Earlier today, Station Casinos finally confirmed the worst-kept secret in town. It has sold the Palms Casino Resort to a subsidiary of the San Manuel Band of Mission Indians in an all-cash, $650 million transaction. Thus closes a fairly disastrous chapter in the Station history book—and probably renders moot the question of whether the Palms will reopen under current management, depending on how quickly the deal closes. (San Manuel will be subject to Nevada regulatory approval.) San Manuel is already a familiar name in Las Vegas, having been one of the first ‘official gaming partners’ for the Las Vegas Raiders, as football fans will discover when they finally set foot in Allegiant Stadium this fall. Although the Raiders have cross-pollinated a relationship with M Resort, we fully expect San Manuel to monetize its connection to the Silver & Black when it takes over the Palms.
It’s a deep-pocketed tribe (as the cash-on-the-barrelhead deal indicates), one that’s currently wrapping up a $550 million expansion of its home casino in SoCal. High rollers should still be welcome at the new-look Palms (San Manuel knows high-limit play) but there will be plenty for the bread and butter player on offer. Also, starting next year San Manuel will be operating a California event center to complement The Pearl, which should set up some nice operational synergies. Retail expansion will probably be in the cards, along with a spinoff of the Serrano Vista Café, a viable candidate to replace the defunct Hooters. San Manuel is accustomed to operating on a big scale, so it should be ready for the Vegas spotlight.
“A nice positive” was how JP Morgan analyst Joseph Greff headlined the deal and it certainly is that, partly for reasons that we enumerated yesterday. Greff added that the transaction “enhances equity value and meaningfully improves the balance sheet.” Palms is a billion-dollar asset (when capex is included) generating zero cash flow for over a year. Wrote Greff, “Our sense is that investors have given zero net asset value credit related to the PPE/land of Palms (our price target gives zero credit); so, the net proceeds here (which should be equal to the gross proceeds) should add to equity value per share by $5.55 ($650m divided by ~117m diluted shares).” That’d be a nice bump for stock that’s trading at $32/share. As for what Station will do with its newfound wealth, Greff thinks it will go into debt reduction rather than forever-in-abeyance Durango Station, although he’s optimistic we’ll see some action on the latter in the medium term (its potential market is grossly underserved).
The (additional) good news is that the cash would bring Station’s leverage down to 3.4X equity, where is currently teeters at 7.5X. Adds Greff, “We suspect there are other land parcels that can be sold which would further improve [Station’s] balance sheet and net leverage position. The balance sheet should easily support new medium term development, such as Durango, complementing same-store growth.” Fortunately for Station, Las Vegas real estate is hot now and the company has plenty of it to sell. It also gets to kick the can over to San Manuel regarding ongoing labor strife at the Palms (which was picketed by none less than then-candidate Joe Biden last year), so we’ll wait with bated breath to see if San Manuel is more tractable to the Culinary Union‘s overtures than Station was.
With his customary hemming and hawing and hedging, New Jersey Gov. Phil Murphy (D) dipped a cautious toe into the smoking-in-casinos furor, saying smoke-free advocates “make … a very compelling case.” However, he prefaced that with “I’ve got no opinion yet on the—we haven’t considered the anti-smoking piece.” So he’s not against banning smoking but he’s not for it either. Murphy allowed that “I was in and around casinos a couple times this weekend and by the way, it looked like everyone was doing the right thing.” He was astonished to see partitions at every gaming position and “People wearing face coverings, pretty much to the person. Really impressive.” Americans for Nonsmokers Rights trumpeted Murphy’s waffling as a big policy shift but we see no such thing.
Meanwhile, NJ.com amped up the pressure on the guv, running an op-ed piece that said “It always felt deliciously naughty to play cheap slots or roulette with a free rum and Diet Coke in one hand and a Parliament Light in the other, but it’s one of those ‘before’ things we need to leave behind.” Editor Amy Z. Quinn reported that, even with the provisional ban, “the stale smoke stank is still there” in Atlantic City. She noted that smokers were still coming out to gamble, much as they might grumble about the constraints. Concluded Quinn, “It feels ridiculous to even have to argue over indoor cigarette smoking at this point—we’re over a year into a pandemic caused by a virus that specifically, and viciously, targets the lungs. If it was ever socially acceptable to make casino workers and strangers share your smoke, that time is way over.”
She’s not an outlier. The editorial board of the South Jersey Times has reached the same conclusion. Casinos, naturally, quail at the idea of snuffing out those cigs. But even if the smokers stay home and gamble on the Internet, who stands primarily to gain? Big Gaming, of course. I-gaming has ramped up powerfully in the Garden State and the casinos now have the financial backstop that would enable them to just say “no” to smoking.
If last year’s Derby Day was a flop, this year’s was boffo, with handle of $233 million reported by Churchill Downs, $155.5 million of that on the marquee event, won by Medina Spirit. That’s the second-highest tally in history. The $251 million record was set in—wait for it—2019. So the Kentucky Derby is back. Covid-19 caution kept fans at bay: 51,838 in the stands compared to 2019’s 150,729. Derby Day engendered $63 million in handle via CHDN’s TwinSpires platform, of which $41 million was wagered on the Run for the Roses itself. And, compared to last year’s worst-ever TV audience of nine million, 15 million fans tuned in for the races. It should be a phat quarter for Churchill Downs, what with the Kentucky Oaks card generating $54 million in handle, way up from last year’s $31 million.
Jottings: Rushing in where angels fear to tread, the State of Mississippi has rescinded all Covid-related restrictions on its casinos, including the mask mandate. One holdout is Beau Rivage, where MGM Resorts International is hewing to its “Seven Point Safety Program” (actually 11 points but seven sounds luckier, doesn’t it?). As for disinfecting frequently touched areas every two hours, “We do that anyway,” said Golden Nugget Biloxi General Manager Chett Harrison, “even before Covid. We want it to look crisp and clean every day” … The sky’s limit, more or less, for bettors at Colorado casinos as of last weekend. Thanks to a statewide vote in November, casinos can set their own betting limits now. Some are going as high as $2,500/hand. Already the limitless betting has been a boon to investment in Colorado’s three gaming-enabled cities … Nevada casinos might not make it to 100% occupancy by June 1 after all. The Nevada Gaming Control Board reports that not even 50% of gaming employees have been vaccinated … Maryland Live isn’t waiting for Gov. Larry Hogan‘s say-so to open a sports book (albeit sans wagering). In lieu of betting you’re free to play foosball and duckpin bowling … Much-abused broadcaster Dan Le Batard has seen his radio show sold by ESPN to DraftKings, a coup for the latter. Expect it to pop up on Sirius XM and Westwood One.
