Full House flopping; The bull case for gaming and Vegas

We tweeted after the opening of The Temporary at American Place (yes, that’s its cumbersome nomeclature) that it was “a hit.” We were wrong.

According to Full House Resorts CEO Dan Lee and CFO Lewis Fanger, The Temporary eked out just under $1.5 million in gaming revenues during its first two weeks of operation. (The State of Illinois says $3 million.) That’s $80 per gambler per day in the first week, $97 in the second, according to Lee. Full House is trying to spin these numbers as average for an Illinois casino. Trouble is, the company led us to believe The Temporary (and its eventual permanent successsor) would be above average, especially as it sits in prosperous Lake County, with outmoded, antediluvian riverboat casinos its nearest competitors. So you will forgive us if we are underwhelmed by its debut.

Stock boffins were treated to a fair amount of revisionist history by Full House. Now, for instance, opening without an Illinois database is realized to be a severe handicap. And we were told that Chicago denizens don’t drive to Lake County if they can help it. So why is Full House splurging on billboards along the expressway from downtown Chicago to O’Hare International Aiport? We’ve seen them.

Full House had two excuses for its underperformance. The first is that The Temporary is grossly understaffed (think 50%), virtually eliminating on-site dining and crimping the number of operational table games to 28. A purpored failure by a slot machine provider has also rendered 100 one-armed bandits hors de combat, a blow to a casino heavily reliant on slot profit margins. The second excuse is that The Temporary isn’t open around the clock yet. But it’s only closed from 4 a.m. to 8 a.m. How much gambling revenue could be racked up in those four graveyard-shift hours?

By its own admission, Full House leadership was stampeded into opening The Temporary on 24 hours’ notice of approval by the Illinois Gaming Board, in part by public curiosity and in part (although Lee is too polite to say this) by the impatience of Wall Street analysts, whose myopic near-term focus has driven many a bad business decision in Big Gaming. Full House would have done better to keep its Waukegan powder dry until staffing levels were plausible and the casino (such as it is) was truly ready to be seen.

Fanger’s best bit of spin doctoring was to say, “The way I view the opening of The Temporary was as a massive deleveraging event.” That’s one way to look at it. Already, Lee and his CFO are looking past Waukegan to the autumn opening of Chamonix in Colorado, with the CEO predicting it will do 10 times the revenue of predecessor Bronco Billy’s. It needs to, if only to reverse a series of quarterly losses on the FLL balance sheet. Meanwhile, Lee has three years to get American Place (above) up and running, and has to be hoping he gets a second chance to make a first impression.

Speaking of Illinois, gambling revenues vaulted 19.5% (on a same-store basis) in February from 2021’s numbers, notching $115 million. The comparison may be more difficult this month, as it marks the first anniversary of Gov. J.B. Pritzker‘s lifting of the statewide mask mandate, which is still privately enforced in some sectors of the Land of Lincoln. Full House failed to make a dent in Chicagoland champion Rivers Des Plaines, whose $43 million represented a 35% catapult. However, Grand Victoria ($12 million, -1%) and Harrah’s Joliet ($10.5 million, flat) do not appear to have been as fortunate. One of Dan Lee’s bete noires, Empress Joliet, improved 12% to $7.5 million. Hollywood Aurora inched up 1.5% to $8 million. Against such numbers, The Temporary might be said to have entered not with a bang but a whimper.

Hard Rock Rockford continued to grow its audience, leaping 42% to $5 million, while $5 million was also garnered by Bally’s Quad Cities, a 28% climb. Similarly impressive data was posted by Argosy Belle ($3 million, +30%), DraftKings Casino Queen ($7 million, +20.5%), Par-A-Dice ($5 million, +24%) and Harrah’s Metropolis ($5.5 million, +21%). Indeed, it was a darned good month for almost everyone, we are pleased to say.

Deutsche Bank analyst Carlo Santarelli was chewing the fat with Las Vegas‘ top operators and manufacturers last week, and came away bullish: “Broadly, we believe trends remain stable/consistent across the Las Vegas markets (Strip & Locals), while regional markets also continue to show stability, despite recent headline GGR results that imply an acceleration, relative to 2019, which we believe stems more from the favorable weather experienced to date in the 1Q23,” he wrote. This month should manifest “outsized demand,” thanks to NASCAR, multiple March Madness tourneys, CONAG and a UFC fight, one hopefully untainted by scandal.

Of course, labor talks loom ahead, with operators probably feeling the pinch after June. But Formula One comes to Big Gaming’s rescue in November, fattening the fourth quarter. Added Santarelli, “Despite the return of the group and convention customer, casino room night mix remains elevated, relative to 2019, for the Strip operators. In some instances, the uptick is modest, while others have meaningfully expanded their allocation of rooms to casino customers, from pre-pandemic levels.”

As for the long-ballyhooed recession, “from a gaming perspective, declines in spend per visit on the gaming floor will be tougher to mitigate, should they emerge, with decremental margins akin to the tax affected impact of the lost revenue dollar.” Interestingly and with regard to regional gambling, Santarelli thinks the Baby Boomer-and-old customers lost to Covid wariness are gone, never to return.

Santarelli referenced the Culinary Union, which was duly tilting at windmills last week, namely its quixotic pursuit of a state lottery. Big Gaming, it growled, “is content with Nevada being last in the country in mental health and close to last on education.” Can one have it both ways, promoting both youth education and a form of gambling (lotteries) that some argue preys disproportionately on the young? (Recall, most state lotteries have an entry-level age of 18, compared to Nevada’s 21-and-over casino requirement.) Yes, the Nevada Resort Association is saving its bacon, much of which would be gobbled up by a lottery. But that doesn’t mean it isn’t occupying the moral high ground.

Is it a radical notion to propose that Nevada’s pitiful mental-health infrastructure and laughable education system couldn’t be improved without introducing a new mode of gambling? For that matter, what about puny funding for the treatment of problem gamblers, which one governor after another has raided in moments of financial and moral desperation? Nevada’s business community is content to chew gamblers up and spit them out. We can do better.

We and the Nevada Gaming Control Board were duly impressed with Bally’s Corp.’s new CEO, Robeson Reeves, who is (we believe) the first Black CEO in gaming. Also receiving praise was the composition of Bally’s board, which includes five minorities and two ladies. That’s a salutary example for other casino companies, particularly Station Casinos, with its frat-house collective of five old white guys. They don’t even pretend to be concerned with diversity. Bally’s doesn’t make a lot of good decisions but Reeves is one of them.

Finally, Massachusetts regulators are still in fire-ready-aim mode when it comes to sports betting. They’re rushing mobile-wagering rules to market to make an impending target date for OSB in the Bay State tomorrow. It looks like they’ve learnt nothing from the maladroit launch of retail betting. Among the new rules is one that allows operators to 86 people of “a notorious or unsavory reputation”—does this include Dave Portnoy? As the Massachusetts Gaming Commission explained, “An individual can be added to the list for misconduct in either sphere, and individuals on the list must be both physically excluded from casinos and prevented from placing sports wagers through a mobile or digital platform.” (Yes, Massachusetts has a Black Book of its own.)

One company not dashing onto the scene, despite being approved to do so, is micro-obscure, microbetting-oriented Betr. Finding discretion to be the better part of valor it is refraining from deploying its apps until they’re ready. (A radical idea in gaming.) As for the MGC, it made at least one good call when it decreed that operators could only round winnings up, not down. Score one for the customer. Unfortunately, the MGC was unable to agree what constitute “obvious errors” that would lead to the voiding or repricing of bets, leaving operators with a troubling amount of wiggle room.