Financial leaders from some of Wall Street’s biggest banks said Thursday at G2E that they are optimistic about the gaming industry’s potential to lure more millennials to casinos in the future, saying that the U.S. is “primed to spend”, while citing some concerns over market saturation and opportunities for gaming companies to expand.
“We’re doing well. The recovery is underway and continuing, and that bodes well for an awful lot of discretionary spending,” said Jon Najarian, a CNBC contributor and co-founder of Najarian Family Office, which serves high net-worth investors.
Najarian was one of the panelists on the last day of G2E on a session: ‘Raise, Check or Fold? Wall Streets’s View on the Future of Gaming.’
William Newby, president of TFA Capital Partners, a boutique investment bank that focuses on raising capital for the gaming and leisure sector, said that in the aftermath of the mass shooting in Las Vegas this week, while there’s “habitual worry,” over what transpire, consumers are “in a reasonably good place for now” with inflation running at 1.2 percent and interest rates low.
“Consumer confidence is reasonably strong,” Newby said. “They’re saving more, and looking to spend more.”
Newby said his biggest concern isn’t from a consumer standpoint, but the proliferation of casinos in markets in the Northeast and that there will be “too much capacity going into a finite market.” That makes it more difficult for casinos revenue-wise, he said.
“Although the consumer is healthy and willing to spend, there’s too much to spend on, too many opportunities,” Newby said.
The opportunities for casino companies to grow are also limited, Newby said. He mentioned that some California tribes are looking to acquire a casino in Las Vegas to have another option for their players along Interstate 15.
“Maybe Japan happens and maybe it doesn’t, but the offerings in the United States are pretty limited, and I don’t see much in Europe,” Newby said. “If you are (MGM Resorts International President & CEO) Jim Murren or you’re the Wynn guys, where do you go next? I think for a lot of guys, it becomes how do you shift the paradigm of what you have. The emphasis may be on new games or non-casino amenities, but there has to be a change. I think it’s an industry that has to reinvent itself somehow in some way.”
Edward King, managing director and head of the global gaming group in the i-banking division of Morgan Stanley, said casino properties are expensive to acquire at this time. He agreed that there will be a paradigm shift in the next five years and cited the importance of engaging millennials.
“It’s going to be more dynamic and interesting,” King said. “We are in an incredible juncture.”
Newby said casino operators have to be open to new ideas and have the ability to underwrite what they do. That means it’s going to be the bigger players, and not the smaller ones, who will be able to do that, he said. He talked about MGM’s new marketing campaign (since pulled in the wake of the mass shooting on Sunday -ed.) and how it’s all about entertainment.
“You need to be on the cutting edge,” Newby said. “You have to be willing to try new things and invest in new things and technology and figure out where millennials are going. Wynn and MGM are willing to risk and gamble and find that new thing and invest in it. That takes a lot of capital. MGM probably has that. You also have to have the ability to suffer abuse (from Wall Street) if you miss once in a while.”
The industry continues its efforts to reach out to difficult-to-woo millennials, and Najarian said there’s signs for optimism for a generation that prefers to Uber rather than buy a car. Because of that, they carry a lot less debt, he said.
“There’s a lot of discretionary spending that this group of millennials had that 20 years ago that group did not have because they were paying $200 a month for a car,” Najarian said. “Now, they’re riding in an Uber how many times a week instead of paying for the car, the insurance, the parking. That money can be spent anywhere. That is why (the G2E show floor) is so full. There are so many draws for them to spend this extra money. Gaming is one area that they are going to continue to spend in my mind.”
As for what the gaming industry is doing to attract millennials, Najarian said anything that catches the consumer’s eye, no matter their age, and causes them to sit down and gamble is the goal. He said the Pac-Man game appears to be a great opportunity because it’s competitive play against multiple players rather than against the house.
“It’s a big video board, which I think will draw those millennials like flies,” Najarian said. “It gives them the ability to do what Twitter does. We shout at each other on Twitter but anonymously. Now you’re gaming against that guy on that end of the table and if he or she decides while playing this Pac-Man game — 2x or 3x — are you in or not. The other player says, ‘Hell yes.’ These games are going to be addictive because of the graphics they have, as opposed to a slot machine.”
With his stocks, Najarian said he likes slot manufacturers because their practice of leasing machines to casinos drives revenue, especially if they have an exciting game.
“Scientific Games has great stuff, and (they’re) one of the best trades of the year,” Najarian said. “I like (Scientific’s) vision to go after millennials with some of the things we see in (the trade show floor),” Najarian said. “Driving race cars to make money or playing Pac-Man to make money, if those work, (they) would be drawing in those millennials. That is an if, but in my mind, they will.”
Newby cited Steve Wynn as part of the paradigm shift in 1989 when analysts said he had to make $1 million a day at the Mirage for the casino to afford its debt service. He shifted the paradigm then, but today is different.
“The paradigm will shift at some point into something new and interesting, but we don’t know what that is,” Newby said. “It makes for an interesting time to be here. It could be a turning stone for millennials. We could be on the precipice of that.”
Najarian said he owns several casino stocks – Sands, Wynn, Caesars, and MGM, which he said he bought more shares of after its stock priced pulled back 6 percent earlier in the week.
Gaming stocks have been helped recently by a comeback in Macau where revenue had dropped 40 percent but is now bouncing back, Najarian said.
“It’s not back to $45 billion on an annual basis, but it’s back into the high 30s,” Najarian said. “Whenever there is a fire sale I get interested. MGM had a little bit of a fire sale this week.”
Najarian said he bought more Wynn stock when it dipped significantly from 2014 to 2015. It has since rebounded about 100 points. He said he’s attracted to the company because it lures in higher-end players.
“(Wynn) has the higher-end player,” Najarian said. “That’s where the juice is.”
