New cop on the beat; Are we ready for some football?

There’s a new sheriff in town. Credit Suisse analyst Benjamin Chaiken made his debut today, issuing a sweeping series of reports, covering a number of tourism sectors. Let’s cut to the chase:

“This is an unprecedented time for the sector, but long term we believe a consumer shift away from goods and toward experiences will be the driving force behind a recovery.” Chaiken’s not kidding about consumers cutting spending on goods. Consumer spending was down 16.5% last month, supposedly the worst such declivity in American history. Hardest-hit was clothing (-79%), followed by electronics and appliances (-60.5%), furniture (-59%), sporting goods (-38%), and bars and restaurants (-29.5%). Hey, who needs new clothes when you’re working from home in a T-shirt and lounge pants?

Did gaming REITs miss their opportunity when they failed to diversify (as planned) into amusement parks? Chaiken seemingly thinks so, calling such drive-in destinations “the key to recovery … we think the space will recover in 2021 and beyond. In our view, the theme park industry benefits from the shift in consumers’ preferences towards experiences over goods, especially among millennials, who are now having children and need a fun, affordable and family-friendly entertainment alternative. With high barriers to entry (a regional park can cost ~$400mm to construct), we see limited supply growth, which benefits existing players, and the opportunity for industry M&A as tuck-in acquisitions can provide meaningful synergies given the robust season pass programs of larger operators.”

Cedar Fair gets a rave notice but Six Flags “is not the same company it once was” and not in a good way, and Sea World is caught between a “rigid cost base” and a heavy reliance on international tourists. Could these factors chum the waters for Gaming & Leisure Properties Inc., MGM Growth Properties or Vici Properties?

“The return of sports won’t save us.” Chaiken takes a dim view of the prospects of Scientific Games and IGT. While acknowledging that “the slot machine business has been known for its recurring revenue and resilient business model, we think changes are coming to the industry which could cause earnings to decelerate and multiple expansion harder to come by.” For one thing, sports betting expansion could see slot floors cannibalized to make room for bigger books. Production differentiation “will be harder to come by.” Also, “2019 was the high water mark for casino openings/expansions, with limited white space for future openings and near/medium-term budget constraints following COVID-19 pandemic.” The Eldorado Resorts takeover of Caesars Entertainment may negatively impact participation games. And, although Chaiken doesn’t mention it, with 50% of the installed slot base idled by Coronavirus-prevention strategies, there won’t be much need for a replacement cycle, given all that surplus inventory.

Wynn Resorts: Chaiken is neutral on this stock, citing “increased competitive supply in Cotai, and an unclear road to recovery in Las Vegas.” Indeed, the long-aborning, $5 billion Grand Lisboa Palace is deemed a serious competitive threat to Wynn Palace. “Given increased competition and risk that [Hong Kong] political disruption returns (which impacted VIP more in the past), we see multiple expansion harder to come by.” In Las Vegas, risk factors include reluctance by fly-in passengers to return, new gaming supply in what had been a slow-to-grow market, and heavy reliance on corporate meetings and events “which we think will operate on a lag due to both sales/planning and corporate earnings deceleration.”

Las Vegas Sands: This stock was upped to “Outperform,” thanks to an extraordinary amount of liquidity that could not only allow Sheldon Adelson to sit out a prolonged recession but make strategic acquisitions (Crown Resorts?) on the side. “Further, we see an improving competitive positioning in Cotai with the opening of the Grand Suites at Four Seasons and the Londoner renovation. We also consider these important defensive additions in an increasingly competitive market, helping to drive market share expansion in Macau while some peers may see contraction.” Sands faces some of the same vulnerabilities as Wynn but, for Chaiken, they were outweighed by the upsides mentioned. Besides, Sands derives only 9% of its cash flow from the Las Vegas Strip, which is seen as a plus.

* “Obviously, football and physical distancing are not compatible with each other,” says the NFL‘s chief medical officer. Nevertheless, the league appears hellbent on resuming play on schedule and with some semblance of normal attendance. As the Boston Globe reports, “Football would seem to be one of the toughest sports to bring back, with constant blocking, tackling, sweating, spitting, high-fives, and hugs. Teams employ hundreds of people just on the football side. Facilities have locker rooms, showers, meeting rooms, training rooms, and weight rooms. Outbreaks of ailments such as the flu and MRSA are common.” But in a week that saw Tom Brady holding workouts in Tampa, it seems that pro football is more a question of how than if or when.

“We fully well expect that we will have positive cases that arise,” conceded league CMO Dr. Allen Sills. Expect also to routinely hear that players have tested positive and will be quarantined for two weeks. (Whoops, there goes your fantasy team.) Still, medical experts say the league is doing its due diligence. “I think you can find a way to do this with informed consent and doing the best with testing, knowing that the virus is going to likely be present for a period of two years probably before there’s a vaccine,” comments Dr. Amesh Adalja, a virologist at Johns Hopkins University. However, medical experts appear to agree that having fans in the stands (as some teams propose) is a no-go. But can you quarantine 65 players and 100 staff per team for five months? Won’t they go stir-crazy (and possibly take it out on the field)? “I’m not suggesting that it’s a reasonable thing to do,” concedes Dr. Shira Doron, infectious disease physician at Tufts Medical Center. What then?

Strict testing and contacting tracing seems to be the start, including the possibility of daily antigen tests. Says epidemiologist Zach Binney of Emory University, “If we’re not where we need to be with testing by late July or into August, then we’ve got bigger problems than the NFL.” But former New England Patriots team doctor Thomas Gill asks, “Daily testing is feasible, but is it necessary? It just depends on your appetite for risk. Daily vs. every two days vs. twice a week—every increment is going to increase the risk more.” For the moment, the sports world is keeping a watching brief on the Bundesliga and sees how it copes with a resumption of play during Coronavirus. Masks inside team facilities plus daily temperature readings are seen as inevitable. Imagine film sessions on Zoom (cranky Tom Coughlin would have a conniption fit).

No more shared Gatorade. And (thankfully) no more spitting on the field. Good news for the airlines: Teams might have to charter twice as many flights. Bad news for the media: Access to players and coaches would be severely restricted. And, alas, the time-honored huddle might have to be eliminated, moved or drastically modified, depending on crowd noise. Oh, and how might Covid-19 affect the depth chart? Says one NFL insider, “If you get three offensive linemen that are out with COVID, you’re getting to the point where you can’t play.” Adds Binney, “Tom Brady and his backup probably shouldn’t be spending a lot of time together in the same room.” Expect lots of guys from the practice squad to find themselves with playing time.

All of this is further complicated by a potential second wave of Coronavirus, meaning the NFL has a better chance of starting the season than finishing it, especially as Wave #2 (if it happens) would be expected to peak right during the playoffs. “But,” concludes the Globe, “squeezing in an entire season may just be feasible, if the NFL is vigilant with its testing and quarantining, and gets a little lucky with the virus’s spread.”