led by Joseph Greff, are touring Las Vegas ahead of Global Gaming Expo and seem to like what they’re hearing. For instance, they met with Station Casinos CFO Steven Cootey and were told that demand continues to be strong, with customer spend tracking above pre-pandemic levels. Why? Customers are of a more gaming-centric stripe these days. Station “has been able to sign up, and retain, first time typically younger customers at a nice pace, with these customers being 2x as valuable as the pre-COVID level.” Baby Boomers started coming back commensurate with any slowing of new Coronavirus cases and increase in vaccinations. An influx of refugees from California (50% of all drivers’ license surrenders) is also bolstering the demographics.

As for Durango Station, Cootey says the company is sticking to its knitting (i.e., no more Palms-style adventures) and will announce a project budget on the next earnings call. They’re really milking that narrative for everything it’s worth. Management still has “no immediate plans” to reopen Fiesta Henderson, Fiesta Rancho and Texas Station. Small wonder, given that the latter two are in North Las Vegas, where the recovery has been very soft. Besides, their core customers have be rechanneled into other Station properties, much to the casinos’ benefit since the players in question are high-value ones. Marketing is being done more selectively, in part to study its effectiveness. Cootey also said there’s been less promotional warfare due to consolidation within the industry and “noted it doesn’t seem like anyone has desire to return back to prior levels.” As for the aforementioned Palms, the sale to the San Manuel Band is still on track to close by year’s end. The proceeds will go towards lowering the company’s leverage to 2X or 2.5X equity. It all sounds good to us.

The NFL‘s rationing policy regarding sports book ads worked like a charm in Week One, allowing for a variety of content without blanketing the airwaves. Of the ones we saw, Caesars Sports Book took the palm for creativity. As for irritating and overloaded, there was one outright loser, by a vast margin. You guessed it, it was …

Regional gaming continues to be a gravy train. Maryland casinos grossed $168.5 million in August, up 9% from 2019. Just think how much better the take would have been had the month not been two weekend days shorter than August 2020. MGM National Harbor led the pack with $67.5 million, up 8%, while Maryland Live‘s 35% market share translated into $59.5 million in revenue, a 12% gain. Horseshoe Baltimore actually managed to lose ground, down 1.5% to $18 million. Ocean Downs neared $10 million, up 12%, while Hollywood Perryville grossed $8 million in a 21.5% leap. Rocky Gap Resort brought in $6 million for a 10% uptick.

Yesterday, Deutsche Bank analyst Carlo Santarelli predicted a 19% upsurge in Ohio when August receipts were tallied. He overshot his mark … just barely. The Buckeye State rose 18% to gross $194 million. Wrote JP Morgan analyst Joseph Greff, “We note that results for the full month indicate that rising delta variant infection rates have not yet negatively impacted visitation/revenue, consistent with recent commentary from operators.” Slots-only MGM Northfield Park led the state with $23 million, up 12% and edging Hollywood Columbus‘ $21 million (+10.5%). Hollywood Toledo made $19.5 million, up 13%, but Scioto Downs came on fast, +22%, to win $20 million. Even the smaller fry were prospering. Hollywood Dayton grossed $12.5 million, a 25% leap, Hollywood Mahoning Valley captured $13.5 million, hopping 21%, and Belterra Park gained 9% to $8 million.

Late yesterday Bloomberg broke the news that Blackstone Inc. is shopping The Cosmopolitan of Las Vegas … for a $5 billion minimum price. What’s even more incredible is that apparently it has suckers, er, corporations already on the hook. Why is the asking price so absurd? Consider that the Cosmo was built for $3.9 billion back in 2010 and that Blackstone obtained it from Deutsche Bank for a fire-sale $1.7 billion. We’re talking some serious profiteering here, folks. (Ya ever hear of depreciation, Blackstone?) Consider also that the Cosmo has 3,027 rooms while $4 billion Aria has 4,000 and $4.3 billion Resorts World Las Vegas boasts 3,506. So Blackstone wants more money for a smaller property. They’ve got some nerve.

Even crazier is that Apollo Management, not yet having taken the $6.25 billion keys to Venelazzo, is already circling the Cosmo and that MGM Resorts International might splurge on the megaresort, perhaps with a view to augmenting CityCenter. Does Bill Hornbuckle light cigars with $100 bills? Between a $9 billion commitment to Osaka and a potential $5 billion-plus indulgence on the Cosmo, MGM hardly seems the epitome of carefully targeted investment. (Remember that the Japanese casino can only occupy 3% of the megaresort’s total square footage.) At Blackstone’s initial put, one would have to generate a near-impossible $600 million in annual cash flow to have a prayer of a 15% return on investment. In other words, it would have to be THE GREATEST GAMING JUGGERNAUT OF ALL TIME. And if you believe that, let me sell you this bridge in Brooklyn … Apollo may cover its ass by going halves with Vici Properties but we’re still talking a helluva heavy lift. Normally it would be cheaper to buy than build on the Strip but these are far-from-normal times.