Wall Street meets Vegas, likes what it hears

JP Morgan analysts, led by Joseph Greff, are touring Las Vegas ahead of Global Gaming Expo and seem to like what they’re hearing. For instance, they met with Station Casinos CFO Steven Cootey and were told that demand continues to be strong, with customer spend tracking above pre-pandemic levels. Why? Customers are of a more gaming-centric stripe these days. Station “has been able to sign up, and retain, first time typically younger customers at a nice pace, with these customers being 2x as valuable as the pre-COVID level.” Baby Boomers started coming back commensurate with any slowing of new Coronavirus cases and increase in vaccinations. An influx of refugees from California (50% of all drivers’ license surrenders) is also bolstering the demographics.

As for Durango Station, Cootey says the company is sticking to its knitting (i.e., no more Palms-style adventures) and will announce a project budget on the next earnings call. They’re really milking that narrative for everything it’s worth. Management still has “no immediate plans” to reopen Fiesta Henderson, Fiesta Rancho and Texas Station. Small wonder, given that the latter two are in North Las Vegas, where the recovery has been very soft. Besides, their core customers have be rechanneled into other Station properties, much to the casinos’ benefit since the players in question are high-value ones. Marketing is being done more selectively, in part to study its effectiveness. Cootey also said there’s been less promotional warfare due to consolidation within the industry and “noted it doesn’t seem like anyone has desire to return back to prior levels.” As for the aforementioned Palms, the sale to the San Manuel Band is still on track to close by year’s end. The proceeds will go towards lowering the company’s leverage to 2X or 2.5X equity. It all sounds good to us.

Las Vegas Sands isn’t really a ‘Vegas company’ anymore, but Greff & Co. paid them a visit anyway. The news was not overly good. Sands is essentially a prisoner to events in China, particularly as regards Covid-19. “To the extent that China desires zero case counts to keep borders/travel open, it is difficult to project a recovery timeline for the market,” Greff lamented. Macao is increasingly vaccinated and civic leadership hopes to hit 80% by year’s end. If and when Macao fully reopens, Sands China stands to benefit, Greff believes, because its mass-market position will enable it grow its market share. Thanks to increased regulation in China, the VIP business is much harder to prognosticate. Sands Senior Vice President Daniel Briggs was sanguine about the company’s chances for concession renewal, due in part to Sands’ enormous investment in the market. Nobody knows when concessions will be renewed but there’s time for additional non-gaming capex, as well as market recovery, before it happens.

Meanwhile in Singapore, the vaccination rate is 90%, making it the envy of most of the world. “Still management noted that there is still a higher risk/older population that is not yet vaccinated, thus contributing some uptick in cases/hospitalizations and in turn some restrictions.” The $3.3 billion expansion of Marina Bay Sands continues, even if at a slower pace. Biggs says Sands’ huge capex commitment to Singapore kept two rival operators from being admitted to the market, an interesting tidbit of news. Marina Bay is Sands’ cash cow, generating 20% return on investment, which is pretty damn impressive for the most expensive casino ever built. Sands will net almost $4.5 billion on the sale of its Vegas assets, although Sands is keeping its counsel as to how the money will be reinvested. Management continues to beat its head against the brick wall that is Texas but is also looking for ways to increase its presence in the digital space, a task made more difficult—but not impossible—by Sands’ limited geographic presence.

One company that’s half-in (M Resort) and half out (Tropicana Las Vegas) of Sin City is Penn National Gaming. None other than CEO Jay Snowden made himself available to JP Morgan boffins. Snowden didn’t opine on Vegas, although we know from previous interviews he’s sky-high on M Resort, where he plans to add a second hotel tower. The CEO’s focus was on Internet sports betting, where Penn has gone from being in one state (Pennsylvania) to nine in the space of a year. Snowden expects to add as many as six more states “in the next few states,” aiming for 10% market share in each. “Strategically, the acquisitions of Barstool and theScore give PENN 100% ownership of its own brand, enabling it to more efficiently acquire and equally important, retain eyeballs,” wrote Greff, adding that TheScore will be the OSB face of Penn in Canada, while Barstool Sports will be its U.S. identity. Since TheScore has home-field advantage in Canada already, particularly in Ontario, there’s no call to reinvent the wheel.

