Bally’s Chicago stirs skepticism; Vegas locals cooling

It’s not just us who are leery of Bally’s Corp. and its ability to do something unprecedented in its history—swing a $1.7 billion casino in Chicago. The company’s corner-cutting “improvement” of Bally’s Atlantic City does not inspire confidence. Nor does a “negative” rating placed on Bally’s debt by both Fitch Ratings and Standard & Poor’s. As Crain’s Chicago Business explains, “That means that while no immediate credit downgrade has occurred, concern about the company’s finances is rising and a downgrade is a distinct possibility in the near future.” S&P cited potential difficulty in obtaining building permits, as well as inflationary pressures on the project cost: “In addition, the risks related to successfully ramping up the operations and cash flow generation of a greenfield project are high.”

While Fitch likes the diversification of Bally’s geographic exposure, it is less enamored of the budget, the project timeline, the impact of the project cost on Bally’s leverage and the ability of Bally’s Tribune to generate sufficient cash flow. The easiest way out, Fitch concluded, would be for Bally’s to sell the as-yet-unbuilt casino to a third party and lease it back. Another area of concern is Rhode Island, where debt on Bally’s two casinos is on the rise. While Bally’s and Chicago Mayor Lori Lightfoot (D) ran and hid from the news, Alderman Brendan Reilly enjoyed a told-you-so moment. “Those of us who fought against this proposal always questioned Bally’s ability to finance and deliver this project, given they are a relatively inexperienced player in the gaming industry,” he said. “They’re a venture capital firm that acquired a bunch of casinos in small markets across the country.”

Reilly added, pertinently, “It’s pretty obvious the expert analysts on Wall Street have thoroughly reviewed the financials, in far greater detail than we did, and have come to the very same conclusion: There is a tremendous amount of risk tied up in the Bally’s Chicago casino proposal.” Having laid out a process that basically disqualified virtually anyone else with a casino in Illinois, Lightfoot loaded the dice for Bally’s. Put another way, Fitch and S&P would almost certainly not be asking the same questions of Hard Rock International and maybe not of Rush Street Gaming, the also-rans (flawed though their proposals also were). Faced with three imperfect finalists, Lightfoot rammed through the weakest and may not be around to face the music if Bally’s can’t deliver. Miracles can happen (Who thought Circus Circus Enterprises could pull off Mandalay Bay or Boyd Gaming would deliver Borgata?) and divine intervention seems Bally’s best hope at this point.

In a lengthy research note, Deutsche Bank analyst Carlo Santarelli lowered his revenue estimates of Las Vegas locals-oriented casino operators for the rest of this year and all of next. That said, “while we believe the LV locals market has already experienced its cyclical peak, we think the market remains healthy, as it continues to evolve and benefit from population growth and higher average household income levels.” Also, Boyd, Station Casinos and Golden Gaming are deemed to have better balance sheets and stronger real estate portfolios than their peers. Santarelli warns, “waning consumer confidence, eroded consumer savings, and continued pressures on consumer discretionary budgets stemming from inflation, will become more evident in gaming spend.”

Americans have splurged on gambling like nobody’s business and the bill was certain to come due—sooner rather than later thanks to our present inflationary crisis, ironically, the consequence of the federal largesse that pumped so much discretionary income into the marketplace in the beginning. At least, per Santarelli, the Vegas locals gaming economy is better-cushioned against this than drive-in markets are. Also, while spend-per-visitor is softening, it’s still well above 2019 levels. Additionally, data implies “that hiring and amenity creep expenses had largely stabilized.”

As for that lower visitor spending, it “relates to the elimination of the lower spend customer, whose typical patronage involved a trip to the since shuttered buffet or on a low value promotional offer.” In addition, Strip-facing properties like Palace Station and The Orleans are seeing the benefit of increased tourism, “and this strength is expected to continue with the resurgence in group business.” Nor do Boyd, Station or Golden have to worry about new competition except for in-progress Durango Station. Heck, Silverton just took its hotel off-line for a thorough makeover, so there’s business to be picked up. Not even the reopening of Palms Casino Resort has made a dent in the big three’s business.

