Mega-January on the Strip; Much ado about Caesars

January’s Nevada gambling-revenue numbers are out and the Silver State topped $1 billion yet again, a 41.5% boost over last year. However, some jurisdictions manifested slight declines, a sign that casino activity may be “normalizing” after a heated 2021. To get that out of the way, the Elko area was flat, with Wendover ($21.5 million) down 2%, while Lake Tahoe dipped 4% to $17 million. Nearby Reno gained 8% to $74 million. The Las Vegas Strip vaulted 76.5% to $587 million while Downtown climbed 38.5% to $68 million. Strip numbers were clearly aided by a 109% increase in passengers passing through Reid International Airport, some 3 million strong. International travel, while slim (94K passengers) was up 337.5%. North Las Vegas eked out a 6% gain to $22 million and the Boulder Strip jumped 28.5% to $85 million. As for drive-in (or would that be ‘drive by’?) markets, Laughlin made $42 million (+26%) and Mesquite was up 11% to $14.5 million, while miscellaneous Clark County brought in $130 million, a 15% uptick.

One of the companies benefiting from a year-end surge on the Strip was Caesars Entertainment, whose Las Vegas cash flow came in $4 million higher than Deutsche Bank analyst Carlo Santarelli projected, while regional EBITDA was $4 million lower, in a weird kind of symmetry. The company lost $434 million on revenues of $2.6 billion. Losses in the digital sphere were higher than expected ($305 million instead of $296 million) and cash flow from managed properties also fell short. Occupancy on the Strip averaged 86%: 83% on weekdays but 94% on weekends. 1Q21 isn’t looking as strong, January having averaged 75% (Consumer Electronics Show, whither art thou fled?), improving to 80% this month, then a projected 85% in March. Added Santarelli, “Group attrition remains elevated, as per management, while groups made up about 10% of occupied room nights in the 2H21. Management noted that it expects 2H22 group to improve and that it booked $160 mm of revenue related to new group activity in the 4Q21.”

Although brick-and-mortar casinos were treated almost as an afterthought, Caesars defended soft regional numbers on the grounds that room inventory in Atlantic City was limited, blamed vaccine and mask mandates in New Orleans, and cited construction costs in Lake Charles. Cash flow regionally was up 70% last year from 2020, despite $30 million worth of “headwinds” on the Boardwalk and in the Big Easy. $300 million is being budgeted for casino maintenance this year, with another $100 million set aside for digital upgrades.

The Deutsche Bank analyst estimates that the much-ballyhooed Strip secret-asset (pictured) sale will reduce CZR’s exposure by 15%. However, management continues to perform a fan dance, even as Planet Hollywood is heavily tipped as the resort on the market. Since CEO Tom Reeg has explicitly desired a $2 billion-plus sale price, Planet Ho is the obvious hotel to shop, especially if Reeg can bear to part with the conjoined Zappos Theater, a sticking point of previous sale talks. Reeg could use the dough, especially as the interactive sphere continues to bleed negative ROI. Caesars is expected to take a $953 million minus cash flow bath on digital this year, numbers which should make investors blanch. Santarelli reports that “NY promo spend is likely to erode the entirety of the sports betting verticals net revenue for the 1Q22.” Caesars’ rather naive response is to sack the Manning Brothers as spokespeople and go upscale in its marketing, narrowcasting which we don’t think is likely to help.

National sports betting market share (driven largely by Nevada and New York State) is up to 21%, while Caesars holds a 6% market share of i-casino play. Caesars Rewards members represent 28% of new enlistments and roughly half of the action. Having spent $450 million on marketing in the last half of 2021, Caesars is expected to cut that by as much as 40% (Goodbye, DJ Smoove?) Cash flow won’t turn positive, per Santarelli, until the year after next. “Over time,” penned Santarelli, “we think CZR’s ROI will prove to be stronger than that of some peers, on an apples to apples basis, as we believe scale will be the single biggest determinant of the margin profiles within the iGaming segment.” While on the subject of CZR, we doubt it was mentioned on the earnings call (we were covering Bally’s Corp.), the ubiquitous Guy Fieri is penetrating Arizona by dint of a restaurant within the Caesars Sportsbook at Chase Field, home of the Arizona Diamondbacks. Job applications are already being taken.

