As the coronavirus continues its lethal march across the U.S., for the first time in Las Vegas’ long, glitzy history, the lights on the Strip are out, and operators are groping for ways to deal with a crisis without precedent.
The monthlong closure ordered by Nevada Governor Steve Sisolak on Tuesday applies to all non-essential businesses casinos, machine gaming venues, bars, movie theaters, restaurants, fitness facilities, and even Hoover Dam. It came in response to the state’s first confirmed death from the contagion, which has infected at least 50 Nevadans, including two Las Vegas resort workers.
“For gaming companies, it’s critical spending only right now,” said Steve Gallaway, principal for Global Market Advisors. “We’re seeing development projects being canceled, and rightly so. It’s battening down the hatches, figuring out what bills have to be paid and how much capital is needed to stay in business. Casinos care about their employees, they want to make sure they’re provided for, and also they have to make sure they remain solvent.”
As of Wednesday, the number of confirmed cases in the U.S. approached 7,500. The death toll had hit 117. In the three months since the virus was first identified in China, more than 200,000 people have been infected worldwide, and more than 8,000 have died.
The Trump administration is considering invoking wartime powers to prevent a complete economic shutdown. Officials are warning the nation to prepare for critical shortages in health care and disruptions to daily life that could last 18 months or more.
As it stands currently, with the economy sinking into a certain recession and Wall Street in full-blown panic, gaming investors have followed everyone else in fleeing for the exits. Prices have blown past their 52-week lows, with no bottom in sight.
“I think it’s inevitable that all casinos will close down temporarily due to this epidemic,” Gallaway told GGB News. “The question is, is it for two weeks, four weeks, eight weeks? It’s the length of the shutdown that’s going to determine the effect on the economy.
“Remember, too, there’s a ripple effect. This is not only operator revenues we’re talking about, it’s payroll for employees, which is going to impact consumer spending. This is going to ripple throughout the entire economy.”
Brendan Bussmann, GMA’s director of government affairs, added, “This is way bigger than anything the industry has gone through, including 9/11 and the Great Recession.”
While it’s still too early to assess the financial impact of a monthlong closure of Nevada’s principal industry, it’s sure to be severe. Gaming taxes are second only to sales taxes as a percentage of the state’s annual budget. According to the Nevada Resort Association, leisure and hospitality directly employ one of four workers in the state, and generate an economic output of around $68 billion a year.
Sisolak said over the weekend that the state was in “relatively good shape” to pay unemployment claims, but cannot do so indefinitely. The state was working to get additional assistance from the federal government.
In Las Vegas this week, the industry’s largest labor union, Culinary Workers Local 226, entered emergency negotiations with operators to secure protections for its workers, including paid sick days and up to six months of paid health benefits for laid-off workers.
Matt Sodl, a principal of Innovation Capital, an industry consultancy specializing in investment, finance and M&A, said the human factor will figure uppermost in the minds of management adjusting to what he describes as “Armageddon.”
“You have to make sure money is flowing to your employees—they’re your critical resource,” he told GGB News. “It’s hard to find and keep good people. So they’re going to prioritize their employees, first and foremost. Casino operators will be stepping up and making sure their employees get paid. One hundred percent.”
Then there’s the obvious need to focus on other essential costs.
“Isolate the draconian downside payments that have to be made, whatever you need to stay in business,” Sodl advised. “Make sure you have sufficient liquidity, and prepare for uncertainty. If you think you have enough, you don’t. We’re talking to a lot of our clients about this right now.”
Examples of the extraordinary measures being taken were in evidence last week, with MGM Resorts International’s decision to cancel a planned $1.25 billion share buyback and Wynn Resorts’ announcement that it would begin to draw down on its $850 million revolving line of credit.
Sodl believes we’ll see more𑁋like lenders deferring interest and principal payments, and opcos deferring the fixed rents they’ve contracted with the real estate investment trusts (REITs) that own their properties.
“They’re stakeholders in this as well,” he said. “That’s the Armageddon we’re in right now. We’re in a war against this virus. Everyone has to do what they can and do their part.”
But will it be enough?
“I don’t think necessarily it’s a long-term problem,” Gallaway said. “But we don’t know. If it last longer than two months, we’re going to see a lot of bankruptcies and a lot of corporate restructurings.