In October 2012, Hurricane Sandy forced casinos in Atlantic City to shut down. But the danger passed in a few days, and life soon returned to normal.
Compared to Covid-19, the weather event that spawned the term “superstorm” looks like a day at the beach. Due to the viral outbreak, all bets are off. Casinos and other non-essential businesses have closed across the country and around the world. And it’s anyone’s guess how long it will be before the virus is vanquished.
Frank Fantini, CEO of Fantini Research, called the mass closure order “a conscious decision by government to shut down large parts of the economy for prophylactic reasons. I don’t think that’s happened before.”
The resulting uncertainty could lead to serious financial consequences, from corporate boardrooms to front desks, back offices and valet stations. Many casino companies are paying employees in the short term. But for bartenders, cocktail waitresses, dealers, doormen and house maids who rely on tips, that money is likely gone.
The government owes the gaming industry, other industries and their employees a helping hand to survive the crisis, Fantini said in an interview with GGB News. “Absolutely, the government should provide relief to the gaming industry.”
Operators are raising cash and cutting expenses to survive and stay as strong as possible. For some, online gaming will help a compromised bottom line, but it won’t be nearly enough to fill the revenue gap, Fantini said.
“I would say that for brick-and-mortar casino companies, a few will benefit enough from online gaming to be material, but most will benefit just a little or not at all. And none will benefit enough to keep a whole company cash flow-positive.”
If the crisis goes on for more than a year or even 18 months, the situation will be transformative—it could take years for conventions to be rescheduled, for example, and formerly free-spending patrons may remain guarded, especially if they’ve suffered financial or psychological harms.
“The longer it goes, the longer it will take for the economy to recover and for people to feel confident enough again to spend money readily in a casino or other resort industries,” Fantini said. But in time, he added, “people will still want entertainment, and they’ll still want to interact in person.”
Unlike the 2008-2009 financial meltdown, the U.S. economy and most companies were strong coming into this crisis, he pointed out. “Many will use this financial strength to survive and recover, and they’ll provide investors with returns of 100 percent, 500 percent, 1,000 percent.”
Case in point: the Las Vegas Sands Corp. With very low debt levels, it can weather a long shutdown, especially with functioning properties in Asia. “Strong regional casino companies like Boyd and Penn National are going to be there on the other side, and you can buy them today for a song,” in Fantini’s view. “Smaller companies like Monarch Casino have low debt levels and big drive-in customer bases.”
Gaming suppliers like Scientific Games, IGT and Aristocrat have more diversity now than when they were just slot companies, he said, and added, “I like gaming REITs. VICI, Gaming & Leisure Properties, MGM Growth Properties have reliable rent streams. And even if they decide to give their tenants a rent holiday, they have the financial strength to wait this out.”
Still, if stock prices go too low, companies may become takeover targets. Investors may buy controlling interests and take different paths with that power—becoming good long-term owners, or flipping or liquidating if a company’s hard assets have more value than its stock.
Then there’s the merger between Eldorado Resorts and Caesars Entertainment, which Fantini said could falter in the wake of a long-term industry shutdown. “The companies say they’re committed. Their bankers indicate they’re committed. But so much has changed, including the value of the stocks, that there could be other outcomes, like an amended deal or no deal.”
MGM’s decision to vie for an integrated resort license in Japan shouldn’t be affected by Covid-19, but opposition to gambling in that country still might sink the deal, Fantini said.
“The Japanese are conflicted about casinos. The public opposes them. The government, which includes a socially conservative minority Buddhist-oriented party, is slapping on lots of requirements and restrictions, which might in the end mean the multibillion-dollar projects don’t pencil out.”
As companies ride out the crisis, suspending expansion projects is one way to conserve cash. Penn National has halted construction on satellite casinos in Pennsylvania. The Drew in Las Vegas has stopped building. Yet Genting Malaysia continues to build its massive Resorts World project on the Las Vegas Strip. It’s anyone’s guess who will end up with the winning hand.
Beyond employees, executives and consumers, how will the calamity affect a stock market already in freefall?
“Right now, the landscape is filled with bargains—you can buy the best companies at fire-sale prices,” Fantini said.
As for 401Ks, he said, “Treat them like your face: don’t touch them.”
