Casinos that serve Las Vegas residents are expected to grow modestly in 2025, according to Deutsche Bank year-end analysis.
Analyst Carlo Santarelli called it “an interesting year” in the Las Vegas locals market. Durango Casino & Resort came online in December 2023, was quickly absorbed, and showed with strong returns.
Despite that, same-store gaming revenue was down, operating expenses edged higher, and market-wide EBITDAR is likely to be down high single digits year-over-year in 2024.
“While ranging in magnitude, revisions for Boyd Gaming, Golden Entertainment, and Red Rock Resorts were lower over the course of 2024, though stock performance has varied meaningfully, with Boyd serving as a clear standout in the regional group, while both Red Rock and Golden lagged.”
Through October, the locals-market gaming revenue is up about 6%, though the growth has been fueled entirely by the addition of Durango, Santarelli said. Using the commentary provided by Red Rock management as to the performance of Durango to date, he said they can assume that the property is poised to deliver about $160 million of property-level EBITDAR in 2024.
“Given the premium margin relative to the portfolio, we estimate Durango annual net revenue for 2024 will be approximately $340 million,” Santarelli said. “Assuming net revenue splits at the property that are broadly similar to the portfolio aggregate, we imply annual net casino revenue of about $225 million, with annual gross gaming revenue approximating $260 million.”
If broken down by month with adjustments, Santarelli estimates the same-store year-to-date locals market is down about 3% year-over-year through October.
While some would note that the same-store performance is being hampered by Durango cannibalization, Santarelli said that so far this year, North Las Vegas gaming revenue is down 2.7%, while the Boulder Strip is down 1.1%. The two regions are unlikely to feel much of any impact from Durango and are likely more emblematic of the same-store environment.
“We believe a favorable and growing gaming revenue cadence in 2025 would go a long way toward outperformance in both Red Rock and Boyd, though in the absence of market growth, we believe consensus forecasts will likely prove aggressive,” Santarelli said.
When looking at the history of the locals market, Santarelli said it’s easy to reach the conclusion that the market remains “frothy” with gaming revenue in the post-COVID and stimulus era well ahead of expected and normalized trends.
From 2014 through 2019, Las Vegas locals gaming revenue grew at a 3% compounded annual rate (CAGR), akin to the Las Vegas metropolitan area employment rate of 3.2% over the same period. Since 2019, however, on a last 12-month basis, gaming revenue has grown at a 5.1% CAGR, while the employed workforce has grown at just a 0.9% CAGR, implying a +4.2% CAGR per member of the workforce, Santarelli said.
From a gaming-revenue perspective, had the 3% CAGR continued post-2019, the last 12 months would have been about $2.82 billion relative to the $3.12 billion achieved over the last 12 months. The 10% above trend, however, is a material discount to inflation, given the 23% inflation experienced since 2019.
“As such, we do not see the above-trend gaming revenue growth as being problematic, though we are somewhat concerned with the workforce-growth trends, relative to the gaming revenue growth trajectory as it pertains to the 2025 outlook,” Santarelli said. “This concern stems from the slowing workforce growth and the challenging comparison in 2025, as gaming revenue per member of the workforce is up 4.2% over the last 12 months, primarily driven by the impact of Durango.”
Looking ahead to 2025, the non-gaming outlook appears mixed, given the backdrop of moderating same-store trends as well as the slate of planned capital projects, Santarelli said.
For Boyd, notable projects include a room refresh at the Orleans, as well as the completion of the ongoing Suncoast overhaul, which includes a new food hall and expanded meeting space slated to open in 2025.
Red Rock Resorts also has considerable work on tap for 2025, including Sunset Station renovations at $53 million, causing a $5.4 million EBITDA disruption in 2025. A room remodel will last from June through November at Green Valley Ranch at $150 million that will cause about $11.5 million EBITDA disruption in 2025.
As for Durango, the parking, gaming, and food and beverage expansions at a cost of $116 million will cost about $5.9 million EBITDA disruption in 2025.
In the case of Boyd, they expect the capital spending to be additive to non-gaming revenue in 2025, whereby it’s likely that the Red Rock disruptions over the course of the year will hamper non-gaming trends, with the benefits showing up in 2026, Santarelli said.
“After a considerable uptick in operating expenses in 2022, expense growth moderated in 2023 and has further moderated over the last 12 months,” Santarelli said.
“We believe operators have done a reasonably solid job responding to the softer same-store revenue environment, while also effectively curbing what has been an aggressive expense-creep environment with labor, insurance, and energy all pacing higher. We expect the external expense pressures to subside a bit from a rate of change perspective, though still grow in 2025, and we believe modest revenue growth is likely enough to maintain margins. As such, we expect margin performance in 2025 to relate primarily to revenue performance.”
