Managing expectations was the order of the day for Caesars Entertainment, which had guided Wall Street to expect cash flow of $930 million. That included a 5% revenue disappointment on the Las Vegas Strip, despite 98% occupancy. The quarter could have been better were it not for salary increases (we thought the company had made provision for that; it certainly said it had), construction-related disruptions in New Orleans and Indiana, the loss of 65,000 room nights at the Versailles Tower of Paris-Las Vegas and Colosseum Tower at Caesars Palace, and adverse sports betting hold as punters did well. Caesars execs warned stock boffins not to anticipate too much from 1Q24, saying January was “a debacle” thanks to dreadful weather. In the same breath they said, no matter, it’s “a seasonally slow month.” So which is it?
Even so, the tribunes of the Roman Empire were expecting growth in their digital, Las Vegas and regional segments this quarter. They were dismissive of the April-December 2023 regional performance, saying it was not “anything to write home about.” Anyone else getting whiplash from the mixed signals? Deutsche Bank analyst Carlo Santarelli reported that “management noted that forward booking indicators for both occupancy and rate in Las Vegas are encouraging.” Also, Sin City convention business is looking good even in comparison to a robust 2023 (17% of room nights). Formula One underperformed, adding 4% to quarterly cash flow, one-fifth less than predicted. CEO Tom Reeg voiced some sanity regarding F1, saying tickets needed to be more affordable and that middle-end resorts must benefit, not just the high-end ones.
Said Reeg, “The lowest-end ticket was pricey [$677] by any definition. I expect there’s a more approachable participation that’s going to be helpful for properties that didn’t get to participate as much this year. At Caesars, and in my discussions with MGM and Wynn, we’re all aware that if only a few buildings in the market benefit from this, it’s not going to be a super long-term event.” Still, he prophesied that FU, er, F1 would be “even better” this year. It certainly couldn’t be much worse for the average person.
Joseph Greff of J.P. Morgan stood pat on his $54/share price target, citing “lower F1 benefit at its lower-end LV Strip properties, softish regional results and some renovation disruption in NOLA, and low OSB hold (related to customer-friendly football outcomes in November).” He revised some of his cash-flow projections for 2024, though, including a $192 million positive ROI on digital business. He wasn’t buying the narrative of brick-and-mortar revenue growth but wrote that “it speaks to management’s view on a strong group and event calendar in Las Vegas, not too hard regional comparisons and lift in this segment from recent as well as soon to be completed project capex, and Digital momentum, particularly in iCasino.” He added that Caesars has underperformed MGM Resorts International in 4Q23, “reflective of poor investor sentiment and providing an attractive entry point.“
Causes for optimism include the debut of Caesars New Orleans this autumn, in plenty of time for the 2025 Super Bowl. Also coming on line will be permanent casinos in Virginia and Nebraska, replacing slots in quonset huts. The company also expanded its online presence in Michigan by buying out fading WynnBet and inking an alliance with the Sault Ste. Marie Tribe of Chippewa. The Roman Empire has $1 billion on hand against a staggering $12.4 billion of debt, but kicked the debt-maturity can all the way into 2027. Not great but not bad.
Whereas Caesars did a masterful job of containing Wall Street’s optimism, Bally’s Corp. seems to have screwed the pooch. We didn’t think the 4Q23 results sounded all that bad (including a 7% revenue increase) when we covered them. However, they didn’t move the needle for the low-priced stock ($10.40/share) and Santarelli was displeased. He noted that the results, while “healthy,” missed both his and The Street’s expectations. The quarter, though, did vouchsafe better-than-expected cash flow, thanks to improved operational margins. Still, Santarelli wrote, “we believe guidance is likely to spook investors.” Wall Street was anticipating 2024 cash flow of $718 million but Bally’s guided it to as little as $655 million, including a $30 million negative ROI on North American online operations. The shortfall includes $10 million in Tropicana Las Vegas cash flow and slow-to-start Bally’s Casino in Chicago, whose $50 million/year target has now been pushed into the latter half of 2024. Allowing for regional “malaise” (Bally’s execs differed), Santarelli conceded that the company “managed the business fairly well.”
In the course of shaving a dollar off his $15/share target, Truist Securities analyst Barry Jonas wrote that Chicago “is starting to ramp nicely, though we believe investors still have uncertainty around the permanent facility (inc. project financing).” Indeed, CEO Robeson Reaves had to reassure the assembled analysts that Bally’s had $1.1 billion in construction costs funded. Although they didn’t say so, Bally’s numbers probably reflected “wage pressures, increased competition at Evansville and some conservatism around the macro environment,” as Jonas astutely observed. An unexpected bright spot was Bally’s Atlantic City, which posted its first fiscal-year profit. Jonas called it “particularly strong.”
