BetMGM saves company’s bacon; Whither the Palms?

Seesawing between the effects of closures and capacity restrictions, Detroit casinos were down 28% last month. They grossed $87 million, led by MGM Grand Detroit with $34 million (-32%). Breathing down MGM’s neck is MotorCity‘s $33 million haul (-21%), while Greektown lagged with $19.5 million (-20.5%). Walk-up sports betting was a smash, with $4 million in revenue realized in just nine days on $36 million in handle. The numbers for online wagering and i-gaming aren’t in yet but they should be impressive. So, all things being equal, it could have been much worse.

Elsewhere in the MGM Resorts International empire, 4Q20 numbers were reported by Deutsche Bank analyst Carlo Santarelli and they send one reeling. Las Vegas was a black hole of nothingness, plunging 66.5% ($480 million), while regional operations were better—if one defines “better” by being 34% off 2019’s pace. At least they brought in more money: $595.5 million. MGM China was nothing to write home about, being down 58% and winning $305 million. The disparity between Las Vegas and the rest of the U.S. was more pronounced in terms of net revenue, $53 million vs. $158.5 million, leading one to wonder if MGM reopened its Las Vegas Strip fleet too much and too soon. (More on that theme later.) Bad as these results were, JP Morgan analyst Joseph Greff had actually expected them to be worse, calling the numbers “unsurprising.”

Why so sanguine? OSB and Internet gambling were “objectively impressive” with BetMGM forecast to capture 15% of American OSB share and 20% of i-gaming action. (He wasn’t so chill about the Strip, lowering his cash-flow projections.) The good online news inspired Greff to boost his MGM price target from $32/share to $37. MGM leadership thinks business will not return to 2019 levels for a couple of years, projecting that it will be 90% of prior-year levels by late 2022. Greff is a bit more optimistic than that. Strip occupancy fell from 89% to 38%, thanks of course to nonexistent convention business, table-game wagering was 41% less (though the house won more often) and “properties are still being negatively impacted by capacity constraints, lack of demand/airlift, etc.”

The comparatively impressive regional casinos missed Greff’s forecast ($694 million) but cash flow was “strong” and the overall performance “reflects MGM’s destination-type regional properties.” We’re not going to dwell on Macao except to say that MGM casinos outperformed JP Morgan estimates and increased market share to an historic 12.5%.

Back to BetMGM. The company forecast as little as $150 million and got $178 million, and is expecting much, much more in the future. January alone saw $44 million in win. (A bit of good news that execs obviously couldn’t keep under their hats.) “BetMGM achieved aggregate sports betting/iGaming market share of 17% in markets where it was active,” Greff wrote. That includes 31% in Colorado and 34% in Tennessee, the former virtually online, the latter 100% so. Over a 10-day period in Michigan, BetMGM signed up 138,000 customers and won $13 million between retail and OSB. It’s spending less than $200/customer in promotional costs. All this bolsters our thesis that sports betting is going to THE gaming story of 2021, almost as much as Covid-19 was the definitive tale of 2020.

Speaking of casinos dependent upon the Strip, Station Casinos CEO Frank Fertitta III told investors that the Palms would reopen “when tourism returns” and not before. Which sounds a lot like ‘don’t hold your breath.’ It is important to remember that the Palms was struggling badly even when the rest of Vegas was living large and still faces the challenge of luring tourists off the Strip to an area dominated by locals. Not to mention that when tourism does return, Station will probably have to wait for the Strip to ramp up before a Palms relaunch. It’s all well and good to have restaurants by Bobby Flay or Tim Ho Wan but getting Strip-centric visitors off the beaten track and into the Palms is a marketing challenge the Palms has yet to solve. It’s a problem any new owner would be lumbered with, should Fertitta elect to sell. Not even Hard Rock International, whose brand would be just what the Palms needs, has been rumored to be of interest. The Fertitta Brothers thought big and comprehensively when they redid the Palms but so far have been defeated by that old mantra of location, location, location.

Rescue may be on the way, according to Truist Securities analyst Barry Jones, who predicts a “tidal wave of pent-up demand,” which he thinks will happen sometime this year. (Those of us who track vaccine rollouts are somewhat more cautious.) Jonas’ tipping point is “herd immunity,” which he pegs to a 75% vaccination rate. “By late summer, all adults who want a vaccine should have access,” he forecasts, which would put Vegas’ recovery a good six-twelve months ahead of where Las Vegas Sands and MGM see it happening. He’s predicting a 25% increase in hotel profits (gotta love those resort fees), adding, “When you look at the weekends, it’s basically been OK from an occupancy standpoint. It’s been close to 2019 levels. The question is more midweek. That’s the part we’re concerned about.”

Jonas’ message puts a damper on those who have been urging Sin City to re-reinvent itself as a bargain destination, ditching resort fees, paid parking, gratuitous drink and dining surcharges, and other nickel-and-dime irritations. If I were a casino exec reading his report, I’d keep my prices high on the assumption that consumers will dish out whatever punishment Big Gaming cares to levy and keep coming back for more. Convention business is a dicier prospect, from Jonas’ perspective. He tells Global Gaming News “there will be a lag,” partly due to health concerns and partly to cut expenses. “Whether it’s a few quarters or a few years remains to be seen.” At least he’s got polling on his side re: tourism. 63% of Americans surveyed “desperately” need a vacation and 84% are planning one, data that anyone in Las Vegas has to like.

In a huge setback for California card rooms, owner Larry Flynt has died at age 78. His obituaries will doubtless focus on his parallel careers as a pornography king and First Amendment crusader. But the SoCal gaming industry is going to lose its most high-profile and persuasive figure, something that the card room demimonde can ill-afford to happen, especially as it tries to get a piece of the action with regard to sports betting.

Philadelphia Live is getting serious about security. They’ve installed metal detectors at the entrance, probably a U.S. casino first (but hopefully not the last). A nearby strip-tease joint is ‘synergizing’ with Philly Live: An employee was seen hawking pairs of free drink tickets to casino patrons. Cordish Gaming‘s marketing still leaves something to be desired, according to our Atlantic City correspondent: “Upon entry we swiped our card for an amazing $20 free slot play. After playing and getting 50 points we were allowed to swipe our cards and get an additional windfall of $8 more slot play. I saw other people also getting the same $8 amount. Each hour twi people’s names were announced for prizes. The Jade Tier is an annual requirement of 1 million-2 million Points. Philly Live has a well-defined $1 = 1 point. We got our trade-up cards by having only a mid-level Hard Rock Royalty card, an incredible miscalculation by their marketing people. Both the Player’s Club and the high limit area people told me they will Not have a Player’s Club Lounge. Philly Live states ‘Let the benefits do the talking’ but should add ‘and the customers will go walking.'”