Mixed signals from Vegas; It’s all good in Atlantic City

Is the new year bringing a Las Vegas comeback? If you set store by anecdotal evidence, things look relatively normal on Fremont Street. God knows Downtown could use a dose of normality, especially after a December devoutly to be forgotten. For those, like us, who are waiting upon empirical evidence, the good news is that there is some, albeit hailing from the Las Vegas Strip. Room rates for March 14-20 are 49% off last year’s pace, averaging $134/night. Whilst this may not be indicative of “surging” demand, there are some positive omens. Whoever decided to close Palazzo midweek was a genius. Las Vegas Sands‘ room rates are shooting up 47% on weekdays and 19% on weekends, when competition is stiffer. The Venetian is carrying the market at this point. Frankly, everyone else’s midweek rates stink. Convention-reliant MGM Resorts International can perhaps be excused for being down 57% (reopening three hotels will make that price point harder to defend) but how to explain Caesars Entertainment‘s -67% and Wynncore‘s -68% At least MGM and Wynn Resorts are rebounding on weekends, down 25% and 28% respectively. Caesars is in the weekend tank, off 46%. Perhaps management is trying to recoup traffic by deep discounting but that’s the best spin we can put on it.

Regionally, what will happen when capacity restrictions are lifted? Or, to put it another way, how elastic is the gambling dollar? We’ve seen explosive growth in both Internet play and online sports betting. Brick-and-mortar books are already recapturing some of the OSB play but will i-gaming cannibalize real-life slots and blackjack? In states like New Jersey and Michigan, pent-up gamblers have been devouring the online product. Will they return to the casinos when it is feasible? I-gaming has convenience on its side and is clearly here to stay. Fortunately, it is also the great equalizer, enabling small but enterprising casinos like the Golden Nugget Atlantic City to give mammoth Borgata a run for its money. So i-play is definitely more opportunity than threat.

Speaking of Atlantic City, one gaming expert thinks you can leave your cigarettes at home when you return to the Boardwalk. Former legislator Raymond Lesniak, the father of Garden State sports betting, tells Americans for Nonsmokers Rights, “Reputation-wise [sic] it won’t be beneficial for the reputation of Atlantic City casinos overall” should smoking make a post-Covid comeback. “Atlantic City found out way too late that its future cannot just be about money made on the floor of a casino. And now, it’s moving toward a more diverse economy and that includes a healthy atmosphere for patrons.” Concluded Lesniak, “I really don’t think that’s coming back.” Not a popular opinion, perhaps, but Lesniak has a habit of being ahead of the curve. In other A.C. news, our correspondent there reports that both Golden Nugget and Borgata (where he cashed in some slot freeplay) were “quite busy” Saturday night. Also, former Atlantic City mayor Don Guardian, who was pondering a run for assemblyman has now thrown one of his dapper hats into the ring for Chris Brown‘s soon-to-be vacant seat in the state Senate. We’ll miss Brown, a staunch gaming advocate but can’t think of a better successor than Guardian.

That price target for Penn National Gaming stock just keeps a-going on up. JP Morgan analyst Joseph Greff goosed it to $142/share after “upbeat” meetings with CEO Jay Snowden and CFO-to-be Felicia Hendrix. “Given its early market share momentum in sports betting, legislative progress, the land-based recovery, and core business with sustainably lower [operating costs] vs. history, we view PENN as a catalyst-filled stock that is supercharged to benefit from the post-COVID-19 vaccine/consumer recovery,” Greff enthused. Like Boyd Gaming, Penn teased 1Q21 earnings with tales of potent, industry-wide resurgence of gaming revenue in January, with Iowa up 13% and Missouri gaining 6%. Execs “noted that while February GGR results have (unsurprisingly) been pressured by the harsh winter weather across much of the South, it expects recent strong performance in Louisiana/Mississippi to extend to its properties throughout the Northeast/Midwest as weather improves, vaccinations accelerate, and customers return.” As for those deep cost cuts, they’re here to stay, even should the older player demographic return.

