This spring, Culinary Union Local 226 and Las Vegas Bartenders Union Local 165 contracts with major Las Vegas casino companies will expire. Although this has not been a subject of media speculation to date, Deutsche Bank analyst Carlo Santarelli fired off a warning shot this morning that inflation issues could result in salary demands that will be substantially higher than usual, as happened in Atlantic City last year. Labor costs in Las Vegas represent 35 percent to 45 percent of total operating expenses.
Flashing back to 2018’s labor negotiations, Santarelli notes that they stretched past the May 31 deadline into June “and well beyond for some,” although no strikes were called. “We believe the finalized 5-year contract, which was ultimately agreed to, was struck within the range of the 2.5-3.0% compensation escalator being offered by the operators and the 4.0% compensation escalator the unions were seeking.”
This time, Santarelli believes, five-year pacts will see higher escalators than before, up to a minimum of five percent. As an example, he cited a near-strike situation in December at Penn Entertainment’s Hollywood Columbus and Hollywood Dayton casinos. The United Auto Workers and International Steelworkers, which represent casino employees, wanted a wage increase in the 12- to 14-percent range. Penn wouldn’t confirm or deny the final percentage, but the International Steelworkers called it a “pretty historical deal.”
“It is important to note,” Santarelli qualified, “that while the annual escalators of a union contract get the majority of the media headlines, a lot more minutia is involved in these discussions, especially in the hospitality industry. As such, some of the other items that would likely come up for discussion could mitigate some of the increased wage expenses.” Also, citing Atlantic City’s contract talks, he raised the prospect of less-than-uniform pacts in terms of duration.
The most heavily unionized company is MGM Resorts International, with 69,000 union-repped workers on its Las Vegas payroll as of the end of 2021, followed by Caesars Entertainment with 49,000. Third is Wynn Resorts, with 26,750, with fourth place held by Boyd Gaming (15,114 unionized workers). Other operators have far fewer union employees; Station Casinos had 7,800 — contrary to its lengthy strife with the Culinary and other unions — and Golden Entertainment had 6,300, many of them at the Strat. As a percentage of total employees, Golden is at the low end with 35 percent, MGM at the high point with 59 percent.
While Santarelli concludes that increased wages would have curbed cash-flow margins in 2022, he feels that the impact of higher pay would be minimal in terms of earnings before interest, depreciation, taxes, and amortization (EBITDA).
Looking into his crystal ball, Santarelli predicts pay raises of $512 a year for bartenders at Caesars properties, $218 at Wynn Las Vegas/Encore, $805 at MGM casinos, and $39 at Golden-owned properties. (All of those are based on a five percent raise.) None of the forecast EBITDA impacts is above three-tenths of a percent.