Getting back to the Las Vegas Trop, Bally’s clearly doesn’t have a plan for the property. More importantly, it doesn’t have the money. Surprisingly little attention has been paid to the company’s admission, at ICE London, to Jefferies Equity Research analysts that “alternative redevelopment plans are being considered in view of the current balance-sheet constraints.” In other words, we’re tapped out. Vital Vegas has been predicting this for several weeks now and proves prescient. Bally’s plan, such as it is, is to dance attendance upon Oakland Athletics owner John Fisher and his nebulous agenda for that corner. Reaves said construction of Fisher’s undesigned (no current renderings have been seen), phantom ballpack “will likely begin” this summer. Note the qualifier, folks. And if it doesn’t begin, both Bally’s and the A’s—who are set to begin Sin City play in 2028—are SOL, especially Bally’s, which would become the second casino company left at the altar by the feckless Fisher.
Big plans are in the offing for expansive Churchill Downs. The company announced two big-ticket development projects this week, namely $100 million Owensboro Racing & Gaming, in Kentucky, and $460 million The Rose Gaming Resort, in northern Virginia, set to debut in September. That should soften the pain of CHDN’s election-night pasting. Live racing, pseudo-slots (“historical horse racing”) and strong online performance helped the company beat Jonas’ cash-flow projection by 8% (reaching $219 million). Although The Rose is three months behind schedule, Jonas liked CEO Bill Carstanjean‘s increased investment in it, writing that the CEO was “signaling continued confidence in the [Virginia] market.” Casinos ($113 million in cash flow) were a relative disappointment for the analyst, driven mainly by former Peninsula Pacific properties in New York State and Iowa. Beyond that, the 4Q23 results were mostly inside baseball.
Is the governor of the great state of Illinois crazy? Gov. J.B. Pritzker (D) is calling for the state’s tax on sports betting revenue to be catapulted from 15%, which seems reasonable, to 35%, which would be downright confiscatory. Heck, he’s already booked the revenue for his next budget and wants the Lege to enact the upcharge stat, as in by July 1. Pritzker comes from a gaming background, so he should know better than to kill the golden goose for some paté. His rationale?
Sports books evidently deserve it, as they’ve had the temerity to make money. Or, as his spokeswoman starchily put it, “Sports betting companies have seen exponential growth in recent years and are immensely profitable despite tax rates. This increase will help fund Governor Pritzker’s commitment to supporting working families while putting us in line with rates from many other states.” The “despite” is telling. We never knew that taxes were meant to keep one from making a profit. We’ve always liked Pritzker but he’s gone off the deep end here. If he succeeds, he could wipe out several also-ran operators and discourage other ones (like BallyBet) from entering the market. And rightly so.
Jottings: You might want to think twice before placing a sports bet. New Jersey Division of Gaming Enforcement boss David Rebuck said yesterday, ““You can’t be anonymous. We know where your money is coming from. We know you have money … and we save it forever.” Big Brother, much? … MGM Resorts International executives were described as “bullish” on the futures of Las Vegas and Macao (above), slightly more cautious about BetMGM. Also, prospects for a newly launched alliance with Marriott International look phat … DraftKings’ takeover of lottery middleman Jackpocket played well on Wall Street. Wrote Deutsche Bank analyst Carlo Santarelli, “While the purchase price is not insignificant, given the current equity valuation of DKNG, we believe the deal is prudent.” … Rivers Portsmouth showed the value of opening a permanent casino rather than a quick-and-dirty temporary one. The resort outflanked Caesars Virginia and Hard Rock Bristol with almost half of January’s $53 million haul … In Washington, D.C., bad news is snuck out in the dead of night, like a body flung from a moving car. Such was the case with the resignation of National Indian Gaming Commission supremo E. Sequoyah Simermeyer, which takes effect tomorrow …
Despite gloom-and-doom proclamations from Wall Street, U.S. casinos had their best year ever in 2023. They won $66.5 billion from evidently recession-skeptical gamblers (tribal casinos chipped in another $41 billion), a 10% increase from 2022. Sports betting evidently acted as a ‘gateway drug’: “As a form of entertainment, legal sports betting might be a new and novel experience for many patrons, and with its relatively low cost of entry, may be attractive to them even if their discretionary spending budget is limited,” opined Stockton University‘s Jane Bokunewicz. The number-one casino outside Nevada was Resorts World New York City, by the way … Remember poker rooms? The Venetian‘s will move to Grand Canal Shoppes [sic] and be downsized by nine tables. We’re not sure if this is a desperation move or a lack of confidence in retail, usually a Venelazzo strong point … Just in time for warm weather, Durango Resort is debuting its Bel-Aire Backyard. The 65,000-square-foot amenity will offer dining, two waterside bars and a hot tub (in case you weren’t warm enough) … Walking back a bad decision, Fontainebleau Las Vegas is offering tier matching (again). However, in a(nother) bad decision, F-blue rescinds the offer as of June 2. Better hurry … Month in and almost month out, the Atlantic City iteration of the Golden Nugget languishes in last place. Perhaps that’s what motivated Landry’s to roll out a big-ass room renovation later this year … Chinese New Year was boffo for Macao, where tourism surged 164%. That’s almost equal to 2019 figures, as hotel occupancy ran at 98%.