Boyd doing well; What price Vegas?

Boyd Gaming posted net revenues of that were down 18% for 1Q20, reflective of mid-March casino closures. JP Morgan analyst Joseph Greff termed the results ones “that reflected relatively strong trends in the first two months of the quarter.” Since only the Downtown sector had “airlift dependency,” Boyd was relatively sheltered from gamblers’ reluctance to travel to Las Vegas. Having jettisoned a significant amount of payroll, Boyd is presently churning through $60 million a month (including $16 million in monthly interest payments) and has $831 million on hand, enough to keep it going for 14 months. Greff’s models assume a Boyd reopening in June “with a gradual rate of improvement, or, put another way, a less bad year-over-year trend over the next two years.”

Total revenues were $680.5 million. The Vegas locals sector was down 19% while Downtown was off 14%. Both the Midwest and South regions missed by 18%. Prior to the shutdown Boyd “had experienced solid year-over-year [cash flow] growth,” although that obviously took a hit last month. Locals contributed $181 million in revenue, Downtown $54 million and Midwest/South $445.5 million. Curiously, Boyd seems to lump Valley Forge Casino Resort (its first casino to close during the pandemic) in the “Midwest” someplace. Couldn’t they break out a new region for it?

* Can you imagine wearing a mask in a casino and smoking at the same time? Apparently it’s an idea that’s being kicked around. The big Coronavirus reboot gives casinos the perfect excuse to ban smoking but nothing doing, it appears. Another idea that at least one Las Vegas casino is going to try is giving players plastic sticks with which to poke slot-machine buttons. Hard Rock International may up the social distancing to 10-15 feet and “Every employee and guest should be wearing a mask,” says CEO Jim Allen. Of course, that will pose some issues for surveillance, which will find it awfully difficult to spot 86’d players. Also, while it is important for cash and chips to be sanitized, how quickly can that practically be done? Such are the questions over which industry execs are huddling while their casinos stand idle. Allen, unfortunately, seems to be falling into the false and binary choice between the economy and human life (which is presumed ‘expendable’): “The ripple effect of the trillions of dollars in debt we’ve just put on the United States by printing money is something that we all need to be very focused on.” Tell that to the victims.

In Global Gaming Business, consultant Steve Gallaway argues for a ‘reset’ of Las Vegas. Noting that “The profit margin that stems from asking $10 more for a hotel room or $2 more for a gin and tonic is 100 percent,” Gallaway adds, “there’s a breaking point for how much more can be charged.” He argues that casino owners became too fixated on earnings per share at the expense of the customer business, leaving the latter with less moolah to spend on the casino floor. Higher EPS = less staffing and service. That gave us the $12 draft beer and $4 ice cube, Gallaway contends. Visitation stagnated. That coincided with the arms race in—you guessed it—resort fees where “when the fee is more than half the rate—very typical at numerous properties across the Strip—it simply angers the customer, particularly if they don’t see value and a positive impact on their experience.”

Poster child for the resort-fee problem is MGM Resorts International, where revenue per available room has been shrinking since 2014. Then there are parking fees, an irritant to the important California drive-in market. It’s not like parking spaces are at a premium on the Las Vegas Strip. Gallaway calls the results of these levies—as much as $35/night—”deleterious,” noting a slump in drive-in trade from 52% of market share to 44%. According to the Las Vegas Convention & Visitors Authority, overall tourism has flatlined and repeat visitation has fallen. The casino industry having become well-nigh ubiquitous, canny customers can find a better deal closer to home. Casino-enabled New Orleans and New York City are seeing tourism on the upswing while Sin City is becalmed. Gallaway calls it “an overpriced mediocrity.”

Gallaway’s conclusions are that price per se isn’t the problem, provided that it goes hand-in-glove with a five-star experience. (His exemplars are Wynncore, Venelazzo and The Cosmopolitan of Las Vegas.) Also, look to Downtown for how to revive business with value propositions: “One can sit at a table at the Golden Gate and know that drinks will be readily available and served. On the Strip, too many resorts have cut back on cocktail service, making getting a drink at a table or slot machine nearly impossible.” Gallaway argues that there will be a trickle-down to gaming revenue, which has climbed 6% Downtown in a five-year period where it is only 1% up on the Strip. Arguing that Wall Street will expect depressed returns anyway and this provides Big Gaming with cover for big change, Gallaway’s additional prescriptions are …

• Eliminate resort fees
• Ditto parking fees
• Lower drink prices
• Listen to customers (always a good idea)

Jottings: Bad news for small casinos—L.A. Biz reports that there is a “dramatic” drop in the size of loans being disbursed by the Small Business Administration … No casino in Brockton anytime soon. The Boston Globe reports that it is one of Massachusetts‘ two hottest spots for Coronavirus … Horseracing continues to run sans spectators in the stands. But many tracks are still closed and owners are chomping at the bit to resume action, with Presque Isle Downs pressing for a May 11 reopening … Casinos in Macao may have some more breathing room. Lawmakers are querying whether completing the concession-rebid process by mid-2022 is practicable. The valuable concession expire in June of that year. One point still uncertain is the amount of additional diversification that will be demanded of casino lessees (since nobody owns a casino in Macao except Big Brother).