Measuring casino performance according to cash-flow margins, Deutsche Bank analyst Carlo Santarelli looked with favor on Boyd Gaming and Station Casinos in a Thursday research note.
“We believe this method is considerably more telling when comparing the operating efficiency of the regional gaming operators,” he wrote of judging operational efficiency through EBITDAR margins.
He highlighted Station and Boyd, “whose gaming-tax adjusted margins in 2019 were well below peers and have the ability to maintain the most significant margin appreciation amongst the [gaming] group.”
He then turned to staffing levels, which are significantly below pre-pandemic levels (down 35 percent on average) and flat between 2021 and 2022, despite rising casino revenues. “While some of the reduction stems from property closures or M&A activity, operators, at a minimum, have curbed 20% of their workforce on a like-for-like basis,” Santarelli observed.
While job cuts have been steep (down 35 percent in manpower compared to 2019), Boyd “has actually been the most aggressive with respect to staffing, given the [Station] property closures and Palms sale and [Caesars-] deal synergy reductions.” By comparison, Penn Entertainment’s 23 percent staff attrition was “somewhat understated,” thanks to new-property openings and acquisitions, which have added jobs. Boyd, unlike Penn, hasn’t added at any new casinos since 2019 and has closed its Eastside Cannery.
Labor cutbacks at Caesars Entertainment have been particularly deep: 38 percent. Santarelli, however, was willing to attribute at least some of this to the consequences of Eldorado Resorts’ takeover of Caesars and the consequent synergies. Station’s job reductions were regarded as entirely correlative to the closure, then sale, of Palms Casino Resort and the outright closures of Texas Station, Fiesta Rancho, and Fiesta Henderson.
Employment at Boyd peaked at 23,477 in 2018 and currently stands at 15,771. Similarly, Station has gone from 14,000 in 2019 to 7,850 today. Penn’s 28,000 staffers in 2019 have fallen to 21,875 today. Caesars has been on the downgrade since 2017, whence its 84,700 employees have shrunk to 49,000. Golden Entertainment has gone from 8,000 staffers in 2018 to 6,400 last year. (No other companies’ staffing was surveyed.)
To achieve an apples-to-apples comparison, Santarelli excluded monetary contributions from international assets (such as Caesars’ Egyptian casinos) or digital operations. Instead, he focused on EBITDAR and corporate expenses.
Penn’s cash-flow margin “healthily exceeds peers” and “the operational performance remains impressive,” making it Santarelli’s pick among brick-and-mortar operators for sheer efficiency. Despite a low tax on gross gaming revenues, Las Vegas locals-focused operators were deemed to have more compressed margins, “given the required service levels, asset breadth, competitive environment, and tighter relative labor market.”
Santarelli continued, “That said, the level of continued outperformance across the board, relative to 2019, remains notable and, more important, stable. This stems primarily from: 1) materially lower employment levels, as noted earlier … and 2) reduced low-margin amenity offerings,” such as buffets.
As for job cuts, “Operators, at a minimum, have curbed 20% of their workforce on a like-for-like basis. It is not coincidental, in our view, that the operators with the larger labor-footprint reductions have tended to experience the most significant gaming-tax adjusted-margin gains, relative to 2019.”