Author: David Mckee

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Wall Street meets Las Vegas, Part I

JP Morgan analysts conducted a pilgrimage to Las Vegas to meet with the top brass of Big Gaming. First up was MGM Resorts International, represented by CEO Bill Hornbuckle, CFO Jonathan Halkyard and BetMGM CEO Adam Greenblatt. They see positive movement toward Vegas with bookings “continually improving” and with much hope placed on World of Concrete expo coming off in June, which would be a major inflection point where conventions are concerned. Despite “minimal” international traffic, execs think 2019 levels could be achieved a year ahead of schedule, by late this year. Vacation bookings were described as near 2019 levels and “MGM is seeing an uptick in more spring/summer bookings and a shortening booking window.” Airlines are being very cooperative in adding capacity in anticipation of bigger airlifts, while occupancy at MGM properties may be 40% or so midweek but double that on weekends.

Tunica and Biloxi were described as still challenged, but drive-in resorts in Maryland, Ohio and Detroit are “faring well,” according to analyst Joseph Greff. Since the average age of the regional customer is in the early sixties, MGM is looking forward to a return of the risk-avers 55+ demographic. MGM brass thinks the regional properties can notch 80% to 90% of pre-Coronavirus levels if capacity limits continue to lifted over the next three months. Macao was praised with faint damns, January being said to be “broadly break-even” and Chinese New Year “decent.” MGM China is hopeful that the renewal of its concession will be considered this year or next but the government is—surprise!—keeping everyone in the dark. As for BetMGM, management is confident as it sees momentum from 4Q20 being continued early this year. It’s a useful tool for recruiting new players and at a lower cost (always a plus for gaming execs). Migration of sports bettors into i-gaming also looks promising.

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Chicago gets serious; Ohio recovering but Missouri swoons

Chicago Mayor Lori Lightfoot (D), having received 11 expressions of interest in a megaresort (two of them an exacta by MGM Resorts International and MGM Growth Properties) is ready to issue a request for proposals sometime next month. We’ll then see which of the 11 makes it to the semifinals, as would-be operators finally have to talk turkey. One incentive to do so is that the casino license comes with concessions for slot routes at the Windy City’s two major airports. Also, tax rates have been ratcheted down sufficiently that what was once a 1%-2% potential profit margin now looks more like 20%, best-case scenario. The bare-bones cost of a metro casino, according to one survey commissioned by Lightfoot, is $750 million. However, it was pointed that such comparable facilities as MGM National Harbor ($1.4 billion) and Encore Boston Harbor ($2.6 billion) came with substantially higher price tags, and Chicago leaders want a destination property, not ‘slots in a box.’ Wall Street analysts are projecting seemingly insane amounts of revenue: $833 million in Year One, then $929 million, then $1 billion in the third year. That doesn’t count the two-year temporary casino (with an option for a third year).

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Maryland: More gamblers = more money; Illinois improving

What will prompt recovery in gaming? Stimulus money, yes, but we got a strong indicator of something else out of Maryland last weekend. Overall, casino revenues were down 16.5% but the story is more complicated than that. At facilities restricted to 25% of capacity (MGM National Harbor, Maryland Live and Horseshoe Baltimore), the decline was 18%. But at (smaller) facilities bumped up to 50% of capacity, revenues grew 8%. So are capacity constraints keeping players at home? Based on the Maryland numbers one would have to say yes. The statewide gross was $126 million, with MGM reporting 15% less slot revenue and 19% less win at the tables. National Harbor held the top spot with 40% market share compared to Maryland Live’s 35.5%. Horseshoe has fallen so low that JP Morgan analyst Joseph Greff no longer breaks out its market share.

Speaking of Horseshoe, it eked out $14 million, a 20% decrease. MGM booked $51 million, -17%, and Maryland Live won $45 million (-18%). Nobody was revenue-positive but Ocean Downs‘ $6 million was only a 3% dip. Rocky Gap Resort made $4 million (-17%) and Hollywood Perryville was good for $6 million, down 5.5%. Over in West Virginia, revenues slid 34%, with Hollywood Charles Town tumbling 39%, thanks in large part to a -50% wipeout at the tables. (Slots were -35%, almost on par with statewide average.)

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Next stop … Richmond?!?; Alabama covets casinos

No fewer than six companies, some of them major, have descended upon Richmond, Virginia, seeking the Dominion State’s last casino license. They are: Bally’s Corp. ($650 million), Cordish Cos. ($600 million), Golden Nugget ($400 million), Pamunkey Indian Tribe ($350 million), Urban One/Pacific Peninsula Entertainment ($517 million), Wind Creek Hospitality ($541 million). The bigger the proposed investment, the more politicians tend to like it, so Bally’s and Cordish have that in their favor. The only proposal we’re tempted to rule out is the Pamunkey Tribe’s, partly because they’ve already got a bite of the apple in Norfolk and partly because of the low level of spend, barely half of Bally’s. (Peninsula Pacific already owns Colonial Downs and the Rosie’s slot routes, so either them that has will get or it will be adjudged to have too much of the pie already.) Bally’s has pitched its project for the same site as Golden Nugget, so we don’t know how that be resolved. Maybe if Tilman Fertitta goes on CNBC and cries about it Bally’s will take pity. Not.