Although Santarelli predicts an announcement on the August 9 earnings call, he doesn’t think Texas Station, Fiesta Henderson or Fiesta Rancho will reopen, especially given that Station has retained 90% of their revenue at a much lower labor cost. The trio of derelicts sits on 110 acres of land, which Santarelli values at $350,000/acre. Ditto the remainder of Station’s vast land bank. Unlike its two rivals, Station is handicapped by being a Vegas-only company, which makes it uniquely recession-vulnerable (as has been seen in the past) but Deutsche Bank’s data suggests that the Vegas economy is the least of anyone’s worries.

While we’re on the subject of decelerating gambling revenues, Indiana was down 4% from last June, grossing $197 million and badly missing a Deutsche Bank estimate of +2.5%. Hard Rock Northern Indiana vaulted 28% to $33 million, ripping big chunks out of Horseshoe Hammond, falling 18% to a still-impressive $28 million, and Ameristar East Chicago, plunging 25% to $16 million. By comparison, Michigan-facing Blue Chip was on par with the Hoosier State, down 4% to $10.5 million. Despite being 5.5% down, Horseshoe Indianapolis logged the third-best gross in the state, $26 million. Its sister racino, Harrah’s Hoosier Downs slipped 8% to $19 million.

Lowest earner was Rising Star, off 4% to $3.5 million. French Lick Resort dipped 6% to $6.5 million, while rebranding continues to power Bally’s Evansville, up 9% to $13.5 million. Hollywood Lawrenceburg grew 3.5% to $14 million, as Caesars Southern Indiana held steady at $19.5 million. Belterra Resort slid 9.5% to $7.5 million. Despite modestly higher handle ($256 million), sports betting revenue plummeted to $16 million on low hold. A third of all handle went to FanDuel ($5.5 million in revenue), closely followed by DraftKings with 30% ($3 million), with BetMGM a distant third at 14% (but $3 million of revenue). Caesars Sportsbook was described as comfortable at 11%, while BetRivers, PointsBet and Barstool Sports took home participation trophies, averaging 2.5% apiece.

Sports books in New York State raked in $72 million last month, which was $35.5 million after the tax man took his share (and before promotions, which went undisclosed). Revenue takings were proportional with handle, although Caesars, which debuted so strongly, has faded deep into the pack. FanDuel took home $40 million, remotely followed by DraftKings ($16 million), Caesars ($6 million), BetMGM ($6 million), PointsBet ($2 million) and BetRivers ($2 million). Latecomers WynnBet and Resorts World recorded no revenue, which bodes ill for newest arrival Bally’s.

Jottings: $18/hour is the new base scale for Unite-Here-repped workers in Atlantic City casinos, per a contract ratified overwhelmingly on Monday. Now the pressure is on Resorts Atlantic City and Golden Nugget to ante up … Florida sports betting will hang fire at least until sometime next year, judging by the docket laid out by the Court of Appeals for the District of Columbia Circuit. What was supposed to be a signal, money-spinning achievement for the Seminole Tribe and Gov. Ron DeSantis (R) has blown up in everyone’s faces, as the underlying compact was always on shaky constitutional ground … Despite being the top-grossing casino in Pennsylvania, leader Hollywood Penn National will not bring back poker. Like those at Harrah’s Philadelphia and Presque Isle Downs, the Penn poker room is a casualty of Covid-19 and high labor costs … Mark Wadley is the new chief marketing officer at Aristocrat Gaming, while Deanne McKissick has been installed as chief supply chain officer. We don’t envy McKissick her remit these days … Casino Canberra has sold for $43 million to Iris Capital. The sale marks the exit of Hong Kong banker Tony Fung, who presided over a protracted bidding war for the property.

Quote of the Day: “Trifles make perfection and perfection is no trifle.”—Michelangelo