According to Michael Soll, president of The Innovation Group, the Covid-19 pandemic may be this era’s 9/11, World War II or Great Depression.
Post-coronavirus, gaming companies will have to breathe life back into their businesses, and learn to survive and thrive in a changed world.
Gaming is an industry that prospers when people get together to gamble, play and socialize. This catastrophic event is requiring people to eschew most human contact and practice “social distancing.” Will the habits bred by hunkering down—possibly for weeks—allow them to return to normal activities, such as gaming?
Soll looked at the impact of the coronavirus on gaming from several angles: financial, strategic, operational, and in terms of its enduring impact.
“I worked in the industry for 10 years, and while we don’t have a crystal ball, we may have the next best thing: history and insight,” he told GGB News.
Over the last month or so, he said, “We’ve had to shift our perspective—first, by looking at past economic downturns and how they affected the industry. While none were the same, including wars, crashes, terrorist attacks and other viruses, and each behaved differently, we can always identify key responses.”
Financial
Pre-2007, the gaming industry thought it was recession-proof. But the “numbing of the economy” during that period proved otherwise. “People had less disposable income, and there was a dulling of the industry, even in the local markets, but you were able to maintain some level of play throughout the recession.” After 9/11, there was a brief halt in air travel, but actually an uptick in regional markets.
Initially, the impact of the virus was limited mostly to China. “But we knew the industry would take a hit,” said Soll; a decrease in that specific market was sure to be accompanied by a general downturn, with different gaming properties affected in different ways. “If Las Vegas was down because air traffic was down, that player might hop into a car and drive to a regional casino,” said Soll. “There was some mitigation going on.”
Today, it’s the coronavirus—a whole different animal. “Even two weeks ago or 10 days ago, we didn’t see a softening” in the overall industry, Soll said. “This is a social issue, people can’t congregate. We’re seeing a shutdown, and we’re also seeing some cycling. The improvement in Asia shows there’s a cycle we can model. But the current state has become a lot more drastic. You can’t go to a casino if it’s closed. The only thing left dangling is online gaming, where you don’t have to be social.
“The overall economy is gone, so people are too. But they can open their online casino, at jurisdictions where it’s legal. They could theoretically play and lift up the gaming economy.”
The U.S. has up to 10 online markets, with more nearing approval. And globally, online gaming is “vast,” said Soll. But even in a crisis, passing new legislation to enable more online gaming won’t be easy. “By the time the politics move, you’ve alleviated the urgency. If legislators aren’t already on their way, it’s hard to see them move in that direction.”
The long-term financial impact of the coronavirus on gaming is hard to predict, “but there will be a cycle,” he said. “Loyalty to individual properties could be affected with a shift to online.”
Long-term Strategy
At first news of the pandemic, some casino properties planned to remain open. “This was, ‘How are we going to communicate with our customers and employees about behaving prudently, and stay open under some reduced volume?’”
That quickly changed. “We saw we were moving to a closure mode, and the discussion shifted from behaving responsibility to how to behave economically. Are we going to have furloughs, reduce the employment base? What does liquidity look like? Forget about liquidity. How do we address our employee base and our costs? Are we going to keep building our projects?”
Some companies have put building projects on hold to keep cash in reserve. “It’s gone from managing PR to managing and controlling a very sharp decrease in business, for what we hope will be a short time,” said Soll.
Now the question is, what does the recovery look like?
“If we look at the Great Recession, there were permanent effects,” Soll said. “The business does return over time, and having some idea what that looks like will inform what we do now.” The impact will differ for global companies, such as Las Vegas Sands, compared to regional players, like Eldorado and Caesars, which are in the midst of a merger.
“A company with a diverse international portfolio would be hoping for a recovery in Asia ahead of a recovery in the U.S. to have some relief,” said Soll. “Best case for that company is that Macau starts to come back, with China improving. But if you’re a U.S. local (company) and get a lot of local exposure, you’re just starting to think about the peak now.”
By contrast, Chile and Uruguay have seen little coronavirus impact. “The trend has been kinder to South America than to North America so far,” observed Soll. “Although Brazil has a significant number of cases, it may be because of a more mobile society. Its market is a region with little impact from the virus so far. They may just be next in line, or end up in a different trajectory.”
Operations are the next level down from strategic planning. “We touched on it when we talked about dealing with shifts in employment and sustaining cash flow,” said Soll. “It quickly shifted from how to keep people apart to closing the doors. These issues go away when you’re not open—but not in a good way.”
Now’s the time to think about how the organizational structure will change in general, or departmentally. “More to the point, how does the business behave differently, to anticipate or counteract something like this again? What do we do, and at what pace?”
Enduring Impact
Does Soll expect the outbreak to have a lasting impact on the gaming industry? “I know the questions more than the answers,” he responded.
He posed those questions, which can only be answered over time:
- “If a player is a player online during the closures, will they stay with that online company, or return to bricks-and-mortar when they reopen?”
- “Do the adjustments to work force return at lower levels, or rebuild to the same levels? Do they live with fewer employees per customer, to decrease the impact?”
- “If you were thinking about building a tower with 500 rooms before, what will be the pace of recovery when that confidence returns? That’s important for our company, because a lot of our work centers about that kind of impact.”
- “Will there be shifts of loyalty from former and (hopefully) future patrons? That may depend on how the company behaved in the last few weeks. Did a company’s outreach or behavior toward employees make patrons return or reach out to another company?”
- “Will there be relief at the state level in terms of taxation and revenue sharing?”
- Will real-estate investment trusts (REITs) endure in a post-coronavirus society? “The operations that pay the rents get their main source of income from cash flow. There’s one degree of separation between the owner of the assets and the owner of the right to operate. Those are inextricably connected. Will that have an impact? Will that soften the impact?”
Once the coronavirus has ebbed and normalcy returns, that will be just the beginning of the questions.