But seriously … if Richmond wants a heavy hitter with brand equity, the Nugget is the ticket. Cordish has shown it can be a money-spinner in other East Coast markets, so it’s got that going for it, while Wind Creek has a more limited but auspicious track record and would build the largest number of hotel rooms (252). Urban One and the Pamunkey are minority-owned, while Fertitta is offering minority businesses 5% of his Richmond stake, which is mighty white of him. (Cordish numbers NFL great Bruce Smith among its minority investors.) The Bally’s and Pamunkey designs are the sexiest, even if the latter looks suspiciously like what the tribe is supposed to be building in Norfolk. Bally’s CEO George Papanier may have committed a faux pas when he condescendingly promised a “vibrant new attraction that is sure to turn Richmond into a dynamic tourist destination.” As though it weren’t already. Perhaps the $100 million entrance fee he’s promised the city will smooth any hurt feelings. Voters get the final say, choosing the winning proposal in a Nov. 2 referendum.

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New Yorkers want more casinos; More death on the Strip

“I grabbed her like this.” New York Gov. Andrew Cuomo (D); Image: Shutterstock

While the last round of casino expansion in New York State was no better than a succes d’estime, Empire Station residents are still behind a planned 2023 enlargement that would bring three new resorts. Given the choice of casinos, higher taxes or budget cuts, 70% of voters pick Door #1. While no big players have descended upon Manhattan (unless you count Vornado Realty Trust), both MGM Resorts International and Genting Group would like to upgrade their racino slot parlors to full-fledged gambling, complete with hotel rooms. Leo the Lion is popular in Yonkers, where expansion has 73% support, while Resorts World New York gets the thumbs-up from 66% of its neighbors. Voters might even back expansion in a landslide: It’s estimated that 83% would approve were the issue clearly explained.

Except for Vornado, megaresort upscaling wouldn’t be that heavy a lift for MGM’s Empire City facility and for Resorts World, both of which have most of the gaming infrastructure in place, as well as a robust constituency. Still, neither is what you’d call presently a ‘destination resort’ and we wait for Las Vegas Sands to do more than drop vague hints about the Five Boroughs. For that matter, why is Wynn Resorts on the sidelines, especially in view of its Boston triumph? Unlike fanny-patting Gov. Andrew Cuomo (D), voters surveyed narrowly approve of extending online sports betting to the two Gotham racinos. At least somebody’s not leaving money on the table.

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Roman Empire conquers Venice

In a dramatic, dead-of-night deal, Las Vegas Sands sold The Venetian and Palazzo to a REIT/private-equity combo of Vici Properties and Apollo Management for $6.25 billion. Vici and Apollo obviously have a considerable appetite for risk on the Las Vegas Strip, still moribund, as Sands got every dime for which it was asking, maybe a bit more. The cash-flow multiple was 13X for those trophy assets, which seems in line for Strip real estate to us and which Credit Suisse analyst Ben Chaiken called “healthy however you cut it.” He added that the money would probably be funneled into development in New York City, Texas or Macao. We’d add one other possibility. According to Global Gaming Business, Sheldon Adelson‘s New Year’s Eve meeting with James Packer may well been to explore a Sands buyout of troubled Crown Resorts (facing multiple regulatory probes in Australia). Adelson talked a great deal about using Sands’ vast liquidity for mergers and acquisitions during the Great Shutdown. If CEO Rob Goldstein is of the same mind, that $6.25 billion would go a long way toward snapping up Crown and its Antipodean assets.

“Not leaving any Las Vegas value on the table” was JP Morgan analyst Joseph Greff‘s immediate take on the deal. And what will Goldstein do with all that lucre? “LVS will likely use the proceeds here to invest in mobile gaming, where its efforts thus far have lagged peers, and for it to get involved in the next great thing in gaming, the company would likely have to buy its way in, and now has a pot of money to do so,” he wrote. Goldstein rationalized the move by saying that LVS “is focused on growth, and we see meaningful opportunities on a variety of fronts. Asia remains the backbone of this company and its developments in Macao and Singapore are the priority.” So long Vegas and don’t let the doorknob hit you in the ass. The deal, of course, includes Sands Expo Center, the linchpin of Venelazzo, as well as the MSG Sphere, whose future seems very secure, even if it won’t open for another two years. (No reason to hurry in the present Strip economy.) Sands shares traded a wee bit higher on the news while Vici remained flat.

