Author: David Mckee

MGM Resorts International isn’t quitting Springfield but it’s taking a bath on its eponymous casino in order to reduce its exposure to the (disappointing) market. MGM spent $960 million on the resort, which has never performed up to expectations, and is selling it to affiliated REIT MGM Growth Properties for $400 million, a serious writedown of what was once a trophy asset. MGM will pay $30 million a year to lease the property from MGP and will continue operating it. All involved were at pains to save face. MGM CEO Bill Hornbuckle said the “has exhibited strong financial performance as it emerges from the pandemic, and the property delivered record EBITDA in the first quarter of 2021.” Which leaves hanging the question of why ditch the place now and at such a bargain price? Were we MGM shareholders we’d be hopping mad and the stock did indeed dip 2%. Looking for a silver lining, JP Morgan analyst Joseph Greff wrote, “for MGM, it improves its already strong liquidity position, enhancing its ability to invest in its land-based casinos or BetMGM and return capital to shareholders.” $400 million in sale revenue may be a quick way to manufacture a dividend but this is an ignominious retreat, no two ways about it. (In one bit of unambiguously good news for MGM, its Strip resorts got green-lit by the Nevada Gaming Control Board this morning to go to 100% capacity.)

Perhaps MGM can make up some of that forfeited $560 million on the Las Vegas Strip, where paid self-parking and paid event parking are making an unwelcome return. Locals are exempted—provided that they vamoose within three hours. Four hours costs you $15, then it escalates to $18/day at CityCenter and Bellagio. Other MGM properties are $3 cheaper. Not so coincidentally, the re-introduction of paid parking takes place on May 19, the same day that the Las Vegas Golden Knights begin NHL playoffs at T-Mobile Arena. Customers of Caesars Entertainment casinos continue to enjoy a paid-parking holiday … until October. Enjoy it while it lasts.

Gambling revenue of $108 million out of Illinois last month looks pallid at first glance. But consider this: It was only 6% off April 2019’s pace, when casinos were at full capacity and last month they did it at 50% capacity. So the demand is the definitely manifesting. One of the stars of the market was Grand Victoria (pictured), up 1% to $13.5 million. Of course the marquee performer was Rivers Casino Des Plaines, grossing $41 million for a 7.5% lift. Nearby rivals Empress Joliet and Harrah’s Joliet were down 16% and 17% respectively, grossing $7.5 million and $12.5 million. Hollywood Aurora slipped 9.5% to $8.5 million. Mid-state, the tailspin continues for Casino Rock Island, spiraling -37.5% to a meager $3.5 million. Par-A-Dice, meanwhile, dipped 6% to $6 million. In the St. Louis area, Argosy Belle slipped 20% to $3 million while DraftKings Casino Queen was down 23% to $6.5 million. Harrah’s Metropolis was steady as she goes at $6 million.

Sports betting continues to lag casino reporting by a full month, so we are only now getting the March numbers. Handle was $633.5 million, from which $50 million in revenue was derived, including a tax haul of $6.5 million. Noteworthily, Illinois was just a few whiskers behind Nevada ($641 million handle). Silver State, look to thy laurels! The prohibition of bets on University of Illinois and Loyola College may have put a damper on March Madness action ($177 million), with professional basketball engendering $366 million in wagers. “March Madness helped deliver a huge month for Illinois, but March is essentially a ‘last hurrah’ for the state’s rapid growth,” warned PlayUSA analyst Joe Boozell. “Illinois will still be one of the largest U.S. markets because of the population of the state, but it will be difficult to maintain its current status as the U.S. No. 3, much less catch Nevada. No matter how appealing a market, there isn’t any easy way to overcome the inconvenience of in-person registration.”

Maryland didn’t just do well in April, it posted its third-best month ever. Gaming win grew 11.5% from 2019, to $162 million. That’s with 50% capacity constraints at MGM National Harbor and Horseshoe Baltimore (all other casinos are operating at 100%). MGM still took 38.5% of market share with a $62.5 million gross, up 2.5%. Maryland Live was second with 36% market share, hauling in 22% more than in 2019 and grossing $58 million. Horseshoe was flat with 2019, cantering in a distant third (12% market share) with $20 million. Speaking of cantering, Ocean Downs crossed the finish line with $8 million, a 30% boost. Hollywood Perryville leapt 36.5% to $8.5 million and Rocky Gap Casino gained 19% to $6 million. Even West Virginia is looking a little better. Over a three-week period ending April 24, it was down only 14%, with slots (-14%) propping up tables (-18%). Hollywood Charles Town underperformed the state, as slots declined -21%, tables were off 24%, averaging a 22% decline overall.

