It’s the question being asked inside gaming industry executive offices and board rooms, in the investment community, and by casino customers and gaming observers.
How does Las Vegas begin to recover in the midst of the ongoing coronavirus pandemic?
There isn’t a simple answer.
What’s becoming clear, however, is that the Las Vegas casino market – created as a legal gambling community in the 1930s – will likely have to return to its roots.
SunTrust Robinson gaming analyst Barry Jonas signaled that gambling is going to drive the market for time being, and not just in Las Vegas. In commercial and tribal gaming markets throughout the U.S., casino operators are dealing with reduced capacity, social distancing measures, and outright closures for restaurants, hotel rooms, convention facilities, and entertainment attractions – essentially, everything that isn’t gaming.
“Today’s gaming market has essentially morphed back 30-plus years in time to when the main focus was recession-resistant gambling, as non-gaming amenities take a back seat,” Jonas wrote in a research note last week.
Barry Jonas, SunTrust Robinson
Las Vegas, Jonas suggested, will continue to be a “drag” on the casino industry’s overall recovery due to closed entertainment venues and a depressed group business segment.
Macquarie Securities gaming analyst Chad Beynon had a similar assessment. Non-gaming revenues on the Strip – money not earned from the casino floor – have steadily increased over the past decade.
Beynon said in a research report that gaming revenues were less than 1% below the record high of $6.5 billion in 2007, compared to $6.45 billion in 2019. Revenues from hotel rooms, shows, dining, and retail were 30% higher during the same timeline – $9.3 billion in 2007 versus $12.07 billion in 2019.
“This could change,” he said, due to COVID-19.
Las Vegas is not the same market it was before the coronavirus. Casinos closed for 78 days starting on March 18, and not all of them reopened on June 4.
Through May, gaming revenues are down 44.8%. Passenger counts from McCarran International Airport have declined 49% compared to a year ago, which includes zero international flights. Visitor volume is down more than 50%. Figures covering June and the first six months of the year will be released this week.
Meanwhile, celebrity entertainment venues and production show theaters are closed inside Strip resorts. Major tradeshows and conferences began canceling in March, including the highly anticipated National Football League Draft, originally scheduled to be held in late April near the Forum at Caesars Palace.
The cancellation earlier this month of the Global Gaming Expo – the industry’s largest conference and tradeshow, originally scheduled for October 5-8 at the Sands Expo and Convention Center – has led to speculation that the National Finals Rodeo – Las Vegas’ premier December event – could be next on the postponement block.
Chad Beynon, Macquarie Securities
Also, it’s unclear if the NFL’s Las Vegas Raiders will be able to welcome fans to its $2 billion Allegiant Stadium for the team’s inaugural season in Southern Nevada.
“Following five years of 42 million visitors, 2020 was expected to break that mark, given major demand drivers,” Beynon said. “However, COVID-19 disrupted these plans, setting up 2020 for some of the worst visitation trends in decades.”
Beynon said in the research note that Las Vegas visitors still want to come to the Strip, but a lack of airline flights and reduced convention and meeting business are the two biggest detractors.
“We conducted a Las Vegas consumer demand survey and results were mediocre; however, we regularly analyze demand searches into Las Vegas and demand was surprisingly positive,” Beynon wrote.
Clearer picture
Caesars Entertainment and the former Eldorado Resorts jointly preannounced initial second-quarter results prior to completing the companies’ long-planned $17.3 billion merger last week. Regional market revenues grew roughly 9% during the one month their properties were open. Caesars’ Las Vegas casinos – just five of its nine properties have reopened – were down more than 40% over the 26 days.
Last week, Las Vegas Sands said revenues at the Venetian and Palazzo, which were closed for more than two months in the second quarter, had declined 92.3% to $36 million. Company President Rob Goldstein hinted it might take the development of a vaccine before Las Vegas returns to some sense of normalcy – probably not until 2021 at the earliest.
Boyd Gaming reports second-quarter earnings on Tuesday, MGM Resorts International announces on Thursday, and other companies follow in August.
Jonas suggested the focus of investors during the quarterly earnings season is on “any color beyond” the numbers.
“If ‘gambling’ stocks prove once again to be recession-resistant, we don’t see why the entire sector – including casino operators, gaming (suppliers) and gaming REITs – wouldn’t re-rate higher,” he said.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
