Circa owner seeing inflation’s effect, with fewer ATM withdrawals and less spending

June 27, 2022 10:00 AM
Updated: September 26, 2022 5:09 PM

Circa owner seeing inflation’s effect, with fewer ATM withdrawals and less spending

Shutterstock
  • Nevada
  • US
  • Commercial Casinos

Downtown Las Vegas casino owner Derek Stevens told the Nevada Gaming Commission Thursday that his three properties are starting to endure the impact from inflation, with fewer ATM withdrawals and less spending. Stevens told the commissioners that he’s concerned about the impact on the casino industry from a potential economic downturn.

That impact was also discussed this week at the Jefferies Consumer Conference.

Stevens, who opened the Circa Resort & Casino in 2020, made his comments as the Commission approved Circa Sports to operate at Legends Bay Casino, which opens in August in Sparks. It’s the first new casino in the Reno-Sparks metropolitan area since 1995 and it will be Circa’s first foray into northern Nevada and its sixth sportsbook in the state.

In response to a question from Commissioner Ogonna Brown about how business was going, Stevens let out a “wooh” and quickly pointed out that he said, in an interview on CNBC in April, that he was worried about inflation.

“Since then, we’ve started to see the impact of inflation on operations, some more than others,” Stevens said. “We’ve seen the impact of inflation on slots, tables, and beverages for the last 10 weeks. The restaurant business has held up very well and hotels have been very strong and robust. Some of that has to do with people booking their rooms and their flights out a distance. Restaurants and hotels have been strong, not just with us, but from what we’ve seen in all of Las Vegas. We certainly have a growing concern in regards to some of the telltale signs that we watch.”

Stevens said he looks at ATM transactions and withdrawals on a daily basis.

“From April to May, the average withdrawal amount was down the most I’ve ever seen in my career –11%,” Stevens said. “That’s a telling sign. We noticed a significant reduction in uncarded play and we’ve seen a reduction in the general spend on some of the last-minute spur-of-the-moment items, like extra drinks or the pull on a machine. We have some concerns about inflation, but hopefully things turn here by the time we get to the fall. We’re pretty sports oriented, so we’re excitedly awaiting football season.”

Although not shared by everyone, Stevens’ comments echo some those of others in the Las Vegas casino industry about the impact from inflation and possible recession as the Federal Reserve raises interest rates.

In a note to investors, David Katz, an analyst with Jefferies Equities Research, talked about their two-day Jefferies Consumer Conference this week and gave an update on the gaming industry.

“The tone of current/near-term business from management remains positive, while investors are guarded against an expected recession,” Katz wrote. “Our expectation remains that the second-quarter results should be strong, with outlooks perhaps more guarded through the remainder of the year, which is largely priced (with stocks), in our view. Overall, the dichotomy in views of companies versus investors is likely unsettled in the near term.”

Katz said commentaries from Caesars Entertainment management corroborates those of other operations during a recent Las Vegas meeting about occupancy remaining high and average daily room rate higher than 2019. That doesn’t mean there aren’t concerns.

“Management remains confident in its capital structure and ability to weather any potential standard variety recession,” Katz wrote Tuesday.

On Wednesday, Katz said commentaries from MGM and Penn National were consistent with the previous day. The Las Vegas Strip and locals’ casinos “remain very strong today, with hotel bookings and convention and entertainment calendar remaining favorable for 2023.”

Regional performance is largely stable, with no meaningful signs of weakness beyond specific markets such as Mississippi, Katz said.

“More important, as the market becomes increasingly concerned about an imminent recession, it is worth noting that both companies have materially improved their balance sheets,” Katz wrote. “In addition, both managements stressed discipline in promo behavior and reinvestment in lower-tier customers. Lastly, both companies will remain active in buyback while maintaining balance sheet flexibility.”

Stevens told the Commission he’s excited to open his first sportsbook in northern Nevada at Legends Bay, with its 80,000 square-foot casino with multiple restaurants.

“We’ve been looking for a northern Nevada location for a number of years and for one reason or another, we were never able to strike the deal,” Stevens said.

Stevens said they knew the project was right when they met the team from Legends Bay.

The casino is a project of Olympia Gaming, which opened Casino Fandango in Carson City in 2003. It’s part of the Olympia Companies, master-plan developer of the Southern Highlands and Skye Canyon communities in Las Vegas.

The casino is integrated into the Outlet at Legends shopping center to provide a gaming and retail experience. There are more than 200 hotel rooms and suites at the Hampton Inn by Hilton and Residence Inn by Marriott on the site, which were developed by Olympia in 2017 and 2018.