Casinos on the Las Vegas Strip grossed $626 million last month, 20% better than August 2019. Statewide, the jump was 22% to $1.65 billion but the real overachievers were locals casinos, leaping 41% (to $250 million) with a little help from end-of-July slot revenues that were literally dumped into the early August grosses. Locals also demonstrated more resilience, down just 3% from an epic July, whereas the Strip slipped 21% month/month. Strip slot win was $358 million, a 38% vault on 26% more coin-in (plus tighter hold). Table game win—$259 million—was relatively static, up a point, on 4% higher wagering. Subtract baccarat and it looked better, 7% more win on 12% larger betting. Not that baccarat was bad: Win was down 7% and play was 8% lower, pretty good when you consider the game’s high volatility.
The “covidiots” have struck. Yours truly has tested positive for Covid-19, despite having been vaccinated and being generally asymptomatic. This means no trip to Global Gaming Expo, and no collection of the sights and sounds of the Las Vegas Strip. I’ll post what I can from my sickbed but it’s just not the same as being there. Sorry, folks.
Reflecting the irrational exuberance surrounding the Las Vegas Strip, it’s a done deal at The Cosmopolitan of Las Vegas. The $3.9 billion resort’s physical assets sold for $4 billion, albeit to a cloudy “group of buyers that includes a Blackstone real estate investment trust.” So there may be some jiggery-pokery at work here. The big news was that MGM Resorts International was unable to resist the dangled bait that was the Cosmo’s operating company, paying a hefty $1.6 billion and change, plus $200 million in annual rent for the plum. Our sources say Cosmo cash flow is about two-thirds of pre-pandemic levels so either MGM CEO Bill Hornbuckle is taking a big gamble or an infusion of M Life is just what the doctor ordered. Regardless, Blackstone is making out like a bandit on a property it bought for $1.7 billion back in 2014, as in $4.1 billion in windfall profits. It also reduces its exposure in its #1 market, Sin City.
Among those paying Blackstone far more than the Cosmo is worth is investment firm Stonepeak, as well as Panda Express founders Andrew and Peggy Cherng. The real winner in all this may Caesars Entertainment CEO Tom Reeg, who can ask several kings’ ransom for whichever Strip asset he chooses to put on the sell block next year (right now it’s looking like Bally’s Las Vegas). Hornbuckle and CFO Jonathan Halkyard claimed the Cosmo would expand MGM’s customer base but it’s hard to believe it isn’t the other way around. Regardless, they had to justify the megabucks they poured into a non-core asset. University of Nevada-Las Vegas boffin Amanda Bellarmino defended the splurge, saying, “The acquisition could help MGM to target younger travelers by acquiring this successful and attractive property.” (Wasn’t that what Park MGM was supposed to do?) Unlike predecessor Deutsche Bank, Blackstone knew how to run the Cosmo and the $500 million capex it put into the old gal clearly paid dividends.
After a long bout with the flu, we’re back with our usual persiflage. One of the stocks that was on the sickbed last week was Las Vegas Sands, bedridden from proposed new restrictions on Macao casinos. Deutsche Bank analyst Carlo Santarelli put pen to paper to assure readers that the worst is behind us. His analysis “provides us with confidence that downside risk from current levels should be fairly limited, though we acknowledge, valuation in the current environment has seemingly been a function of the latest stock price, plus or minus the interpretation of the next headline, and as such, we don’t deny that the near term could be choppy.” Santarelli outlined several caveats: “we aren’t pretending to know or display confidence around our view of the potential outcomes of the Gaming Law process in Macau … we recognize the situation in Macau is uncertain, though we believe the market has taken a fairly draconian view on the potential outcomes [and] we recognize incremental investment into the Macau centric names at this time of the calendar year and with this level of uncertainty is challenging.” Still, “we believe, the medium to longer-term risk-reward is skewed favorably in LVS at current levels.”
Casinos along the Boardwalk continue to be impervious to the economic recovery that is prevalent in the gaming industry. Atlantic City was down 8% last month compared to 2019, grossing $262.5 million. Sports betting brought in $52 million (+32% from 2020) on handle of $646 million and Internet gambling generated $119 million (+29%). Terrestrial slot revenue was down 5% on 7% lower coin-in and luck was not with the house as regards table games, where revenues tumbled 18% on only 5% less wagering. Borgata got its clock cleaned (-28%), plunging 52% at the tables on 25% less drop, while slot win declined 20% on 23% less handle.
The Caesars Entertainment triumvirate slipped 13%, driven by 15% less win on 7% lower wagering, whilst slots were a bright spot, flat despite 12% less handle. Only Ocean Casino Resort and Hard Rock Atlantic City were revenue-positive for the month, with Hard Rock ($46 million) breathing down Borgata’s neck ($52 million). It gained 19% while Ocean was 38% higher than in 2019, grossing $33 million and grasping third place in the city. Caesars Atlantic City won $25 million, down 20%, Harrah’s Resort snared $28 million, off 10% and Tropicana Atlantic City ceded only 8.5% to finish at $29 million. Resorts Atlantic City did relatively well, just -2.5% down to $18.5 million, Golden Nugget swooned 23% to $16 million and Bally’s Atlantic City stumbled 17.5% to $15.5 million.
Editor’s Note: Yours truly is still on vacation, so today you’re in the capable hands of Jeff Leatherock, who ponders Las Vegas‘ emergence as a major league sports town. Enjoy!