Atlantic City casinos are blowing smoke again about the supposed perils of banning tobacco from their premises. A casino-commissioned study concluded—guess what?—that there would be dire Year One consequences to a smoking ban, cats and dogs would live together, etc. Replied Americans for Nonsmokers Rights CEO Cynthia Hallett, “First, the study fails to account for the typical rebound in revenue and jobs that occurs after one year of going smokefree. Why is there no projection in their report about what happens after the first year? Second, the gaming industry fails to account for the current employment numbers that are far below pre-pandemic levels and how they have become accustomed to operating with fewer workers. Claims about job losses are not based on current employment levels.” Good on Hallett for calling out the casinos for their bare-bones staffing. Meanwhile, an anti-smoking bill in the New Jersey Lege garners more and more bipartisan support, even as Mayor Marty Small (D) continues to dither.

Then Hard Rock Atlantic City President Joe Lupo stuck his foot in it. He derided anti-smoking protesters, saying “I don’t believe that 30 people walking down the boardwalk represent the 21,000 employees.” Fired back clean air advocate Pete Nacarrelli, “Joe Lupo should not be mocking casino employees who simply want a safe workplace. Whether it’s 30 workers or the thousands who have joined CEASE, we deserve respect and a voice in our own health and safety.” Forbes, of all unlikely allies, also viewed Lupo & Co.’s grim forecasts with skepticism. It reports that the baccarat room at The Claridge was known as “The Dungeon,” filled with “a stinky fog” according to one casino veteran. As Naccarrelli told Forbes, “You can’t smoke outdoors on the beach because you’ll hurt the seagulls, but you can smoke in my face.”

Spectrum Gaming Group based its questionable findings (11% less revenue, $44 million less taxes and 2,500 fewer jobs) on the conclusion that smokers gamble more heavily than nonsmoking ones … tell that to Parx Casino, revenue leader in Pennsylvania by a significant margin (and smokeless). Spectrum values a smoker 25%-50% more than a nonsmoker. Wailed Lupo, pining for revenue levels from 22 years ago, “this just isn’t the right time to consider another negative impact to the city that’s trying to rebound.” Responds state Sen. Vincent Polistina (R), “you might have more people in the casinos who would be happy that there’s no more smoke. If it passes, I think employees win, I think the operators win when you end up with more people in those buildings.”

Luckily, Lupo appears to be on the losing side for once. Global Gaming Business Publisher Roger Gros, the most gaming-supportive figure in the casino trade press, just published a jeremiad entitled, “Enough Already! It’s Time to Make Casinos Smoke-Free.” He writes, “It was 1964 when the Surgeon General’s Office in the U.S. drew the link between secondhand smoke and cancer. So how can it be almost 60 years later and casinos haven’t really accepted this study?” And if you’ve lost Gros, you’re pretty much out of friends.

Jottings: We don’t give a fig about the new-look USFL but isn’t it ironic that a team called the “Houston Gamblers” is based in a state where gambling is all but forbidden? Especially in a league predicated on sports betting … We’re calling on all S&G fans to speak up on behalf of “Hank the Tank,” a half-ton black bear who, unafraid of humans, keeps breaking into Lake Tahoe homes. Isn’t there a zoo that will take Hank? Warning: cute bear footage … Churchill Downs is gobbling up Peninsula Pacific, meaning it will inherit problem child Del Lago Resort & Casino (pictured) in upstate New York. The entire deal is valued just short of $2.5 billion. Local officials hope this means a Del Lago cash infusion … Speaking of capital infusions, Genting has earmarked $298 million to refresh Resorts World Sentosa in Singapore. The megaresort posted a $183 million profit for last year … Sports betting will come to Milwaukee. The massive Potowatomi Hotel & Casino has compacted with Gov. Tony Evers (D) through 2061 and will invest $150 million in a brand-new sports book … SCOTUS will mull the case of tribal Speaking Rock Casino versus the State of Texas. The justices wore their best poker face despite voicing some frustration with local guvmint for “regularly turning to the courts to determine even minute details of operations.” Good luck splitting this baby.

Quote of the Day: “Life changes fast. Life changes in the instant. The ordinary instant.”—novelist Joan Didion