MGM “unsurprising”; Penn outperforms

Nor is comfort to be found in the provinces: “MGM’s regional casinos … likely do not possess the same degree of increasingly favorable operating efficiencies that more core/middle market consumer regional casinos possess (BYD, PENN as examples), given MGM’s greater dependence on air travel and lodging at its relatively higher-end regional properties.” Still, Greff thinks MGM is a bargain play, given “a slow, multi-year LV Strip recovery,” real estate holdings, Macao and undervalued BetMGM. Still, he lowered cash-flow projections for the next two years. Tighten your belt, MGM. Las Vegas operations grossed $481.5 million, plunging 68%, surpassed by the $557 million of regional operations, down 40%. The lion eked out $15 million in net revenue in Vegas, $146 million regionally. MGM China took a bath, delivering $97 million in negative cash flow. Some folks say “the economy is roaring back” but MGM execs are entitled to ask, “Where?”

By contrast, Penn National Gaming third-quarter numbers were deemed “strong,” as cash flow came in slightly above the high end of Penn’s pre-announcement. “Similar to most domestic gaming operators, we see PENN continuing to achieve higher margins relative to history given the domestic gaming industry’s ability to reduce/delayer marketing costs, close lower margin amenities (buffets), and trim labor opex,” wrote Greff. In other word, less food and fewer jobs. He continues to be a believer that we’re seeing a breakout in sports betting similar to that in riverboat gaming 30 years ago and that Penn will be a market leader, “in terms of both share and profitability.” CEO Jay Snowden predicts Penn will be in the black on sports betting faster than its competitors (even if Barstool Sports landed in Pennsylvania with a plop).

Penn grossed $1.1 billion, down 17% but cash flow was up 11%. Greff called the numbers “impressive … considering slot and table game capacity constraints and social-distancing measures.” Also to be taken into account are that racino Zia Park in New Mexico is still closed and that L’Auberge Lake Charles has been battered by multiple hurricanes. The late re-entry of Tropicana Las Vegas also diluted the numbers. Ohio and Indiana “were the standouts,” while cash flow growth is in double digits throughout the south (except in Lake Charles), and while Midwest revenue is down 17% (in large part due to Illinois, where operating hours have just been curbed), cash flow is modestly higher. Hollywood Casino Morgantown and Hollywood Casino York in the Keystone State have resumed work and should open in the fall of next year.

As for Barstool, it “has had 60,000 app downloads, with 80% of those downloads resulting in registrations and 64% of those registrations being converted to first-time depositors (so a total ~50% conversion rate, in line with peers). PENN also noted 95% of Barstool sports book downloads were from people new to PENN’s ecosystem, though of the 5% of myChoice members who downloaded the app, they drove 20% of the handle.” The company aims to roll out Barstool in every state that has sports betting by the end of next year. Four are in the works, one at Greektown, another in Blackhawk, yet another at Ameristar East Chicago—all opening by year’s end—and one at Hollywood Casino Lawrenceburg (a hugely popular retail location) in January. Early results (well, one month of them) were evidently much diluted by promotional credits, which have been halved as a percentage of handle.

Churchill Downs has put its Turfway Park expansion in Kentucky on hold, pending clarification of permissible historical-racing machines by the Lege. On the plus side, expansion of Rivers Casino Des Plaines by 450-500 gaming positions is a “go” and CHDN is favored to get the new casino license in Waukegan. (Given the dominance of the Rivers brand, should Chicago even bother with a casino?) Timing of the license award, however, is described as “uncertain.” Thanks to a robust performance by its Twin Spires online-gambling arm ($126.5 million), Churchill Downs overshot Wall Street revenue estimates, coming in at $185 million for 3Q20.

Cash flow, expected to be modestly negative, was strongly positive. “Since reopening, gaming revenues at CHDN’s wholly-owned properties have increased 9% y/y,” reported JP Morgan analyst Daniel Politzer. “We attribute the majority of the beat to Rivers Des Plaines (63% ownership), which likely benefitted from strong pent-up demand and reduced opex (similar to other regional peers), as well as a new/lower table game tax regime.” Politzer ratcheted revenue projections down very slightly and cash-flow predictions upward, as Churchill Downs continues to weather adversity adeptly.

If you want coffee in Las Vegas, patronize Virgin Hotel once it opens. The resort will contain a coffee bar featuring Hugh Jackman‘s Laughing Man blends. It’s not just good (we drink it), it benefits underdeveloped countries. Whether it’s the Clean the World project or Laughing Man, Sin City is becoming a capital of sustainability. Let’s drink to that.

Jottings: Congratulations to new San Manuel Casino COO Rikki Tanenbaum. She’s been with the property since 2018, having joined it as chief marketing officer. Her resumé includes stints with Golden Nugget, Penn National, Caesars Entertainment, MGM and Viejas Casino & Resort … Colorado leapfrogged Indiana in sports-betting handle last month with $208 million. “Colorado is nowhere near maturity as a market, and yet its gains continue to put it among the top markets in the U.S.,” said analyst Dustin Gouker. Believe it or not, the gimpy Denver Broncos are credited for the speedy run-up in wagers. Savvy bettors and heavy promotional allowances kept revenue to a bare $3.5 million. Baseball led betting with $47 million, followed by $38.5 million on the NFL, $37 million on the NBA, while table tennis remains “shockingly popular” in the words of analyst Jessica Welman. Online betting represented 98% of handle, unsurprising in a state with only three small casino towns.