Wynn “strong” this summer; MGM returning to form

Wynn Resorts released 2Q21 results yesterday and JP Morgan analyst Joseph Greff called them “strong” in both Las Vegas and Boston. In Macao, eh, not so much. He began by saying “results by region unsurprisingly reflect differences in vaccination rates and mobility/visitation availability.” Wynncore is gaining momentum as the temperature rises, posting the largest cash flow ever since except when it opened. Occupancy hovered around 95% on weekends and in the 80% neighborhood during midweek. “In Macau, limited mobility and small outbreaks continue to pressure travel, unsurprising and similar to 2Q commentary from” Sands China and Melco Resorts & Entertainment. As for WynnBet, it “expects to ramp up marketing ahead of the NFL season,” which seems to be a nice way of saying nothing much is happening right now. Wynncore generated $207 million in cash flow compared to a feeble (and worse than expected) $67.5 million in cash flow from all the Macanese properties. Wynn Macau and Encore Macau only contributed $14 million, while Wynn Palace has finally found its sea legs with a $53.5 million donation. Encore Boston Harbor was a little bit under certain projections at $47 million, though it improves month by month.

Due to a sharp decline in VIP play in Macao, Wynn Resorts is remarketing them as premium mass-market casinos, in order to get pre-Covid revenues without pre-Covid foot traffic. As Deutsche Bank analyst Carlo Santarelli put it, “Las Vegas & Boston shine as Macau remains a waiting game.” Word! “We don’t think we heard anything from management tonight that will meaningfully change the view on the resumption of normalized operations in Macau, with management acknowledging an uncertain timeline, while noting encouraging trend that resemble pent up demand at certain times,” he elaborated. “We expect the Macau names to continue to trade on virus headlines and policy decisions, things we, nor most, can truly opine on with any legitimate confidence.” Back in Vegas, business is fueled by slot fanatics, with coin-in up 37% and table wagering down 3%. Blame the latter on a lack of international players.

The new Strip convention space is driving group business nicely with record-level bookings. Meeting business for the next two years is actually surpassing 2019 levels. All this biz (plus reopened amenities) is causing a spike in operating costs but increased revenue is covering that nicely. As for WynnBet, “Management did not have much new to say, other than to say that they are pleased with the new product and the marketing program they will be rolling out ahead of the NFL season.” Right now they’re lining up ducks in row, doing things like “identifying brand ambassadors … and content creators.” WynnBet is live online in six states, terrestrially in two.

“Las Vegas trends are strong, group pace is improving, spend levels remain high, and casino customers and leisure travelers are driving the strength.” That was how Santarelli summarized MGM Resort International‘s second-quarter earnings call, adding, “In the regional markets, it was also more of the same, with margins up meaningfully, driven primarily by spend per visitor and operational disciplines.” However, management doesn’t expect current customer spending levels to continue. “We believe this approach towards articulating the go forward view, given the current climate, is prudent, and if nothing else, keeps expectations in check in the event spend levels begin to rationalize back towards more normalized levels,” Santarelli opined.

Results on the all-important Las Vegas Strip were better than expected. Even so, CEO Bill Hornbuckle is taking an axe to expenses with $100 million chopped off at the executive level and $350 million at the property level. (The rank-and-file is forever taking it in the shorts.) MGM is making money, just not enough money to make it happy. When given the choice, Big Gaming will almost always choose maximizing shareholder returns over customer service (Sheldon Adelson, come back from the dead, all is forgiven.) Santarelli gave MGM points for being more candid about its cost-cutting measures than most of its brethren have been. The company actually set an occupancy record in March and by June weekend room bookings were running at 96%. That’s even more impressive than Wynncore’s accomplishment when you consider how many rooms MGM must fill. Of course, having room rates averaging 9% lower than 2019 doesn’t hurt. Like Wynn, MGM likes the looks of the 2022 and 2023 convention calendars.