I have been a big sports fan for 50 years. I also wound up being a fan of the business of sports for about as long. I read The $4000,000 Quarterback for the first time around 1972.
The 1960s-70s were a great time to be a young sports fan because new leagues and teams were popping up all the time and everywhere. From 1960-80 there was, on average, more than one new team added each year to the “big four” North American sports (baseball, football, basketball and hockey). Two football leagues, one basketball league, nine MLB teams. The NHL doubled in one Swell Foop in 1967, going from 6 to 12 teams, and by 1980 had 21 (!) teams. The NFL had endured the best shot of the AFL being formed and had a merger agreement with them by 1967. The attempt by the WFL to get in on the action in the early 70s was an abject failure. The ABA began their decade long war of attrition with the NBA in 1967 and ultimately staggered into the league with the Nets, Nuggets, Pacers and Spurs “allowed” to buy their way into the NBA.
Continuing JP Morgan‘s march through Las Vegas, senior analyst Joseph Greff met with Boyd Gaming CEO Keith Smith and CFO Josh Hirsberg. They seemed pleased, on the whole, marveling and the resilience of their customers, whose play was “amazingly consistent” no matter how many Covid-related mandates you throw at them. Downtown, they conceded was somewhat more of a challenge, given the lack of Hawaiian players. Spend per visitor, however, is above 2019 levels “which management attributed to a healthy consumer backdrop and a higher value customer coming through the doors.” This is some cooling-off in the regional markets, although Las Vegas locals and drive-in players remain stalwart. Boyd has even ceased marketing to low-value customers, what with Baby Boomers returning … albeit not yet at previous magnitude.
Management said it’s have trouble filling jobs, “noting that the shortage is somewhat limiting the amenities that can be offered.” That, in turn, is inhibiting revenue growth. Currently Boyd is at 60% of workforce strength compared to two years ago and “Surprisingly, the expiration of unemployment insurance/stimulus in some states has not resulted in people coming back to work.” Boyd is improving its profit margins by savaging marketing spending and relying less on full-time employees. (And they wonder why they’re having problems re-staffing.) Dark Eastside Cannery will remain so until January, possibly March. After all, it’s redundant to Sam’s Town next door, where business is “strong, but not overdone to level where additional capacity is needed.” A final bit of good news is that Boyd has gotten its leverage down to 3X equity or thereabouts, another sign of a company that rarely strays from sound business fundamentals.
You could say that getting into bed with Red China was a devil’s bargain and Satan has come to collect. Or that Beijing has finally decided to show everyone who’s boss. Either way, the central government played Big Gaming for fools yesterday, rolling out a series of new measures that sent casino stocks reeling. Six gaming stocks tracked on the Hong Kong bourse and New York Stock Exchange plunged 23% (for a 45% declivity this year), with Sands China leading the dive with 33%. And to think that Sands execs were just blowing sunshine up Wall Street‘s ass about how great their relationship with Macao was. Las Vegas Sands CEO Rob Goldstein ought to be facing some hard questions about why he cashed out of Las Vegas at a time it was keeping the company solvent and put almost all his chips on Macao, where the company already had the largest exposure in the market—and to the whims of the ChiComms. JP Morgan Chase, so sanguine 24 hours ago, put “hold” or—worst of all—”sell” ratings on the impacted gaming stocks, which should tell you how bad the news was.
The damage was hardly limited to Sands. Wynn Macau, MGM China and Galaxy Entertainment all lost at least 20% of their value in the stampede. Domestically, it wasn’t much better: Las Vegas Sands -14%, Wynn Resorts -14%, Melco Resorts & Entertainment -9%. Even MGM Resorts International, with very limited Chinese exposure, was punished by 5.5%. It was an $18.4 billion wipeout of equity, damage on the scale we’re rarely if ever seen in 25 years of covering casinos.
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.
There are signs that the regional gaming recovery is cooling (Missouri was up just 1% last month) but Indiana‘s August numbers, while not as hot as July’s, were a balmy 10% higher than 2019 as casinos grossed $203 million. Horseshoe Hammond lost a percentage point but retained the top spot with $33 million. Closing fast is Hard Rock Gary, with $30 million, while Ameristar East Chicago gained 9% to hit $21 million. Blue Chip, off to the east, sagged 11% to $12 million. Further to the south, Boyd Gaming saw even greater misfortune at Belterra Resort, plummeting 29% to $7 million. Also hard-hit was French Lick Resort, falling 26% to $6.5 million. Other revenue-negative performers were Rising Star, minus 6% to $4 million and Hollywood Lawrenceburg, down 11% to $14 million. In its last month as a Caesars Entertainment property, Caesars Southern Indiana was up 5.5% to $19 million, while Indiana Grand jumped 13% to $24 million and Harrah’s Hoosier Downs grew 12% to approach $19 million. Bally’s Corp. had a good first month at Tropicana Evansville, up 5% to $13.5 million.
As for sports betting, $215.5 million in handle boiled down to $17 million in revenue. FanDuel garnered $5 million and 30% market share against DraftKings‘ $4.5 million and 26% share. BetMGM was third with $2.5 million and 15%. Also in the game were William Hill ($2 million/11%) and Barstool Sports ($1 million/7%). In terms of getting the most bang per handle, FanDuel (25% of handle) skunked DraftKings (34%). Barstool also maximized its share of handle, which was 4%. William Hill had 13% and BetMGM 12%.
