Last week, an employee of the Wildhorse Resort and Casino in Oregon was hospitalized after testing positive for the coronavirus. After the employee was hospitalized, the Confederated Tribes of the Umatilla Indian Reservation ordered the casino closed, asked all resort guests to leave, and canceled all hotel reservations.
The Wildhorse was the first casino in the United States to close due to the Covid-19 virus, which originated in mainland China, spread to Macau, and, in a stunning development, caused all casinos in the gaming hub to shut down for more than two weeks.
The Wildhorse had never before closed in its 25-year history, and reopened 48 hours later. But officials with the Oregon Health Authority have warned that the virus is now on the loose, and could surface elsewhere in the state. State epidemiologist Dean Sidelinger told the Associated Press that three cases were “fairly quickly identified. That would indicate to us that this disease is circulating in our community, and we will likely see additional cases.”
The Umatilla Tribe has assembled a Covid-19 incident command team to deal with the threat, and other gaming enterprises have followed suit. The Navajo Nation, for example, which occupies parts of Arizona, New Mexico and Utah, has created a preparedness team to “monitor, plan, prepare and coordinate precautionary efforts to address the coronavirus.” So far, there have been no cases of Covid-19 in the Navajo Nation.
Deal Breaker
But the biggest impact of coronavirus seems to be on the business of gaming, as well as many other tourism, transportation and hospitality segments
An article in Bloomberg late on Friday speculated that the economic chaos being spawned by the virus could impact Eldorado Resorts purchase of Caesars Entertainment, the biggest pending deal in the gaming industry.
The article reported that the banks committed to funding the $7 billion in loans— JPMorgan Chase & Co., Credit Suisse Group AG and Macquarie Group Ltd.—were getting nervous with a tight timeline looming to close the deal as soon as next month.
While the Maryland State Lottery & Gaming Control Agency last week gave its approval to the pending merger, it is just is the seventh state-level approval of the merger, with some major decision still yet to be made. “We can see the finish line from here,” said Eldorado CEO Thomas Reeg in an February 26 investor conference after the approval.
In Maryland, Caesars owns Horseshoe Baltimore, the state’s second-largest property with a 122,000-square-foot gaming floor. Unlike other states still considering the deal, Eldorado had no presence in Maryland.
The transaction is expected to be consummated in the first half of 2020 and remains subject to the receipt of all required regulatory approvals, and other closing conditions. The deal also must receive the nod of the Federal Trade Commission. “If I was making a bet, I would say early second quarter (for the transaction to close),” Reeg told investors.
Reed said that there was “zero risk” that the loans would not go through.
“We feel very good about the execution that we’ll get in the credit markets,” Reeg said.
Reeg also told investors to remain cautious about the sports betting element of the deal, saying sportsbooks—still illegal in Maryland—“should be driving value decades down the road.” Eldorado and Caesars currently have potentially competing agreements involving sports betting, and last week, William Hill, Caesars’ partner, expressed frustration at the slow pace of resolution.
But with the economic impact of the coronavirus still unknown in the U.S. investors are getting nervous.
“The best comparison might be 9/11, when people were scared to fly,” said Gene Neavin, a senior investment analyst and portfolio manager at Federated Hermes in the Bloomberg article. “Now people may be scared not only to travel but also to be in a casino with thousands of people.”
Eldorado shares have plunged more than 50 percent over the past week. Caesars stock has declined from $14.50 on February 21 to $11.09 at the close of business on March 6.
The banks scheduled to make the loans to the two companies did not comment for the Bloomberg article.
Vegas Holds Steady
Businesses in markets throughout the world are exercising caution to stop the spread of the coronavirus, which has killed more than 3,400 people. Flights between Las Vegas and South Korea were set to be suspended this week due to ongoing concerns about the outbreak, a suspension that was scheduled to last until at least April 25.
In addition, software giant Adobe canceled its Adobe Summit, which was to have been held at the Venetian in Las Vegas this month. Currently, however, it seems to be conventions as usual in the city. The Digital Signage Expo is still set for April 1-2 at the Las Vegas Convention Center. Speaking to the Las Vegas Review-Journal, spokeswoman Geri Wolff shrugged off the scary headlines, saying, “This isn’t the zombie apocalypse.”
SunTrust Robinson Humphrey analyst Barry Jonas told the newspaper the first quarter looks good for gaming in Vegas, and management teams “continue to emphasize no discernible impact to forward-looking booking trends so far.”
