After hanging out with CEO Tom Reeg and Senior Vice President of Finance Brian Agnew, analyst Joseph Greff of J.P. Morgan came away “upbeat” about Caesars Entertainment. His optimism centered on three salient points: “Las Vegas strength and momentum”; “a path towards meaningful profitability” for CZR’s digital assets; “appealing free cash flow generation.” In Sin City, Caesars appears to be making money hand over fist. Attrition in group bookings has fallen to pre-pandemic levels, ADRs are much higher (think double digits) and occupancies average 95% or so. Given the absence of such 2022 headwinds as high utility costs, Omicron and a good-but-not-great event calendar, 2023 looks as though it will be very good indeed, leading into the 2024 Super Bowl, whose benefits should be obvious.
Regionally there wasn’t much to say. However, led by the opening of Horseshoe Lake Charles, the company is expecting bigger contributions from Louisiana and Indiana, as well as new ones from Nebraska and Virginia. Digitally, the company is currently breaking even and projecting a $500 million or greater positive ROI once the market matures. To do this, Caesars needs to get its i-casino market share to 10%, which is contingent on a number of “ifs.” Also, marketing and partnership expenses need to go down significantly (promotions currently consume 18% of gross digital revenue), and the sports betting and Internet gambling markets have to reach saturation point. That’s a tall order, which is not to say that the Roman Empire can’t do it. One could go broke betting against current Caesars management.
Greff also paid a visit to MGM Resorts International, chatting up CFO Jonathan Halkyard. Compared to his enthusiasm for Caesars, Greff was but “incrementally positive” on Leo the Lion’s prospects, despite a “very strong events backdrop” in Macao. Regarding the latter, Chinese New Year was said to have driven a “meaningful inflection” in MGM business, which aims to capture the upper end of the mass-market trade. Halkyard cautioned that MGM’s early 16% Macanese market share was just that, early. “MGM’s views on capital is that it belongs to the shareholders,” continued Greff, noting that the company has $5.3 billion cash on hand. Top priorities for that moolah are the acquisition of a resort concession in New York City, “continued pursuit” of a “slow moving” Japan megaresort and continued share buybacks.
On the Las Vegas Strip, MGM’s wheelhouse, convention guests are accounting for 20% of occupancy, a pre-Covid proportion. “Transient guests,” primarily in town for events, represent another 40% to 50%, while hardcore gamblers make up the remaining 30%. “MGM is seeing younger players (who spend more on average) and strength across slots and tables.” While Caesars management had forecast 5% great 4Q23 cash flow thanks to the Formula One racing, Halkyard thinks that can be exceeded by his company, which is strategically located along the race route. Profit margins along the Strip, Halkyard thinks, can be maintained, thanks to 15% fewer employees and “more refined” (i.e., fewer and pricier) F&B offerings.
Before the ink could dry on analyst predictions that Golden Entertainment would unload its slot routes, the company did that very thing. It liquidated its Nevada and Montana routes to J&J Ventures for $362 million, a nice 9X cash-flow multiple. J.P. Morgan analyst Omer Sander was a fan. He wrote that the deal would simplify Golden’s business model and “remove a drag” since investors had ascribed a mediocre valuation to ‘distributed gaming,’ as it’s politely called. Not only does this make Golden more attractive as a takeover target, it also funds the company to either buy back shares or add more Nevada casinos, as it says it wants to do. Since Golden will now be a Nevada-only company, that would tip Station Casinos a logical buyer for its remaining assets.
“In short,” Sander summarized, “the deal is good for the average institutional investor given the sale premium valuation to where GDEN trades and also for other operators looking to grow inorganically in the Nevada casino/tavern market.” As for J&J, it is hardly an unknown quantity, being the predominant slot-route operator in Illinois, where it has bled casinos dry.
Next stop Hesperia? Despite the odds against it, the Brightline SoCal-to-Las Vegas rail line appears to be a go. Backers of the bullet train say they have reached what is described as “a landmark labor agreement” involving 13 unions and encompassing thousands of workers. That’s a herculean achievement. The big question now is whether the 200-mph project can stay on its $10 billion budget. High-speed rail in California has been subject to severe cost overruns. Still, we hope the train succeeds and at a reasonable cost.
Remember when Book of Virtues author William Bennett was outed as a Sin City slot flea? There’s a new entrant into the Vegas library of infamy. Lawyer and self-styled “slot whisperer” Sara King recently infiltrated the Wynncore slot floor, nearly evading detection by casino surveilance by means of a simple disguise, one that aroused suspicion. There was good reason for King to be trespassed, as she was. She’s being sued for allegedly bleeding her eponymous investment firm dry to finance as six-month stay in a Wynncore luxury villa (comped), while she and hubby Kamran Pahlavi, fallen Iranian royalty, gambled vast sums on the casino floors.
To explain away her gambling proclivities, King claimed to have “cracked the code” of slot machines (that’s a good one) and apparently came out a bit ahead in her Strip spending spree. King got her start in the notorious hard-money-lending racket, which normally preys on retirees and widows. In her case, according to the Wall Street Journal, “this business operated as a licensed luxury pawn shop—where often dicey clients could offer up collateral, jewelry, luxury cars, or any pricey merchandise, to access cash quickly (at a higher rate than traditional loans, of course).”
