Las Vegas and regional-casino operators “all expressed confidence around their respective domestic outlooks, with caveats around the longevity of the health of the consumer.” That was Deutsche Bank analyst Carlo Santarelli’s summation of the Deutsche Bank Gaming, Lodging, Leisure, & Restaurant Conference held last week in Miami. “Broadly, we believe the current environment across both gaming and lodging remains stable.”
The gaming-and-leisure sector was heavily represented, numbering 35 of the 45 companies in attendance. Among those showing the flag were MGM Resorts International, Caesars Entertainment, and Penn Entertainment.
Macau was also a hot topic, with Wynn Resorts and Las Vegas Sands tipped to outperform the market by year’s end. Operators reported seeing more Macanese strength from mass-market and grind-joint customers. Catalysts for continued growth included acceleration in package tours, more ferry capacity, and improved airline schedules into the enclave.
As for Las Vegas, Santarelli wrote, “While it is fair to say that we heard less of the ‘we’re not seeing it in our business’ refrain than we’ve become accustomed to in 2023, fundamentals don’t appear to be decelerating in a meaningful fashion.”
The same held true for regional gambling, despite some “soft” comparisons in October casino revenue. “In regional markets, operators continue to stress the stability and resilience of the rated-customer database, with lower-end patronage and unrated play continuing to lag,” the analyst added.
Sin City benefited from a variety of “green shoots,” including Formula One weekend, the Super Bowl, higher room rates, the continued return of customers from Asia, and renovations that were believed to be propelling room rates.
The controversial Las Vegas Grand Prix was described as good for leading Strip casinos, “benefiting nicely, and potentially better than previously expected.” However, business “has not firmed up as well as expected for lower-end and Strip-adjacent assets.”
Santarelli predicted that Caesars and MGM would see higher cash-flow boosts than the five percent previously anticipated, “with the key caveat being the luck factor on the casino floor, given the amount of high-end credit play in the market for the extended weekend.” Wynn Resorts was predicted to achieve a significant uplift from F1, although Santarelli noted that event-driven gains could be “watered down” by adversity on the gaming floor, given the amount of high-end casino action.
Recent labor pacts in both Las Vegas and Detroit were discussed, with the consensus that single-digit revenue growth was needed to monetize the bigger paychecks for union members. “In regional markets, labor and property insurance are providing the bulk of the increase in expenses, with labor-expense creep noted to be flattening out in many markets, while marketing and promotional activities remain tame,” Santarelli added.
Although keeping an eye on consumer trends, “Operators continue to reinvest in ROI projects of varying size in their existing portfolio assets.” Often concentrated in low-profile aspects of the operation, these tend to be hotel renovations, food-and-beverage additions, and high-limit gambling areas.
“While not overly needle moving, we do expect benefits from these incremental additions to play a role for operators in 2024,” Santarelli predicted, adding that four larger Penn projects weren’t receiving enough love from Wall Street at this time. He said the mergers-and-acquisitions front remained “tricky,” prognosticating that smaller portfolios are being shopped around “and we expect 2024 to be a bit more active, as operators search for growth and potentially, financing conditions improve.”
Turning to digital gaming, Santarelli cited a “bullish” atmosphere at the conference. He noted that two online sports betting operators said they were ROI-positive or at least breaking even in New York State, where the tax rate is 51 percent. This was, he said, a favorable forward-looking indicator, “especially those in which promotional deductions are permitted.”
Although gauging the impact of new ESPN Bet was deemed premature, it was central to the discussion. “Competitors did note, through the first couple of days, they have not seen a material impact from the launch,” Santarellli chronicled. He predicted that the newcomer would grow the market by dint of promotions, that ESPN Bet was targeting a more casual bettor, and that overall marketing strategies were unlikely to change.
