Deutsche Bank analyst Carlo Santarelli met with several Las Vegas-based casino operators in mid-May and came away optimistic. He did warn, in a May 22 investor note, that near-term business trends would be “choppy” and that low-end casinos faced soft custom.
From Santarelli’s standpoint, the salient operator was Station Casinos. He cited the strength of the Las Vegas locals customer, as well as “a well-articulated and manicured project pipeline and potential catalysts from the tax bill serving as the primary pillars of the thesis.”
The operators with whom Santarelli spoke deemed consumers to be resilient, their spending not adversely impacted by tariffs or volatility in the stock market. Depending on whom Santarelli spoke with, the prospects for the Las Vegas Strip itself were said to be mixed. Meeting bookings were deemed a bright spot.
Regionally, “stable to encouraging” was the outlook, although Santarelli noted spikes in March and April promotional activity. By comparison, Las Vegas locals-promotional activity was said to be “benign.”
Operators welcomed the tax bill recently passed by the U.S. House Representatives, citing the removal of taxes on tipped income. They also liked how it would impact their bottom lines.
Utility costs were said to be on the wane, though not labor expenses, but managements were described as offsetting higher spending by using fewer employees.
One potential canary in the coal mine was Santarelli’s conversations with Strip insiders. He found these to be “somewhat reserved, though constructive, while conversations with non-public industry participants were a bit more cautious, specifically as it related to leisure demand over the May through August period.”
Tourism from Canada and Mexico was conceded to be a worry, “where operators acknowledged, at a minimum, double-digit declines in room night bookings.” However, the Vegas executives opined that this was “relatively easily backfilled.”
Operators were looking as far ahead as 2028 in terms of group business and liked what they saw. Related Santarelli, “The gains over this period include not only group occupancy and rate, but also F&B/catering commitments. While a lot can change, we think this setup bodes well, and we believe the strength relates, to some degree, to share gains from other large group host city competitors, with technology-related business playing a role.”
Another cause for optimism was a 250,000-ticket uptick in sales for Vegas-based events. Room rates were also helped by MGM Grand being 700 rooms down and The Mirage being offline entirely.
Construction at The Mirage, soon to be the second Hard Rock Las Vegas, was seen to be “progressing nicely at present.” A 2027 opening is expected.
“Given the history of the Mirage, as well as the Hard Rock brand, and central location, we expect the late 2027 opening to be a driver of incremental visitation, the first in a while in Las Vegas, in our view,” Santarelli opined. He added that nearby casinos are looking forward to the reinvented Mirage, not least for the foot traffic it will engender.
Santarelli described Fontainebleau’s casino as struggling, but said that its room and dining product had become more competitive. Given the lack of a “reliable casino database,” Fontainebleau was said to be leaning more heavily on group bookings than most. The resultant increase in business was described as curbing the pricing power of rivals, “while also hampering demand during city-wide events for some of the stand-alone south- and north-end Strip properties.”
The analyst continued, “With labor expenses relatively under control, operators are benefiting from meaningful improvements in utility costs, which are somewhat, though not fully, offset by increases in insurance expenses.” He saw this cushion as continuing throughout the balance of the year.
Employment, home construction, and (consequently) gambling revenue for locals casinos were seen as flat-to-stable. Weakness was as yet unseen.
One area of perceived softness was the performance of gambling-enabled taverns, reliant on Strip employees for patronage. These were seen as underperforming when compared to retiree-driven locals casinos.
Summarized Santarelli, “When thinking about the outlook for locals, given current macro-economic drivers and assuming a similar backdrop, we expect stable trends through year end, with [Station] a likely near-term and medium-term share gainer given the portfolio and the demographic changes in the market in recent years.”
The exemption of tipped income from income taxes was perceived as a boost for the Las Vegas economy, but not as much as the relaxation of levies on Social Security. Given that the slot machine player is likely to be a retiree, Santarelli mused, this would would be the more-impactful for the tax rollbacks.
Renegade behavior by stand-alone Vegas operators was of some worry to competitors. While Boyd Gaming was seen to be abstaining from promotional wars, Palms Casino Resort was described as being especially aggressive, with The Rio dialing back some of its promo activity.
“On the Strip, while operators have and are likely to continue in the coming month dip into the casino database a bit more, we do not believe elevating reinvestment levels are a concern at present,” Santarelli reported. He added that room rates had slumped compared to the Super Bowl-driven first quarter of 2024.
The Deutsche Bank report ended with a digression into Ohio, where competing igaming bills are vying for passage in the state legislature. Cautious optimism was the tenor of Santarelli’s conversations with operators. While the proposed Ohio tax rate, which might end up anywhere between 28 percent and 40 percent, isn’t considered favorable, it could be managed, operators thought.
“While the presence of two bills, with largely similar language, when coupled with operator optimism, might make one believe Ohio is close, we again remind investors that anyone can write a bill, whether it makes it through is an entirely different conversation,” Santarelli warned. He added that the Buckeye State is experiencing a severe budget shortfall, one that igaming taxes could help more than the (rejected) increase in sports betting levies would.
Santarelli closed by cautioning that an Ohio legalization of igaming isn’t a slam dunk. Gov. Mike DeWine “has not exactly embraced gaming expansion and could potentially opt to not sign it into law even if it passed.” Nor could potential opposition by some terrestrial-casino operators be wished away.
