Casino stocks hit by news of new COVID variant; observers say wait and see on an industry that’s proven to be resilient

Casino stocks hit by news of new COVID variant; observers say wait and see on an industry that’s proven to be resilient

  • Buck Wargo, CDC Gaming Reports
November 28, 2021 11:32 PM
  • Buck Wargo, CDC Gaming Reports
  • Other

The Dow posted its worst drop of 2021 with casino stocks taking a hit Friday as investors feared a new COVID strain will hamper travel, gaming, and the broader economy.

But those who monitor gaming are less concerned about any fallout in the U.S., believing it would take much more dire news to have an impact on an industry that’s been resilient with strong revenues during the pandemic. Instead, they said it’s best to take a wait-and-see approach to the impact.

The Dow fell more than 900 points on a day the World Health Organization called the new strain, dubbed Omicron, “a variant of concern.” First identified in South Africa, the variant has prompted international travel bans and restrictions and has been detected in Hong Kong, Europe, and other locales.

Scientists still don’t know if it’s more contagious, makes people sicker, or can be addressed by existing vaccines. That will take a few more weeks to know.

A concern that the U.S. would restrict international travelers from entering, which has been allowed since Nov. 8, was alleviated Friday when the Biden Administration said travel would only be restricted from South African and seven other sub-saharan countries, starting Monday. Visitors to the U.S. are already required to be vaccinated and have a negative COVID test before they can travel.

Gaming stocks, however, have already felt the impact, especially those with exposure in Macau.

“The concern of the new COVID variant propagated through the stock market quickly, dragging down virtually any gaming stock,” Lawrence S. Shen, a chartered financial analyst and partner at C3 Gaming, said. “Both Japan and Australia, important markets for Asian gambling destinations, have acted quickly to strengthen traveling restrictions.”

Shen said what’s more interesting is how “smart” the stock market is. It’s clear that companies with heavier Asia focus were affected the most, while stocks with less Asia and international focus were much less impacted, he said.

“Wynn Resorts dropped 6% and Las Vegas Sands shed 4.9%,” Shen said. “Melco Resorts, with almost all revenue coming from Asia, was hit the hardest, dropping 10.3%. MGM Resorts International, which has a balance of Macau and U.S. operations, dropped only 2.3%. With Asian countries more conservative in COVID control and China being the extreme, the long-awaited rebound of tourist gaming action will likely be pushed back some more.”

Among other casino gaming companies, Caesars Entertainment fell 2.92%, Century Casinos went down 8.20%, Boyd Gaming declined 1.39%, Golden Entertainment fell 2.06%, Rush Street Interactive fell 4.91%, Penn National went down 0.79%, and Red Rock Resorts fell 2.84%. Also within the industry, IGT was down 1.66%, Everi Holdings fell 4.92%, and Scientific Games declined 0.70%.

One positive note was Bally’s Corp.,  up 0.15%.

“From an overall concern, it’s more a wait-and-see standpoint and keeping my fingers crossed,” said Corey Padveen, a partner at t2 Marketing International. “It’s too early to make any call on an impact. It is all going to come down to federal or state implementation on restrictions. I don’t think anybody is going to pull the trigger too quickly considering what kind of impact it had when COVID was first announced with the lockdowns and restrictions.”

Josh Swissman, a partner and gaming consultant with The Strategy Organization, said the gaming industry has already seen how the Delta variant played out when gaming revenues were still elevated. The increasing vaccination rate and people getting boosters helps people feel confident in their travel in being protected against the virus, he said.

“Barring any additional information that would say this virus is somehow much more infectious and contagious and the severity of the infections are so much higher, I think everyone is going to just keep an eye on this and continue to go about their lives,” said Swissman. “They will wait to make any decisions in terms of cancelling travel.”

Oliver Lovat, CEO of Las Vegas real estate advisory Denstone Group, said most people, especially younger ones, who want to go to casinos and do anything with risk will continue to do so. Older customers, however, will remain reluctant to travel and gamble in casinos. The Scottish native said he heard Friday from those in the UK who still plan to come to Las Vegas in early 2022.

“The only impediment to people coming is whether the U.S. closes its borders,” Lovat said. “There’s still a lot of global pent-up demand to come to Las Vegas. Americans will still come. I don’t think America is ready for another lockdown again.”

The Consumer Electronics Show set for January that brings visitors to Las Vegas from around the world requires attendees to be vaccinated. It was already expected to see fewer people after more than 175,000 attended in 2019.

Lovat said he doesn’t see an impact on CES at this time but the Las Vegas convention business in general was always going to have a longer recovery than tourism. There were a record 6.6 million convention visitors in 2019.

“I think it will take a long time to get back to where we were in 2019,” Lovat said.

Brendan Bussman, a partner with Global Market Advisors, said what’s happening with the stock market shows how fragile the recovery can be from the pandemic and how quickly mandates could potentially be put back in place. The stock market has been hammered on the assumption people won’t travel and gamble, but that’s too early to predict, he said.

“We’re early on in the ball game, but it’s yet to be determined how this will play out over the next week to 10 days and how Christmas travel and New Year’s travel is impacted,” Bussmann said. “As we’re setting out here from CES, international travel and openness about it is that much more important.”

The bigger impact might be with Macau, Bussmann said. It looked as if earlier this week that Macau might open to Hong Kong in December, but the latest newest may have stopped that, he said.

Andrew Klebanow, principal with Klebanow Consulting and a CDC Gaming Reports contributor, said Las Vegas’s tourism economy has proven itself resilient, even as the Delta variant emerged this past summer. He doesn’t expect this new variant to diminish visitation, but he called Macau another story.

“Macau and the People’s Republic of China have adopted a zero-infection policy,” Klebanow said. “Those governments are willing to shut down travel and their economies if even the smallest outbreaks occur. The new variant is certain to slow any rebound in Macau’s casino industry.”