If there’s growth in regional-casino revenues, new product is what’s driving it, according to Deutsche Bank analyst Carlo Santarelli in an investor report published this morning.
Santarelli described “a slow bleed” in regional gross gaming revenue, declaring that the sentiment companies would manifest revenue growth is “likely misguided to some degree. While compares will ease in the 2Q24, we don’t necessarily expect, nor do we model, a return to growth, as we see moderating declines, though still negative comparisons.”
But the analyst found a silver lining in the cloud, writing that sentiment in the stock market will “likely beget a favorable risk reward for several names.” Foremost among these were Boyd Gaming and Station Casinos.
Santarelli’s reasons for liking Boyd were fivefold: its stake in FanDuel, growth in Las Vegas’s downtown market, exposure to the Las Vegas locals market, stock buybacks, and balance sheet.
Durango Resort was foremost among Santarelli’s criteria for bestowing favor upon Station. He also mentioned a stable Vegas locals market and “organic” growth portfolio.
Another Vegas-centric operator on which Santarelli smile was Golden Entertainment, which he as “a unique situation, with reasonably solid fundamental trends, a strong balance sheet, and the potential for event-driven upside in shares.”
Given January’s adverse weather and despite an extra day in February, Santarelli’s view of regional revenues was “firmly negative.” Ten states this year have been down two percent or more, Maine is flat, and only Colorado and Illinois have been up.
To make matters worse, March numbers for Michigan are already out and they’re down 1.6 percent. Growth in Illinois (12.6 percent through February) was deemed deceptive, as the Land of Lincoln’s casinos are down 6.7 percent on a same-store basis. Such growth as there is has been entirely driven by new additions, including Bally’s Casino in downtown Chicago.
However, promotional wars aren’t heating up again, according to Santarelli. “While GGR can often mislead and lull investors into a false sense of security, we don’t believe promotional strategies have altered materially in the 1Q24,” he wrote. “We continue to see certain operators in certain regions acting somewhat promotional, though broadly, behavior is unchanged on a quarterly sequential basis.”
Although promotional spending accounted for a larger percentage of GGR in January and February, Santarelli discounted this, writing, “It primarily relates to the challenging January, in which GGR was hampered by weather, as well as the challenging GGR comparison from January 2023.”
On one hand, spend per visitor has been down in 13 of the past 14 months. However, Santarelli argued, it’s a steady and slight declivity. What’s more, spend per gambler remains 32 percent higher than in pre-pandemic 2013, despite 18 percent less casino patronage.
Compared to Santarelli’s forecasts, Boyd casinos were down $7.1 million from last year, for January and February. Caesars Entertainment properties were tracking $22.1 million below projections and Penn Entertainment’s were lagging $13.9 million. MGM Resorts International’s regional casinos, two of which may be for sale, were actually $1.8 million higher than Deutsche Bank’s forecast.
