Over the past several weeks, most regional gaming companies have reported their first quarter results. The following quote could have been pulled from any number of releases:
- “Our first quarter 2014 performance was impacted by unusually extreme weather conditions across the country, increased competition and soft consumer trends.”
This is not the first time this particular company has struggled with these issues:
- “We were disappointed with our fourth quarter results, as increased competition and adverse weather conditions led to lower-than-expected performance.”
- “Our fourth quarter was challenging on many levels as we were impacted by increased competition, difficult weather conditions compared with last year and continued consumer weakness.”
Two quotes from the same release? No – one was for fourth quarter last year and the other from the year before. Apparently, there was increased, increased competition in 2013 versus 2012, and then increased, increased, increased competition in 2014. Extreme weather must be more challenging than adverse weather which is worse than difficult weather. Soft consumer trends are more impactful than continued consumer weakness.
These are just a few examples, but indicative of a broader trend: it has become acceptable to effectively – and repeatedly – blame acts of God for poor performance. These three excuses – weather, competition, and the economy — have become dog whistles – statements that seem to be taken at face value by investors, owners, and boards of directors.
Companies with properties in Nevada blame winter weather for their results, and no one pushes back. Companies in markets with no new competition blame “increased competition” for their results, and it is taken as a given. We are in the sixth year of an economic recovery, with a stock market at record highs, yet we have to accept “soft consumer trends.”
Come on. This is little more than a trifecta of excuses. It is time to stop blaming God for the problems of man.
Walt Disney World offers a product much like ours. It is a capital intensive product with low cost-of-goods-sold (admission to a theme park doesn’t lead to any product put in a bag). It appeals to middle American customers – the kind who are the bread and butter of the casino business. It is a business entirely dependent on consumer spending.
It is also a business that can be susceptible to weather year-round – hurricanes for six months of the year, travel snafus from feeder markets closed due to winter weather the other six months of the year. It is a business that is experiencing substantial new competition – a new facility a half hour away (Legoland Florida) and a second competitor a few miles down the road that has put nearly a billion dollars into brand-new, cutting edge products (Harry Potter being the big one). One would expect that “soft consumer trends” would certainly impact their business.
And impact it did. When the economy cratered in 2008, Walt Disney World certainly took a hit. Visitation declined, hotel occupancy declined, spend per visitor declined. But the Board of Directors and senior executives at Disney chose to embark on a different path. They realized that they could sit around and complain about these things – use them as excuses and to deflect ineptitude – or they could develop new strategies, think creatively, improve their marketing, and change their operations and overcome them.
They focused on a “Disney Vacation Club” timeshare business that not only is highly lucrative, but locks in their core patrons to annual, scheduled Disney vacations. They launched a “Magical Express” transportation product to eliminate both the cost and hassle of rental cars and taxis to the Magic Kingdom – and had the side benefit of ensuring these same customers did not wander off Disney property while on vacation. They repackaged their product with unique special events, like a “24 hour party” that created new reasons for existing customers to visit again. They even tapped into the recognition-loyalty factor of their annual passholders, mailing each car magnets designed like a traditional geographic location (letters inside a black oval) which both make their passholders feel accomplished and serve as powerful endorsements to non-customers.
And work it has – despite the opening of Harry Potter land, Disney has figured out how to grow. Despite “soft consumer trends,” they are seeing record visitation and record spend per guest. Despite the same winter weather that is claimed as the reason people won’t drive to a casino, people are getting in their cars and driving to Orlando, and braving wintry airport conditions to get there.
I give Disney senior management and their board a lot of credit – they didn’t let their management teams blame God. They told the Disney World executives they didn’t need them to generate bad results – the company could have those for free! If they wanted to keep their jobs, they needed to turn things around.
Disney is not alone in this regard. Certainly there are some consumer-focused companies that are hurting, but there are others that are doing spectacularly. No industry is more weather-dependent than airlines, yet after decades of challenge, and with a soft economy, they have figured out how to make money. World Wide Wrestling’s live event business grew 9% year-over-year in the same first quarter where weather and consumer trends apparently prevented customers from visiting casinos. NBA attendance was up this season – with higher ticket prices and the season spanning that same “extreme weather.”
To be clear – not every gaming executive does this; not every gaming company uses these as excuses. This industry has some incredibly talented management teams out there that work hard every day to create maximum value for their shareholders. But how much longer will this industry allow the other companies to deflect responsibility for their operations and results?
When has a gaming executive said their great results are because of decreased competition? Or great weather? Or great consumer trends? No – at many gaming companies, when things are great, it is because of their strategies; when things are bad, it is God’s fault. (Remember the company quoted above? Q1 of 2013 apparently was not terrible, so the quote in that quarter reads, “We are pleased with the overall performance of our casinos in the face of additional competition and a weak economy, as it speaks volumes of the strength and depth of our management team.” Mention of that same strong and deep team is noticeably absent in the other quarters – perhaps they were on vacation trying to avoid the extreme, adverse, and difficult weather?)
Six years of this is enough. It has gotten so ridiculous that in one recent situation, after management was allowed to blame bad winter weather for poor operating results, once spring arrived, management then started blaming beautiful spring weather for continued poor operating results – customers were apparently tired of being cooped up and just wanted to be outside! So when the weather is bad, they won’t come to a casino, and when the weather is good, they won’t come to a casino. Seriously?
The competition is here to stay (and will get worse) – it’s time the industry recognize that casinos may be like theme parks, movie theaters, restaurants, and every other kind of business that cannot rely on government to limit supply. It snowed last winter; it probably will snow next winter. And unfortunately, the economy is what it is – there is nothing the casino industry can do to change it.
We are taught that we should not take God’s name in vain; it is time to stop taking it as an excuse.
Randall A. Fine is the Managing Director of The Fine Point Group, a gaming consultancy specializing in the asset optimization of underperforming casinos. FPG has completed assignments with more than 70 clients, spanning a dozen countries, and 24 U.S. states, including large turnarounds in Michigan, New Jersey, Nevada, Mississippi, and Indiana. Mr. Fine served as the CEO of Detroit’s Greektown Casino-Hotel during its successful turnaround, and prior to founding FPG in 2005, was a senior executive for both Carl Icahn’s distressed gaming portfolio and the corporate vice president of slot operations and Total Rewards for Caesars Entertainment. He can be reached at rfine@thefinepointgroup.com.
