Station, DraftKings, Macao all looking up

Medium- to high-end play continues to be strong, and both Green Valley Ranch and Red Rock Resort are seeing a greening of their customer base, even though health concerns are keeping older players at home. Making hay of the Great Shutdown, Station used the time to simplify its marketing spend (“it’s easier to work on a car when it’s not driving” said one exec), which has translated into fewer customers but higher spend per visit. 32% of players come twice weekly, 7% just once. As for those four closed casinos, “management will be patient and diligent when evaluating demand levels before reopening these properties; if/when these properties do reopen, it will likely be at lower overhead levels.” Greff, however, doesn’t buy into the sale rumor, at least not entirely: Station ” is highly unlikely to sell any of these properties to another gaming company; it would look to sell the [real estate] with a deed restriction to highest/best use.” That leaves the door open to REITs and private equity firms.

Palms will not reopen until it can generate a positive return on investment (which might be a long wait) and the brothers seem to be laying the groundwork for some kind of divestiture. Wrote Greff, “the Fertittas were clear that Palms is not personal to them, and they do not view it as core to their portfolio (vs. Palace Station, which is viewed as a core property).” On a positive note, on-again/off-again Durango Station has entered the design stage. Given the dearth of casinos in that corner of the Valley we say, ‘Bout time!

Things are also looking up at DraftKings. Estimated revenue for 2021 is in the $750 million-$800 million range. “With this in mind, we think it is very likely more states launch in 2021 (e.g. MI, VA, OH), which would represent incremental upside,” reported Credit Suisse analyst Ben Chaiken. He also thinks the possibilities in Ontario are being overlooked. Management “confirmed this large opportunity is progressing and it sounds like licensure would not require a casino partnership (as is done in the US) which is a positive for margins (i.e., would not require a 5-10% rev share with land based casinos).” While the stock is at $41.25/share as of today, Chaiken thinks it will rocket to $76, especially with two Masters Tournaments in six months and the incremental addition of sports betting in more states.

DraftKings’ net revenue for 3Q20 was $133 million, with $97 million spent to capture $36 million gross profit. The company still posted a massive ($348 million) loss, thanks to $202 million spent in marketing, $54 million on technology, and $127.5 million on “general and administrative” costs. DraftKings insiders nonetheless helped themselves to $117 million in stock-based compensation and could at least congratulate themselves on a low cost of capital (interest payments were negligible). Still, it looks like a long and winding road to profitability for DKNG.

In its best news since “Wuhan” became a household name, Macao was informed that visitors from Hong Kong and Guangdong Province will be able to skip the heretofore-mandatory quarantine process. Players will be let in 5,000 at a time, so as not to swamp health authorities. You still must test negative for Covid-19 either just before or three days after your trip but this is the kind of tailwind for which operators have prayed.

Jottings: R.I.P., Pamplemousse, an esteemed and venerable (44 years old) French restaurant just a stone’s throw from the Sahara in a converted bungalow. It was a homey place that served good food with a very personalized touch, and was supposedly a favorite with “the boys.” The evaporation of convention business sealed its fate … Casinos got little comfort from Gov. Steve Sisolak (D) who, faced with Coronavirus cases spiraling upward, said “If you don’t have to go out, don’t go out. Reduce your time in public to what is necessary, and limit any and all exposures to those outside your household.” Like, say, table game dealers? … GVC Holdings is now the sexier Entain. It also set a goal of deriving 99% of its revenue from regulated markets by year’s end. GVC, er, Entain, is a part owner of BetMGM … Phil Ruffin continues his anti-buffet campaign. Circus Circus‘ will not reopen. Although tentatively slated to come back Dec. 31, the eatery has been nixed by Ruffin in favor of a new, $2.5 million food court. It’s nice to see some capex at the Clown House … A panel of hoteliers gave their unanimous thumbs-up to the new Joe Biden administration. Hilton Hotels‘ Chris Nasseta opined that a vaccine was no economic panacea: “We also need a massive testing regime and contact tracing to let people assess the risk and build up their confidence to become mobile again,” as well as another round of economic stimulus. “We already have almost two million people out of our industry either furloughed or out of work… I think the chances of lame duck action is low, which is extremely disappointing,” added Mark Hoplamazian of Hyatt Hotels Corp. “The issue that’s ahead of us is to ensure that we get additional assistance to the small business owners so that they can actually bridge themselves to the future and maintain a level of employment.” From your mouth to President-elect Biden’s ear, sir.