Not us. We’re in Vermont, vacationing. But Deutsche Bank analyst Carlo Santarelli trekked to Sin City and met with representatives of eight companies. We’ll start with MGM Resorts International, which waxed pretty darn upbeat. In Las Vegas, MGM’s strength lies in its higher-end properties (The Cosmopolitan of Las Vegas, Aria, Bellagio and to some extent MGM Grand). Also, the Vegas event calendar is looking good through the rest of the year and into next. Integration of the Cosmo is going “better than expected,” in part because exiting managers have been “seamlessly” replaced by career MGM execs. Also, Cosmo slot play is better than MGM anticipated and the property’s alliance with Marriott is proving an asset, one that “in our view, makes sense to potentially expand further, given the benefits relative to a traditional OTA channel.”
Another encouraging development is that not only is international travel increasing but stay habits are changing, with more customers staying over Sunday nights. While remote-meeting trends are impinging somewhat on the convention business, group biz is picking up steam. Staffing levels were described as “appropriate.” We’ll see what the Culinary Union has to say about that next year.
MGM is sitting on between $2 billion and $3 billion in discretionary cash, some of which is earmarked for the upgrade of Empire City Yonkers in New York. Share repurchases will continue but at a much slower pace. As for BetMGM, it has identified Arizona and Ontario as the markets in which it needs to grow, mainly via product innovation. In California, enthusiasm for Proposition 27 appears to be flagging or, as Santarelli put it, “some operators who contributed to the first round of fund raising for the initiative chose not to participate in the 2nd capital call.” And money talks with deafening volume in politics.
The mood at Caesars Entertainment was mostly optimistic as well “with no discernible areas of concern within the business. Management remains decidedly bullish on Las Vegas over the near to medium term, given strong forward group bookings, a robust citywide event calendar, improving business transient demand, and continued casino segment strength.” Regional performance was not considered quite so upbeat, compared to Las Vegas, but Caesars execs were still “relatively constructive” on that front. While continuing to “normalize,” Strip room rates for the balance of this year and into next are running ahead of 2019. Thanks to other people’s investments (Hard Rock Las Vegas, Fontainebleau and the MSG Sphere), Caesars anticipates that the event calendar will harden traditionally soft periods, while the Formula One race is expected to outdo even the Super Bowl as a tourist magnet.
Strip patrons are spending less on Caesars’ dining offerings than previously but profit is up. Make of that what you will. On a wider perspective, the company is looking forward to the completion this autumn of its Atlantic City upgrades and to December’s opening of the new Lake Charles casino, which is expected to add $60 million in annual cash flow. Harrah’s New Orleans continues to morph, with a sports book and “incremental” F&B newly added and a hotel tower on tap for 2024. Caesars is putting as much as $80 million toward a temporary racino in Nebraska, which should be open in roughly a year. The Virginia casino, in Danville, is primarily aimed at North Carolina, expected to pull from the Raleigh/Durham/Chapel Hill “Triangle.” The temporary casino should be open by the middle of next summer, with the permanent one following in late 2024.
Las Vegas Sands was included on Santarelli’s itinerary presumably out of convenience, as there’s 100% less Vegas in Sands nowadays. “Given the continued policy linked malaise in Macau, discussions with management primarily focused on Marina Bay Sands and the current and potential development opportunities,” Santarelli observed. Marina Bay is 80% of the way toward completion of its expansion, to happen by the end of next year. Counterintuitively, Sands is deemphasizing group bookings in favor of setting aside rooms for gamblers coming to Singapore. No wonder, with the megaresort enjoying higher spend per visitor, particularly from Indonesia and Malaysia, which are making up for the dearth of Chinese gamblers.
Regarding Macao, Santarelli was dismissive of Genting Group‘s last-minute entry into the concession rebidding. Still, he predicted haggling and that Sands would pay a high price for staying in the enclave: “we expect LVS will include plans for considerable expenditure, some of which, would likely be tied to the ability to garner incremental land on which to build incremental hotel capacity and non gaming amenities.” While Santarelli views Sands as a frontrunner in the race for the third and last New York City casino license, he called the process “difficult to handicap, complicated from an operator perspective, and long.” He ain’t kidding.
Last for today is Boyd Gaming. “Management remains pleased with the performance of the LV locals market, which has shown little to no signs of deterioration,” despite the lack of stimulus-fueled spending. Promotions were described as “tame,” a positive harbinger “as increases in promotional activity sometimes foreshadow a more draconian slowdown in gaming volumes.” While increased convention and visitation on the Strip has been “helpful,” business travelers haven’t come back in the numbers that would create a spillover for Boyd properties like The Orleans and Gold Coast, although management predicts a change for the better next year. And this: “Despite new ownership, the resumption of operations at The Palms has had little to no impact on the operations of Gold Coast.” Hmmmmm.
Boyd reported stability in both its regional markets and their promotional spend. By contrast, some competitors (coughPenn Entertainmentcough) ramped up promos rapidly after Covid-19 and remain aggressive. Management at Boyd thinks modest growth in its South and Midwest operations is a reasonable assumption and goal. “While 2023 comparisons in the regional markets are likely to be somewhat challenging, one benefit BYD has, relative to some regional peers, is a lack of new competitive supply entering their markets,” Santarelli noted, adding that Blue Chip, “Diamond Joe [sic] Dubuque” and Belterra Park will have tougher rows to hoe. Aside from Diamond Jo‘s gender reassignment, the other challenge on the scene continues to be labor. Boyd is striving to add workers incrementally and to extend restaurant hours to accommodate demand.
“Given the favorable leverage profile” of Boyd, it can afford to—and is expected to—continue with share repurchases and capex investments in its casino empire. Santarelli anticipates that Boyd will be a participant in acquisition talks but that pickups of one-off assets are unlikely. “In general, we believe there to be a reasonably healthy quantum of assets being marketed for sale in regional markets, with seller motivation having increased over the last 6 months.” Lastly, Boyd perceives light (i.e., profitability) at the end of the digital tunnel, even as it’s FanDuel out and Pala Interactive in, in both Pennsylvania and New Jersey. We wish we shared that optimism.
Jottings: Internet gambling in the Philippines may be on borrowed time. A ban on i-gaming has been proposed in the Senate, prompted by human-trafficking concerns. Philippine online operators have been raked in the past for importing Chinese labor en masse … Genting Group, though a long-shot for a Macao casino license, is being talked up as a “potential rescuer” for one of the incumbents. The obvious candidate for salvage is creaky SJM Holdings, which had to borrow $5 billion to stay in the concession-retender race … Missouri legislators tried to get sports betting on the docket for the current special session. Gov. Mike Parson (R) shut that down, scoring an own-goal against his state … According to gaming analyst Frank Fantini, the sports-betting industry boils down to the Big Three (FanDuel, BetMGM, DraftKings) and everyone else can pretty much go home. And if Fantini says it, you can take it to the bank.
Quote of the Day: “Racism is a virus that quickly mutates and, instead of disappearing, goes into hiding, and lurks in waiting. Instances of racism continue to shame us, for they show that our supposed social progress is not as real or definitive as we think.”—Pope Francis