While on the subject of Penn National Gaming, it reported 1Q21 results yesterday. JP Morgan analyst Joseph Greff described it has having a “very strong regional casino top line,” similar to its peers. Although the quarter saw partial casino closures in New Mexico, Illinois and Pennsylvania, revenues were down only 6% from 2019, while cash flow grew 7% (no doubt due to operational economies). Furthermore, the company “indicated that strength has continued into April and May, with strong spend per visit continuing but now experiencing improved visitation relative to earlier in the pandemic, with a return of the important 55 year-old plus demographic.” Whereas Wall Street consensus had Penn achieving $1.1 billion in revenue and $394 million in cash flow, the company delivered $1.3 billion and $447 million respectively. Revenues from Penn Interactive helped shore up the year/year comparison, while numbers were boosted especially in the South, where dining and casino capacity restrictions have been lifted the most. As for revenue comparisons with last year, they were—as might be expected—all positive, except the West region (Las Vegas and New Mexico), down 24%.

Earlier today, Station Casinos finally confirmed the worst-kept secret in town. It has sold the Palms Casino Resort to a subsidiary of the San Manuel Band of Mission Indians in an all-cash, $650 million transaction. Thus closes a fairly disastrous chapter in the Station history book—and probably renders moot the question of whether the Palms will reopen under current management, depending on how quickly the deal closes. (San Manuel will be subject to Nevada regulatory approval.) San Manuel is already a familiar name in Las Vegas, having been one of the first ‘official gaming partners’ for the Las Vegas Raiders, as football fans will discover when they finally set foot in Allegiant Stadium this fall. Although the Raiders have cross-pollinated a relationship with M Resort, we fully expect San Manuel to monetize its connection to the Silver & Black when it takes over the Palms.

It’s a deep-pocketed tribe (as the cash-on-the-barrelhead deal indicates), one that’s currently wrapping up a $550 million expansion of its home casino in SoCal. High rollers should still be welcome at the new-look Palms (San Manuel knows high-limit play) but there will be plenty for the bread and butter player on offer. Also, starting next year San Manuel will be operating a California event center to complement The Pearl, which should set up some nice operational synergies. Retail expansion will probably be in the cards, along with a spinoff of the Serrano Vista Café, a viable candidate to replace the defunct Hooters. San Manuel is accustomed to operating on a big scale, so it should be ready for the Vegas spotlight.

That’s what Credit Suisse analyst Ben Chaiken had to say about MGM Resorts International, citing strength in regional casinos, Las Vegas and sports betting (in that order). First-quarter cash flow exceeded 2019 levels, aided in part by “strong demand reaching ’19 levels … Las Vegas is accelerating, with growth supported by easing government restrictions, an improving event calendar, and pent-up demand. March was one of the best gross booking months in the company’s history.” Non-gaming amenities have lagged gambling and room revenues as recovery metrics, which could be crucial, as they account of 75% of revenues and are at the mercy of capacity restrictions. Elsewhere sports betting and Internet gambling “look very promising.” Nationally, BetMGM has 25% i-gaming market share and 17% of OSB. “Benefits appear to be flowing both ways, with 10% of BetMGM’s new customers coming from MGM, while 44% of new MLife signups coming from BetMGM.” Management was even upbeat on Macao, seeing positive customer trends—as did Melco Resorts & Entertainment—ahead of critical Golden Week.

Chaiken’s opposite number at JP Morgan, analyst Joseph Greff, bumped his stock-price target from $37/share to $45 (it currently trades at $42). He called the 1Q21 numbers “solid, with impressive momentum in Las Vegas. Momentum here commenced in mid-February and has continued thus far into April.” Occupancy on the Las Vegas Strip is running at 73%, which is pretty darned impressive in light of zero convention activity. Weekends are seeing 90%-plus occupancy “indicating strength in the leisure segment and MGM’s efforts to tap into its casino database to fill rooms at present gaming capacity.” Further helping the comeback is an anticipated return to 93% of pre-pandemic airlifts into Sin City in June, escalating to 99% in July. “This airlift support bodes well for the return of group business, which, with what’s on MGM’s books for 2022 and 2023, is at pre-pandemic levels,” Greff wrote. Cash flow on the Strip is expected to achieve 90% of 2019 metrics by next year.