Caesars Entertainment CEO Tony Rodio weighed in, saying the company “has seen no business impact whatsoever” from the virus.
Roger Dow, CEO of the U.S. Travel Association, added, “Obviously the traveling public should be exercising caution just as they would for the average flu season. But for the many of us who have upcoming plans to attend a convention or meeting or go on a family vacation, public health officials have repeatedly said there is no cause to alter those U.S.-based plans at the moment.”
The largest trade show in North America— ConExpo-Con/Agg—also will go on in Las Vegas as planned. “We encourage exhibitors and attendees to take common-sense precautions by using hand sanitizer and following CDC guidelines,” said Dana Wuesthoff, director of the show, which is held every three years at the convention center. “Instead of shaking hands, maybe people can bump elbows or something like that. We’re committed to doing everything necessary to host a safe and successful show. We’re putting attendee and exhibitor health, safety and comfort at the forefront.”
The latest figures available from the Las Vegas Convention and Visitors Authority show China comprising only around 4 percent of international visitation. Gaming revenues, however, tell a different story. Baccarat, the preferred game of high rollers from Asia, and China especially, is the largest revenue-generating game on the Las Vegas Strip, and while the game has been on the decline in recent years, any significant disruption to volume is going to make a fairly loud noise.
As it stood at the end of January, overall visitor volume and hotel occupancy were up compared to the previous years. January gaming revenues were up 9 percent from the same time last year, according to a SunTrust report.
What this indicates is the mass market, the city’s core business, which is driven overwhelmingly by domestic travel, is holding steady.
Becky Harris, an academic fellow at UNLV’s International Center for Gaming Regulation and former chairwoman of the Nevada Gaming Control Board, said it’s a waiting game at this point to see how far and wide the virus spreads, and how it might affect Las Vegas, an area that depends on tourism.
“If there were to be a coronavirus outbreak in Southern Nevada, that would potentially have serious consequences for the economy here,” Harris said. “We’re just going to have to wait and see what happens and how this unfolds.”
Global Scale
Gaming industry events were also being impacted. G2E Asia was pushed back to July 28-30; it will be held at the Venetian Macao. “Like all of you, we have carefully monitored this global health crisis,” said Josephine Lee, chief operating officer, Reed Exhibitions China. “Our top priority is ensuring a safe environment for employees, customers, and exhibitors at G2E Asia.”
The 2020 ASEAN Gaming Summit, which was to have taken place March 17-20 in Manila, has been postponed until July 28-30 due to ongoing concerns about the coronavirus. In a February 14 statement, trade show host Asia Gaming Brief announced that, “after careful consideration, we have made the decision to postpone our highly popular ASEAN Gaming Summit due to the disruptive influence of the coronavirus on travel and the potential risk to health.”
AGB made the decision “to protect our community by helping to curb the spread of the coronavirus, as well as to give our industry sufficient time to focus on recovery.”
But due to the postponement of G2E Asia, the organizers of the ASEAN Gaming Summit have said they are evaluating when to hold the show later this year.
There’s no word yet on whether ICE Asia, currently scheduled for June 8-9 in Manila, is considering moving its date.
On February 23, Kangwon Land in South Korea announced it would close for several days due to the virus, but then remained closed until March 9. According to GGRAsia, operator Kangwon Land Inc. said it expects to lose KRW55 billion (US$45.6 million) because of the shutdown.
Late last week, Paradise Co. Ltd., which operates foreigner-only casinos in South Korea, told GGRAsia it’s “not yet considering” closing its venues for business due to the contagion.
On the manufacturing side, AGS and Everi Holdings were the only suppliers in the gaming sector to come through February 27’s historic stock plunge unscathed, while IGT reported positive results among coronavirus fears.
The historic 1,191-point plunge in stock prices on February 27, fueled by fears of a widening coronavirus outbreak, affected most companies, including nearly all of the gaming sector. However, operator Wynn Resorts was joined by two suppliers, Everi Holdings and AGS, as the only companies in the gaming sector not to experience a stock price decline for the day, which recorded the worst drop in the Dow index in history.
“While there has been no evidence of coronavirus impacting the gaming business in the U.S. yet, the threat and fear are growing,” Union Gaming Group analyst John DeCree said in a note to investors. “The outlook could shift rather quickly as it did in China and Macau.”