King may have beaten the house but her activities decimated the fund and ruined her clients. Her husband also left her, claiming, “I had been living with a female version of [Bernie] Madoff all these years.” King wasn’t just fleecing the wealthy, it seems. She’s said to have scammed a Wynncore cocktail waitress out of her $5,000 nest egg, saved from tips. Even King’s own parents went bust and are now living with another daughter. Wynn Resorts, to its credit, is cooperating with the FBI in an investigation of this supposed shyster. Still, Wynn may have some ‘splainin’ to do regarding King’s apparent evasion of the Bank Secrecy Act, which should have red-flagged her gambling activities. In the meantime, Resorts World Las Vegas has taken her business and the WSJ has the photo to prove it. Like a bad penny, it seems, King will keep coming around, even when he she’s homeless and on the lam.
Extirpating illegal gambling is always a headache for law enforcement, nowhere more so than in Los Angeles, where a cottage industry of black-market casinos, called casitas, is flourishing. So is violent crime. It’s an offshoot of the Mexican Mafia, by way of L.A. street gangs. The tradeoff is that gang bangers allow the casitas to operate on their turf in return for a cut of the dough. Bust one casita and 20 more spring up to replace it. “Those suspected of stealing from casitas have been beaten, shot, kidnapped and killed,” reports the Los Angeles Times. “It’s hidden in plain sight. You don’t know that it’s there till you know that it’s there,” Det. Richard Velasquez told the LAT.
So predatory are these outfits that they’re not above trading EBT cards—California’s version of Food Stamps—for casino credit. And you thought that sort of stuff only happened in Macao. It’s not just Latino-on-Latino crime: Asian-Americans and vendors of Armenian descent have also been leaned upon. The gangs act as enforcers for their Mexican overlords, extorting protection money. The consequences for those who don’t pay or are suspecting of taking money from the boss can be fatal. The casitas are so pervasive (one was masqerading as a knitting shop, The Slipt Stitch) that it’s almost a cause for despair. Hopefully the legitimate industry and law enforcement can get their arms around what is obviously a very scary phenomenon.
Staying on the police blotter, Las Vegan Victoria Partridge isn’t happy with the justice she received following the sentencing of several attackers in juvenile court. The defendants had assaulted Partridge, an Uber driver, last June 19. They then took Partridge’s tip jar (isn’t that why Uber has online tipping?) and cell phone, and vandalized her car, throwing a drink in her face to add insult to injury. Although the party girls turned hoodlums got thrown in the clink, where they’ll become somebody’s bitches, Partridge wants closure. “I still didn’t get an answer. I really would like to hear the answer from at least one of these girls why, why they did it.” So might the teenage siblings who endured a beatdown from the same band of outlaws near The Strat that same night. (The girl gang may have gotten away with a third crime, a robbery and stabbing.)
For her part, Partridge, who had supported herself solely from Uber, wants to be anywhere but Sin City. “We both now start thinking about relocating to some other state where to find a job,” Partridge said of herself and her husband. “For me, it’s going to be easier than in Vegas.”
Jottings: Gall, thy name is the National Football League. Having self-righteously railed against gambling for decades, the league is now going all-in on team-themed slot machines. They’re even soliciting fan input on the designs. You’ll able to see the fruits of this shamelessness at Global Gaming Expo next fall. We’re hoping the players’ union goes after a cut of the proceeds … What’s the hottest casino outside Las Vegas? That’d be MGM National Harbor, which won $884.5 million from gamblers last year. “It is uniquely positioned in a dining and entertainment district, and not far away is the Gaylord Hotel, a major conference and convention center, so they’ve got things going for them at National Harbor that other casinos don’t have,” explained reporter Bill Ordine … In Oklahoma, the Osage Hotel & Casino appears to be progressing nicely after a year-long delay caused by supply chain problems. Located near tourist-magnet Pawhuska, the casino will offer a modest 47 hotel rooms … Speaking of hotels, 4 Bears Casino & Lodge in frigid North Dakota is adding a seven-story one. The $95 million project will entail demolishing the existing, low-rise hotel and adding 264 brand-new rooms. It’s an enterprise of the Three Affiliated Tribes, who also hold land on the Las Vegas Strip …
In a modest evolution of his quasi-stance on casino legislation, Texas Gov. Greg Abbott (R) says he won’t oppose it—provided it “doesn’t go overboard.” That’s Abbott for you, always leading from the rear. In a more substantive development, Lt. Gov. Dan Patrick (R), who sets the agenda in the state Senate, has toned down his anti-casino rhetoric this year … A new Dry Creek Rancheria casino in Sonoma, California, is a “go” after the county Board of Supervisors gave it their assent. The long-aborning project (three years of negotiations) will offer 1,500 slots and a 300-room hotel, and is arms-race response to expansion at nearby Graton Resort & Casino.