Under Southern skies; Presidential casino players

Truist Securities analyst Barry Jonas took a swing through Dixie casinos last month and had quite a bit to report. He hit the New Orleans, Lake Charles, Baton Rouge and Biloxi markets, his primary takeaway being that operators are consistent and resilient, and the macroeconomic impact “has been limited.” Horseshoe Lake Charles is reported to be growing that market, whilst impacting incumbent operators “less than we feared” (as already noted in these pages). As for macroeconomic impact, “The only notable softness appears to be with more value-oriented, lower-to mid-tier customers in select (but not all) markets.” Jonas partly blamed said softness on lower tax refunds (-11%) this year. He “also heard enthusiasm over social security cost of living increases and higher interest rates on savings flowing to discretionary spend for the older demographic.”

Destination properties like L’Auberge du Lac (below) or Golden Nugget Lake Charles, as well as other ones aimed at high-end customers, “have not seen any blips, and nearly all properties we visited are running at 100% weekend occupancy with weekdays relatively solid.” Another encouraging phenomenon that Jonas noted was a plethora of construction projects, mostly of a capex nature. These include the Caesars rebranding of Harrah’s New Orleans and Boyd Gaming‘s reinvention of Treasure Chest, also in the Big Easy. “Touring these projects, we left with high conviction that each would meet its investment hurdle rates.”

Although Horseshoe Lake Charles did the dreaded soft opening and debuted without restaurants or other amenities (can you say, ‘Rushed to market’?), Jonas felt that 4Q22 numbers would relate a positive story. The future “should show a more finalized product and a clearer picture of what market share could look like. Management is already exploring expanding Horseshoe’s hotel (253 rooms are around half of the property’s pre-hurricane count and ~8% of the market). While we think the Horseshoe is a major upgrade from Isle and have no doubt the property will meet management’s [return on investment] objectives ($50M in 2023).”

If you’re hoping for a return to pre-Covid amounts of promotions, forget it. Jonas found that “operators appear to have learned their lesson around rewarding and attracting low-value customers at their properties.” Yup, if you play for promotions, upper management doesn’t want your business. Biloxi is somewhat friendlier to promo players than the Louisiana markets, given the wider array to which it must sell itself. It’s also your best hope of finding a buffet, an area in which Biloxi casinos are actually turning a profit. “Importantly, the Horseshoe’s opening in Lake Charles has not appeared to have meaningfully reignited [marketing] spend across the market.”

A good man remains hard to find, as labor is scarce, driving wages up. (Score one for the little guy.) Casino dealers, housekeepers and F&B employees remain at a premium. Maybe casinos shouldn’t have taken a scythe to their workforces under cover of the pandemic, which appears in retrospect to have been pretextual, a convenient and Machiavellian cover for slashing expenses.

Slots are fewer, newer and more remunerative for the casinos that deploy them. Jonas observed that “it’s still Aristocrat’s … world on both the leased and purchased sides with Dragon Link by far the most popular game in the market,” although Light & Wonder is coming up hard on the outside rail. “Importantly, supply chain woes have largely lapsed with orders fulfilled in pre-COVID times. In addition, favorable financing terms from COVID still seem to be prevalent.” Well, it’s good to know that the pandemic brought some positives with it.

Finally, the rise of sports betting in both Mississippi and Louisiana has motivated operators to “have rebranded or renovated their sportsbook offerings to mirror their online counterparts.” Online sports wagering remains a chimera in Mississippi, although operators think it will happen in the Lege next year or 2025 at the latest. It’s nice to dream, isn’t it?

Some familiar names from private equity’s dabbling in the casino sectory, such as Oaktree Capital and Apollo Global Management, are taking a flier into electoral politics. They’re behind the stalking-horse No Labels Party. The latter’s agenda is to mount a “centrist” presidential challenge in 2024. (A Manchin/Sinema ticket has been hinted.) No Labels has published a map that shows their presumed path to Electoral College victory … but who are they kidding?

Jottings: MGM Resorts International is investing $110 million in a renovation of Bellagio. At least 819 rooms and 104 suites will be kitted out with “Italian-inspired custom furnishings, art and color palettes.” It’ll be a staggered redo, with some rooms available by July, others not finished until October … Station Casinos is cashing in on the non-fungible token fad. The trinkets will be handed out as rewards for slot play. Sure beats awarding points, no? … A $40 million retail and restaurant pavilion at Bally’s Kansas City is progressing nicely. Construction hasn’t impinged on grosses at the rebranded casino, which continues to grow market share … After a near-death experience in the state Senate, a New Hampshire bill to permit Internet casinos squeaked past the upper chamber. SB 104, which only permits online table games, now goes to the state House, where an even tougher fight is expected … Is Big Gaming finally about to cool off, as has been so oft predicted? A Conference Board survey finds 36.5% of Americans planning to curtail their betting activity this year. 53% will continue as before and 10% plan to gamble more still … MGM and Caesars Entertainment hope to get a rate-fixing lawsuit tossed. We doubt the two rivals colluded on hotel pricing and it’s a been a long-shot case from the beginning. Write the defendants, “The complaint fails at the outset because it is missing every essential ingredient necessary to plead an antitrust conspiracy.” We’d like to side with the consumer on this one but honestly can’t … Paul Vallas (R) and Brandon Johnson (D) face off today in the Chicago mayoral election. Whoever wins, slot routes will be the real victor, as both candidates favor bringing them into the Windy City.