Boyd, Penn upbeat; DeSalvio leaves Encore Boston

J.P. Morgan analyst Joseph Greff continued his listening tour of Global Gaming Expo, meeting with Boyd Gaming CFO Josh Hirshberg. “We come away positive and highlight BYD’s attractive free cash flow generation and ensuing de-leveraging,” Greff reported. Despite wider concerns (“trade talks, manufacturing slowing”), Boyd saw steady business across its base of regional casinos and expects growth to continue, admittedly at a slower pace “(largely reflective of multiple years of growth as opposed to any fundamental weakness).” The Las Vegas market continues to burgeon, thanks to construction, a growing market of sports teams and a stable economy. “Over the next 18 months, BYD will monitor the potential impact for new competition near Blue Chip [in Indiana] as well as the impact from Circa in Downtown LV, which is expected to open December 2020.” Boyd doesn’t seem to be too worried about the new Derek Stevens property, noting that it won’t rival Boyd’s 65%-70% Hawaiian customer base in Downtown, an enviable bastion of strength.

“With regard to RRR/Palms competition, BYD believes the two properties are vastly different and can coexist; BYD has not yet seen any impact on its Asian business following the Palms’ recently opened Tim Ho Wan dim sum restaurant (which we’ve heard has been busy),” Greff continued, on a gustatory note. Hirshberg attributed flat recent gaming revenue to late-month slot revenue being shifted and a shuffling of customers among competing casinos. As for acquisitions, “BYD is not really warm on anything and hasn’t seen anything at a valuation or strategic rationale that makes sense.”

In a shift of management’s official line, “Sports betting has a minimal direct impact to BYD, and the long-term order of magnitude remains unclear, but management is encouraged by the healthy sports betting volumes and the improvement in traffic.” On the upside, Mississippi table-game win and non-gambling spending are on the ascent, while Valley Forge Resort Casino is “healthy” with regard to volume. It all sounds good to us.

* Greff also met with Penn National Gaming soon-to-be CEO Jay Snowden and a gaggle of supporting executives. Penn’s outlook was not grossly dissimilar from Boyd’s, with regional gamblers reported to be “in the same, healthy spot as the last couple of years, with macro indicators (wage growth, employment, and consumer confidence) still pointing in the right direction.” Like Boyd, it is looking to trim unprofitable—read: heavily incentivized—gross gaming revenue. Unprofitable visits have fallen from 22% to 15%. “PENN did mention Encore Boston Harbor has been promotional on slots as it looks to grow its database, with the impact to Plainridge [Park] worse than expected.”

Penn is doing a 180 on Tropicana Las Vegas, saying it “does not view having an LV Strip presence as an imperative.” What changed? Interest from non-gaming investors, for one thing. A chance to mark up the real estate (33 acres) 50%, for another. Penn is already seeing considerable value from its Illinois slot routes, which went for 5X cash flow when it bought them but now are seeing 9-10X EBITDA per sublicense.

* Encore Boston Harbor President Robert DeSalvio is leaving the property after five tumultuous—but ultimately successful—years. An orderly transition is in place, with F&B supremo Brian Gullbrants set to take the helm. DeSalvio certainly earned his paycheck (more than we can say about some Wynn Resorts executives) and deserves time off. Wynn CEO Matt Maddox agrees, saying, “Bob leaves Encore with a hand-selected team prepared to take on the challenges ahead. I salute him for his commitment to the project and, most importantly, his dedication to his team.”

On a related note, Encore grossed $49 million last month, or win of $1.6 million a day. Slot revenue was $231 win/slot/day, compared to Plainridge Park’s $321/win/slot/day and MGM Springfield‘s just-below-average $194. Wynn, however, crushed MGM at table games, $6,315/win/table/day to $1,408. Plainridge grossed $11.5 million, down 19.5%, far worse than forecast. MGM grossed a hair under $20 million, again well below Wall Street prognostications.

* MGM had much happier news to report from Detroit, where it continues to own the market, grossing $46.5 million, albeit down 6.5%. Penn was flat at Greektown (something of an accomplishment) with $27 million, while MotorCity was also flat with $39 million. (Could MotorCity be closing the gap with MGM?)