Looking for a recovery model

Looking for a recovery model

  • Ken Adams, CDC Gaming Reports
April 13, 2020 11:00 PM
  • Ken Adams, CDC Gaming Reports

The COVID-19 coronavirus crisis is far from over. People in every walk of life are trying to adjust to living small and staying away from other people as much as possible. In their isolation, people are inventing fascinating ways to entertain themselves and their friends.  But underneath the creativity and humor is anxiety.  Regardless of what you do for a living, your employment, your income has been impacted.  Of course, not every business is closed and not every worker has been laid off.  Many retailers/manufacturers and service providers are going at full speed and even hiring.  However, the unemployment numbers are in for the third week of the shutdown.  In the first three weeks, a combined 16.8 million people have filed for unemployment.  Those numbers will go up as some companies are paying their employees through the end of April.  It will be the second or third week of May before we know how many people have lost their jobs due to the pandemic.

A message on the Venetian on the Strip/Photo via KLAS-TV

The unemployed and the employers without employees share anxiety and uncertainty over the short-term future.  Both have limited resources and some fixed expenses, casinos may be able to renegotiate some of those fixed expenses, employees are not likely to be able to do the same.  Employees are wondering whether when the all-clear is finally given if they will have a job, even a part-time job.  And if not, what other employment opportunities might exist. The employers are wondering even if they survive the shutdown if they will have either employees or customers.  No one has an answer to those questions.  Probably the first question on everyone’s mind is when will it be over?  For the casino industry, it is certain that no casinos will open before May 1, and even that is being very optimistic.

Just as the casinos closed state by state, each state will have its own criteria and timing for the resumption of business.  Casinos will not open at the same time, even within any given state.  The shutdown took about three weeks; the Wildhorse Resort and Casino in Oregon closed on March 2 when an employee tested positive for the virus.  The casino stayed closed for two days, cleaned everything and then reopened on March 4. On March 18, Wildhorse closed again, this time until further notice.  The majority of casino closures in the country took place over 11 days, between March 13-24. On March 25, media reports stated all of the casinos in the United States would close.  The reopening will dependent on the number of cases and deaths in each state and the rate of decrease of both.  South Dakota and Colorado are not on the same trajectory as New York.  Even states bordering on each other are not necessarily going to follow the same path; the conditions in Louisiana are very different from those in Mississippi.

Even after the all-clear is given, the situation will be complicated.  For casinos, it will be even more so, regulatory, logistical and organizational issues will each have different requirements and timelines. Regulatory requirements take precedent over everything else.  Trying to open multiple operations will tax regulatory structures in every state.  No state has issued any directives thus far as to the process, so it is pretty much anyone’s guess exactly what will be required.  This is new ground for everyone.  Once that is sorted out, each casino will try and project the level of business it can anticipate.  Casinos schedule according to business volume or customer traffic; a casino does need the same number of employees on the graveyard shift as on the swing, nor does it need the same staff levels on a Tuesday in December as it does on a Saturday in August. With the uncertainty that currently exists about the economy in general, accurately forecasting staff requirements is nearly impossible.   One of the most confusing issues is social distancing.  Casinos may be required to, or may elect to, maintain a social distance.  In the restaurants and on the casino floor it will be difficult to do and require considerable logistical planning.

When Resorts opened in Atlantic City in 1978, people stood in line to get into the casino; it was the ultimate in pent-up demand. They’d been eagerly awaiting a casino closer to home than Las Vegas.  Most casino grand openings over the last 40 years have been a smaller version of the Resorts experience.  The casino reopenings in 2020 will not be anything like that.  There may be some pent-up demand from some regular customers who can barely contain themselves waiting for their favorite casino to open its doors.  However, even those loyal players will have been impacted by the lockdown. People will have less disposable income to spend and more hesitant to spend it than before the crisis. The situation is truly unique and as operators around the country try to build a viable model there is very little historical data available.

There is only one comparable model, Macau. By government decree, the casinos in Macau closed February 4. That lasted two weeks before the casinos were allowed to reopen. One of the requirements was social distancing; casinos were only allowed to open half of their table games, and those tables could only entertain half the regular number of players.  By the middle of March, 80% of the tables had begun operating again, albeit with additional requirements for wearing masks and cleaning all surfaces on a regular basis.  Although the casinos are open, clean, and relatively safe, the customers have not rushed back.   Gaming revenue in February was down 87% and 80% in March – a month that saw just 250,000 tourists.  It is a bleak picture to use as a model, but some conditions in Macau will not be applicable to this country.

Macau is a unique jurisdiction.  The majority of the visitors to the city come from China; specifically, the majority come from one province, Guangdong.  The economy in China is far from back to normal and Guangdong has limited access to the province during the virus.  Anyone is subject to quarantine, including locals returning from a visit to Macau.  On top of that, Macau is quarantining everyone that enters its territory.  In actuality, Macau is closed to visitors and gamblers, even though it is open in theory.  Therefore, the numbers are much worse than what we might predict in the United States.  But Macau is the only model we have.

As much as it would be nice to have a model to use, there isn’t one.  Casinos, like every other business in this country, are left trying build their own theoretical model.  There is no alternative until the doors open and the customers start coming back. For the short-term future, casinos operators will be guessing.  That is where we all stand. There is no model that tells us what to expect or how to plan for the rest of this year.  I don’t know about you, but that makes sleeping difficult some nights.