New York State‘s OSB application process remains cloudy, with Snowden hoping for more clarity by year’s end. Penn is partnering with an outfit called Fanatics for one of the platforms. However, both in the Empire State and New Jersey “tax rate/operating costs will impact ability to offer promotions and in turn future [market size] in each state.” As far as tech support, TheScore is in, Kambi is out, enabling Penn to wholly own its OSB operation and save money at the same time. Terrestrial casinos were almost an afterthought. But customer demand was characterized as “very strong” with spend per visit “impressive.” Hurricane Ida will upend the Louisiana and Missouri numbers but “consumer sensitivity to new COVID-19 cases is lower than earlier this year, due in some part to vaccinations and perhaps some fatigue on the consumer front.” Customer numbers per se remain below pre-pandemic levels, which caused some doubt that profit margins could be sustained. Even though Penn was the most savage job-cutter in Big Gaming, Snowden claims to be having difficulty staffing up his casinos though he said the company was taking a “disciplined” approach (clearly a euphemism for keeping hiring levels down).

Over at MGM Resorts International, CEO Bill Hornbuckle took Greff’s questions. He said, much like Snowden and Cootey, that the recovery—both in Las Vegas and regionally—is being driven by gambling. (So much for the casino being a mere amenity in the contemporary resort.) Spend per visitor is 10% higher than pre-Covid and not even a new mask mandate in Nevada is putting a dent in business. Hornbuckle said this won’t last forever (or, in Street-speak, “some normalization in leisure business is an eventuality”) but MGM was coming off 98.5% occupancy last weekend. He’s keeping a gimlet eye on near-term convention cancellations, which are “ticking up” along with viral caseloads. The latest casualty is the National Association of Broadcasters, which is looking pretty wobbly now that Canon and Sony Electronics have pulled out from under it. Hornbuckle feels his company has an advantage at driving gamblers to the casino thanks to the M Life rewards program. Although in the past roughly 7% of MGM’s Las Vegas guests were drawn from regional markets, as opposed to Caesars Entertainment‘s 20%, Hornbuckle thinks MGM can grow that number.

Despite its being confined to five states, Hornbuckle thinks the online money is in i-gaming rather than OSB. Of the latter, he said that generating profits in New York would be “a long game” thanks to the usurious 50% tax rate. However, he thinks MGM has a home-court advantage thanks to its presence in Yonkers and in Atlantic City. He also stress the importance of luring customers in the early innings of a new markets, as brand loyalty (or ‘stickiness’) is fairly powerful. Hornbuckle seemed to signal an indifference to buying Entain out of BetMGM, telling Greff that the operating performance and level of investment would be similar, regardless of ownership position. For the first time, MGM signaled doubt that casinos in Japan would come through, using the “if” word. Best-case scenario, it’s years away from fruition and will be, aside from BetMGM, the company’s only other major capital commitment. Ominously, Hornbuckle concluded by mentioning “simplifying the corporate structure, something that management feels will drive improved valuation credit.” In other words, if you work for MGM you’d better update your resumé.

Jottings: “Cautious Charlie,” aka Massachusetts Gov. Charlie Baker (R), is spending some political capital to get sports betting over the finish line in the Lege. He’s got good reason for it, having planning on revenue from sports wagers to fill out his budget … Casinos in Macao are starting to sport a new amenity: clocks atop slot machines. The idea is to help discourage disordered gambling. It’s an idea that U.S. should not only consider but—voluntarily—implement. All Macanese casinos will be forced to install these timepieces by the end of 2024 … Following MGM’s lead, Resorts World Las Vegas and Westgate Las Vegas are imposing vaccination mandates upon their workforces, a decision we applaud. “The doctors who treated me told me that had I not been vaccinated, I likely would not be here today to share this story with you,” said Westgate CEO and Covid victim David Siegel. His workers have until Oct. 15 to get stuck. And Resorts World LV won’t even hire you if you’re not vaccinated … Is ballot-box stuffing allowed at Casino Player? The magazine awarded a mind-boggling 24 “Best of” prizes to Turning Stone including “Best Casino,” “Best Hotel” and “Favorite Casino Resort for a Vacation.” We’ve no doubt that Turning Stone is one of the better casinos on the East Coast but it’s still Turning Stone for frack’s sake, as Kara Thrace would put it.