But that didn’t last long. The AGEM Index decreased by 71.59 points in February 2020 to 468.91 points, a 13.2 percent decline from January 2020. The drop was driven by stock price declines for all 13 AGEM Index companies as markets around the globe reacted to the uncertainty surrounding the COVID-19 outbreak. The stock price for Aristocrat Leisure Limited (ASX: ALL) dropped by 8.5 percent, accounting for a 28.12-point decrease in the AGEM Index, while Crane Co. (CR) experienced a 20.5 percent stock price drop that led to an index contribution of negative 15.56 points.
In fact, by last Wednesday, the nearly 1,200-point plunge had reversed itself with a 1,200-point gain, and markets in general appeared to have stabilized. But they soon plunged again and by the end of the week, some of the major gaming stocks have dropped by as much as 45 percent.
IGT executives, in an earnings call announcing revenues that have beaten estimates, also cautioned potential coming disruptions due to the virus. “Our outlook does not factor in any impact from coronavirus, which is a very dynamic situation right now,” said CEO chief executive Marco Sala. “We are monitoring its evolution closely, in Italy in particular. And our priority has been to ensure the wellbeing of our people and customers. The weeks ahead will be crucial in assessing its impact on our businesses.”
Answering a question on the overall impact, Sala added, “It is unpredictable, as all the CEOs are saying to everybody. And we are saying within our management team, we are well prepared to control what we can control. And that’s first of all about people.
“Let me spend a couple of minutes on people, because it’s important that our priority being our people, I want to say that we have taken immediate measures including restricting travels, encouraging telecommuting, creating a centralized people resource center and preparing a contingency plan where appropriate, and we continue to monitor the situation in Italy and across all the regions because we feel that the health and wellbeing of our people and the community we operate in is our utmost concern.”
Although IGT recorded a fourth-quarter loss due to a $99 million goodwill impairment charge, the company reported it was net-income positive for the quarter, topping Wall Street forecasts thanks to jumps in sports betting revenue and lottery sales.
In a statement, London-based IGT, which produces and operates gaming and lottery machines in more than 100 countries, said its net loss was $168 million, or 82 cents per diluted share, for the three months ended December 31, wider than the loss of $102 million or 50 cents per diluted share, a year earlier.
Back At the Epicenter
Back in Macau, the hotel occupancy rate is showing some improvement from the effects of the epidemic, which has all but shut down travel from mainland China. Analysts expect the going will continue to be rough for the territory’s casinos.
Occupancy climbed up to 21.5 percent last week, a welcome step up from the low of 11.8 percent experienced during the two weeks last month when the 39 casinos were closed by government order to stem the spread of the virus.
The measure, extreme as it appeared, has been a success for the most part, with no increases in known infections beyond the 10 identified to date by local health authorities. Nine of those were reported recovered last week and are no longer hospitalized.
Conrad Macao at Sands Cotai Central, the 13 Hotel and five other hotels remained closed as of last week, although all have reported to the government that they are preparing to reopen this month.
For gaming, it’s still anything but business as usual, with individual and group travel from the mainland still suspended and most air carriers planning to continue to halt flights into and out of the city through March.
As of last week, only 11 routes were operating at Macau International Airport, most of them belonging to home carrier Air Macau, and none included China.
Gaming revenue plunged more than 87 percent in February compared to last year, and near-term forecasts are nearly as grim:
- Kenneth Fong of Credit Suisse expects March revenue to fall 80 percent and April to be down 60, as the restrictions on visitation continue to take a toll.
- Macquarie’s Edward Engel expects March to be down 76 percent.
- Stifel’s Steven Wieczynksi is forecasting a decline of 75 percent – 85 percent in March and a 60 percent decline through the first quarter.
- Carlos Santarelli of Deutsche Bank sees March down 73 percent and the first quarter down by 57 percent.
- JP Morgan Securities (Asia Pacific) Ltd. said in a client note last week that it isn’t expecting the market to return to normalcy until the end of the year.
In a move that clearly indicates how bad things have gotten, Wynn Macau raised the revenue share paid to junkets operating its VIP rooms from 40 percent to 42.5 percent, the first time the property has adjusted the rate since entering the market 14 years ago.
Credit Suisse analysts professed themselves “surprised, especially with such minimal demand now.” They attributed the increase to Wynn’s declining share of the high-end trade, which fell from 23 percent to 20 percent of the market last year and was down as low 16 percent in virus-wracked February, according to estimates.