“Management remains confident in the 2H21 group business return, despite the Delta variant headwinds, which management noted has caused a modest amount of cancellations, despite bookings remaining strong,” continued Santarelli, as execs told investors not to expect convention business to return to full volume for another year at the earliest. Regionally, Borgata was the drag anchor, pulling the group down 3%. (Mississippi business is apparently strong, although it’s difficult to obtain clarity in that market.) Generation X has fully returned and Baby Boomers are coming back, though, and 11 of 17 stateside properties recorded all time highs in slot win with July looking better still.

The one disappointment was, you guessed it, Macao which did worse than expected. $338 million in net revenue was expected and only $311 million came across the transom. Also like Wynn, MGM is butting its eggs in the premium mass segment. “Management, much like peers, noted that the timing and pace of the recovery will be tied to the pace of vaccinations and easing of testing and other bottlenecks that have negatively impacted visitation.” BetMGM is meeting leadership’s goal of becoming the #2 sports-betting operation (24% market share) in the U.S. It delivered $194 in net revenue, up from the first quarter, and yet still posted an operating loss of $46 million. It’s currently in 13 states and on pace to add seven more by this time next year. Mlife is contributing heavily, having brought in 31% of BetMGM punters. Looking ahead, Santarelli estimates that MGM will easily exceed 2019 cash-flow levels on the Strip and regionally, while Macau will return to pre-Covid cash flow in 2023, maybe even slightly outdoing 2019.

Barry Jonas at Truist Securities tended to echo Santarelli, adding that “Macau continues to lag but management has a long-term focus on Asia, including Japan.” We’d like to hear more about this Pacific Rim focus, although leadership’s obsession with the Great White Whale that is Nippon continues to worry us. On a happier note, management plans a full-scale return of casino amenities. Record-level domestic cash flows were attributed to “pent-up demand, high customer spend trends and cost discipline by MGM.” That’s helping enable MGM to post 2019-plus average daily room rates on weekends. On the convention front, “there have been no major cancellations so far due to the Delta variant pickup in the last week. MGM also brought back entertainment options in the quarter and sold 98,000 tickets across a number of events.” Although the company continues to hold job fairs, low workforce levels are reported to be aiding profit margins “but will be a bottleneck at some point.”

As for Bet MGM, “Q2 reflected no major state launches, a seasonally-low sports calendar and the further re-opening of retail casinos” but Maryland, Washington, D.C., and Arizona are riding to the rescue shortly. It will be “entering this football season with better programming and a better customer database to pull from” as those new states come online. Overall, the company’s leverage ($12.7 million) is concerning but high liquidity provides reassurance. Some of that dough will be spent on reinvestment in slot machines, which should warm the cockles of the manufacturing sector’s heart. Finally, analysts were sunny about the MGM Growth Properties sale to Vici Properties. The front page of the Las Vegas Review-Journal‘s online front page today was a helpful graphic that showed the ludicrous concentration of ownership that this deal will create. Ah, Las Vegas, where the customer almost matters.

Lastly, word from our Atlantic City grapevine is that Harrah’s Resort is rewarding $750 in slot play with a frying pan (presumably for the ladies) or a bottle of Jim Beam. They could be a little more imaginative. Golden Nugget on a Wednesday was likened to midwinter, “few customers.” Would-be rival Philadelphia Live is taking to the air with new TV ads which (strangely) only show the exterior of the property, no interiors and no casino. Odd. As for “casinos without gambling,” i.e., water parks, Showboat owner Bart Blatstein needs a bond issue to fund his and isn’t having much luck. Janney Montgomery Scott is reported to have “had trouble” selling them, bringing in Citigroup. Blatstein hopes for a tax exemption by partnering with nonprofit Community Initiatives Development Corp. One bright spot for Blatstein: The Casino Reinvestment Development Authority has given him an “Entertainment Retail District” designation that unlocks $2.5 million a year in sales-tax rebates. Thus incentivized, Blatstein plans to break ground this fall on the water park, which will have a retractable roof, to make for a year-round attraction. You go, Bart.