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Sports bets a hit in Virginia; Vegas recovery an iffy prospect

Online sports betting was quick out of the gate in Virginia—$59 million in handle in 11 days—although books spent so much money acquiring customers that they took a loss on the month. “Debuting ahead of the NFL’s conference championship games and the Super Bowl ensured there would be heavy interest from bettors. In addition, launching with top-flight sportsbook operators in place to serve a market with years of pent-up demand is a recipe for success,” diagnosed PlayUSA analyst Jessica Welman. Although Tennessee, with a full month of wagering, notched $134 million in handle, the neighboring state recorded less wagering per day than did Virginia. As for the monetary loss, analyst Dustin Gouker observed, “We saw the very same dynamic play out in the first days of Michigan’s online market, as well. The bottom line is that Virginia’s market is off to a good start, with significant interest from bettors across the state. That will certainly pay off for the state in coming months.”

While per-operator numbers are not available, first-mover status (Jan. 21) undoubtedly redounded to the benefit of FanDuel. It was followed into the market on Jan. 24 by BetMGM and DraftKings, then BetRivers on Jan. 26. William Hill didn’t arrive upon the scene until February, although it won’t be the last into the pool. Since enabling legislation for sports betting in Maryland is still tied up in the Lege, Virginia has every opportunity to make hay whilst the sun shines.

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Hope in the Roman Empire; DraftKings rules

Although it tried to flash Wall Street some ankle yesterday, Caesars Entertainment’s 4Q20 numbers failed to surprise analysts. In a reverse image of the rest of the industry, better-than-expected cash flow on the Strip (cost-cutting?) was “more than offset” by weakness at regional properties. JP Morgan analyst Daniel Politzer blamed “negative impact of regional property closures, restrictions, and soft demand at destination properties.” Funny, but you don’t hear about the latter from MGM Resorts International or Penn National Gaming or Boyd Gaming or …

Like most of its fellows in the industry, Caesars sees meeting business returning to the Las Vegas Strip after June. As for Joe Average travelers, bookings are up 20% month/month, with half of those reserved over 30 days out. March is a mixed bag, with midweek occupancy only 50%-ish but weekends up to 95% or higher. That’s a trend line moving in the right direction. Despite weekend rates that have sometimes verged on terrible (or perhaps because of them), CZR properties packed them in on the Wilder/Fury fight weekend: 99% occupancy. Politzer foresees Baby Boomers coming back and gives the Strip a six-month-to-one-year recovery timeline. It will be no trick to surpass last year but if 2021 even just comes within shouting distance of 2019, that will indeed be something to celebrate.

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Vegas locals strong, Strip stinks; Economic boom foreseen

Even with $600 extra in their pockets, gamblers could not be lured back to the Las Vegas Strip last month. Strip revenues of $321.5 million represented a 44% implosion from 2020. Statewide, the falloff was 26.5% to $762 million. Once Nevada casinos become diversified destinations again recovery is inevitable but we’re hardly there yet. At least Las Vegas locals were generous with their play: off only 6.5% from one of the two biggest months in American gaming (February 2020 being the other). True, casino capacity was capped at 25% but that didn’t keep the locals away—and their play may have been even stronger than it looks ($200 million), slot revenue from the final weekend not having been reported yet. JP Morgan analyst Joseph Greff struck a hopeful note: “Given improved vaccination rates, slower COVID-19 new case trends, and increased capacity limits, we think this month likely marks the bottom of LV Strip [gross gaming revenue], and we expect CZR to confirm this on tonight’s earnings call.”

Things could hardly get worse. Last month, McCarran International Airport‘s traffic cratered -64%. International travel (see baccarat results, below) plummeted 93%. Spirit Airlines held its market share best, off 40%, while Southwest Airlines was down 61% despite having a vast lead in volume. As for the small(er) fry, American Airlines dropped 59%, followed by Frontier‘s 64% and Delta‘s 68%.

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Louisiana better than it looks; Covid checkmates brothels

Casinos in the Pelican State were off 10% in January. However, when one adjusts the numbers to account for the permanent closure of Diamond Jacks in Shreveport and the all-but-permanent shutdown of Isle Grand Palais on Lake Charles, gaming revenues were only down 6%. We’d call that recovery, given a difficult comparison, stimulus money on the loose, capacity limits (50%), gaming-position limits (75%) and an extra weekend day. Penn National Gaming properties prospered, up 10%. By contrast, Caesars Entertainment took a -38% walloping. Somewhere in between (-11%) was Boyd Gaming. Staying with Lake Charles, L’Auberge du Lac and Golden Nugget were tied at just under $26 million, a 7.5% gain for L’Auberge and a 2.5% for the Nugget. Delta Downs rounded out the market with $14 million, up 3.5%.

Caesars needs a course correction in Bossier City/Shreveport, where Horseshoe was eclipsed by Penn’s Margaritaville, $12 million to $16 million (-16% vs. +36%). Eldorado Shreveport slipped 6.5% to $7 million, while Boomtown Bossier inched up 3% to $4 million and Sam’s Town stumbled 24% to $4.5 million. Harrah’s Louisiana Downs nudged 2% higher to $4 million. In Baton Rouge, customers continue to flee Belle of Baton Rouge, collapsing 43.5% to $1 million. Doing better was Casino Rouge, up 3% to $4.5 million. Surprisingly, L’Auberge Baton Rouge was 2% lower but still dominated the market with $13 million.

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