“Wynn’s actions highlight the industry’s difficulty (low revenue and cost pressure as they cannot fire staff) and the cautious outlook,” they said. “As volume shrinks, junkets will naturally allocate business to operators offering higher commission.”
Luiz Lam, a spokesman for a loose association of junkets called the Association of Gaming and Entertainment Promoters, told news site GGRAsia that daily VIP volume market-wide has shrunk to 15 percent of normal since the casinos reopened February 20.
“Many junket operators have chosen to reopen since February 20, somehow due to peer pressure,” he said. “But since reopening we saw only very few clients and business has been really quiet.”
Major junkets such as Suncity Group, which runs 17 VIP rooms in the city, have resumed operations with most of their casino clients. Suncity has said also it plans to open more rooms before the end of the year.
It’s not expected that all the smaller promoters will fare so well, according to reports. Many of those lacking the liquidity to survive the current crisis will go by the boards or be absorbed by the big groups, much like what happened when the central government’s corruption crackdown hammered the VIP market back in 2014 and 2015.
There were 95 junkets licensed with the city at the start of 2020, according to government records, but Lam said he expects that number will “dwindle” to around 80 before the year is out.
“For the mid-sized and smaller junket operator, with fewer financial resources to maneuver amid the current situation, they may choose to close their Macau business or reduce the number of VIP gaming rooms they operate here,” he said. “It is also possible they will choose to shift their resources to the Southeast Asian markets. When conditions stabilize, it is also possible that the city’s bigger junkets will acquire the resources of the smaller ones, and further expand their footprint in the city.”
The Ripple Effect
As if the coronavirus outbreak isn’t doing enough damage to Macau operations, the three U.S. companies with casinos in the Chinese territory are warning that the contagion could hurt their revenues in Las Vegas.
The U.S. government imposed a ban on travel from mainland China last month, part of an upheaval in global communications unprecedented in scope since the potentially deadly virus spilled out of China last month and spread rapidly to dozens of countries.
By some estimates, at least 94 percent of Fortune 1000 companies have cited the coronavirus as a significant disruption to supply chains, and analysts are slashing earnings and revenue estimates for companies across multiple industries.
Industry experts that while say it’s too soon to assess the impacts, the uncertainty, coupled with the massive blow to gaming revenues in Macau, is weighing heavily on investors in Las Vegas Sands, Wynn Resorts and MGM Resorts International, whose shares last week plunged to 52-week lows.
MGM has fallen 21.5 percent since January 30, Wynn 14.7 percent, LVS by 11.9 percent. Among other Las Vegas-facing operators, Red Rock Resorts is down 17.5 percent, Boyd Gaming 13.5 percent, Caesars Entertainment 7.8 percent.
“The market, in our view, has moved from underappreciating the risk to potentially over-penalizing the stocks,” said Macquarie gaming analyst Chad Beynon. To halt the spread of the disease, the Macau government closed the city’s casinos for two weeks last month, costing operators𑁋Wynn, MGM and LVS among them𑁋millions of dollars a day. Most have since reopened, but with travel from China effectively shut down, customers are few and far between, according to news reports.
Not surprisingly, estimates for 2020 earnings at Wynn have fallen by 50.3 percent. Forecasts for MGM are down 39.3 percent.
And with eyes now turned to the U.S., where the coronavirus is spreading, the unknowns continue to mount.
“Strip operators haven’t noted any impact from the coronavirus outbreak on their Las Vegas properties yet, but we know the situation is fairly fluid,” said Barry Jonas.
In a report to investors, Wynn said, “A significant portion of our U.S. business relies on the willingness and ability of premium international customers to travel to the U.S., including from mainland China,” adding, “Our Las Vegas operations and operations at Encore Boston Harbor may be adversely impacted.”
MGM said, “The extent to which the coronavirus impacts the company’s results will depend on future developments, which are highly uncertain and cannot be predicted.”
LVS said that if the virus escalates it could impact company subsidiaries’ ability to generate sufficient earnings and cash flow to pay dividends.
Caesars said business may be “adversely affected” by the outbreak if it leads to “business disruption, reduced customer traffic and reduced operations.”
Meanwhile, only one case of coronavirus was reported in Las Vegas—a traveler who had previously spent time at a nursing home in the state of Washington, the epicenter of the U.S. infections.