Potent Barstool Sportsbook is still waiting upon regulatory clearance in Illinois and is two months away from a Pennsylvania rollout of its i-gaming product. New Jersey follows in May, then Virginia and Indiana. The newer the market, the easier it will be for Barstool to crack, based on its 25% market share in Michigan. In the latter state, although 10 operators launched simultaneously, six of them are fighting over only 4% of marketshare, leaving the other 96% to highly recognized brands. Penn hopes to augment its Greektown performance with Barstool i-gaming, which debuted Feb. 1. If 2020 was a breakout year for gaming expansion, 2021 could be even bigger. Snowden and Hendrix “saw more momentum than it had ever seen before” in Texas for both OSB and casinos. Sports betting is also gaining traction in Massachusetts, Kansas, Ohio, Missouri and even New York State, provided Gov. Andrew Cuomo (D) can keep his hand out of the cookie jar. (If the Empire State goes with Cuomo’s ‘one skin’ approach, Barstool would be a long shot to get it, we think.)

Covid-19 certainly did a number on gambling revenues in the U.S., depressing them to 2003 levels, in the first market contraction since 2014. According to newly released American Gaming Association data, the casino industry shed 31% of revenue compared to 2019, winning $30 billion. The AGA noted “some positive momentum” late in 2020, as revenues nudged up 2%. Slots were down 34% and table games 39.5% year-long. On the sunny side of the street, sports betting shot up 69% and i-gaming (remember all that sheltering in place?) exploded 199% for over $1.5 billion. Small wonder AGA President Bill Miller calls the latter two components “essential” to the industry.

“Covid-19 devastated our business and the employees and communities across the country that rely on casino gaming’s success,” understated Miller, adding, “We have persevered by leading responsible reopening efforts, supporting our employees, and extending a hand to our communities. Still, these numbers show the economic realities of Covid-19 and underscore the importance of targeted federal relief and ramped-up vaccine distribution to accelerate gaming’s recovery in 2021.” He will be cheered to know that, according to Progress.org, the pace of vaccinations is doubling. Or, as someone in the AGA put it, every day that needles are going into arms is a good day.

Diving deeper into the AGA data, we find that commercial casinos lost 27% of their normal operating hours due to closures, while restrictions on operating hours (when open) gave casinos a total of 124,882 aggregate days instead of the normal 170,484. Subtract live entertainment, conventions, etc., and the full extent of the body blow is still being quantified. Fortunately, the gaming industry gets a high rating from customers—80% approval—for its Coronavirus responsiveness, which helps translate into 33% of Americans (a highest-ever metric for the AGA) planning to visit a casino this year, even if 87 still remain closed. It’s a lead-pipe cinch that casinos will vastly outperform those 2020 numbers this year. The acid test will come if (should Wall Street dare) we measure them against 2019. That’s when we’ll know how far we’ve returned on the road to recovery.

Jottings: In Macao, the long-awaited Londoner has opened. Unfortunately, it just looks like Sands Cotai Central with a few Olde English doodads slapped upon it. Chinese New Year was a flop in the gambling enclave, with only 13,000 arrivals over a five-day period … British lawmakers are proposing “affordability checks” on prospective gamblers (which we think takes paternalism a shade far). The horse racing industry is up in arms, saying it would be a deadly blow to its livelihood … The explosive popularity of OSB in Illinois has not been lost upon the Lege. Of a bill to legalize Internet gambling, Credit Suisse analyst Ben Chaiken writes that it “sounds like the new leadership in the House is more hospitable … Given the success of OSB in IL, we think iGaming would be a natural expansion and substantial revenue [opportunity]” … In an earth-shaking regulatory event, GameCo CEO Brian Graboyes was nixed for a Nevada gaming license. Why? Graboyes was deemed to have engineered the failure of his previous company in order to get its intellectual property dirt cheap. This may spell doom for GameCo, which has more employees (31) than slot machines in the field (16). The closure of California-based Gamblit would appear to write finis to skill-based slots … Covid-19 has put the temporary kibosh on another resort debut. Melco Resorts & Entertainment has pushed its Cyprus megaresort back to 2022 … You can’t gamble in Hawaii but a lottery bill is marching forward in the Lege. Is Boyd Gaming opposed?