You’d expect the arrival of a category-killer like Wynn Resorts’ $2.6 Encore Boston Harbor to shake up the status quo in any regional gaming market𑁋and that’s precisely what’s happening, in the early going at least, in coastal New England.
In the first month, Encore grossed $48.5 million in gaming revenue, with $27.4 million coming from table games and $21.1 million from slot machines. The casino paid $12.1 million to the state in taxes.
But Encore’s impact on neighboring casinos was substantial.
Connecticut’s Foxwoods reported a 11.2 percent dip in slot revenue, while Mohegan Sun was hit even harder with a 15.1 percent decrease.
Foxwoods and Mohegan Sun ramped up promotional spending to counter the obvious threat to their premium table games business. No surprise there.
In neighboring Rhode Island, Twin River Worldwide Holdings wrapped up its second quarter with the expectation that combined 2019 operating income at its flagship Twin River Casino Hotel, which serves the greater Providence market from the town of Lincoln, and its smaller Tiverton Casino Hotel farther south, could drop by 10 percent.
No surprise there either, considering that in July, Encore’s first full month of operations, revenue from Twin River’s 4,000-plus machine games fell 17 percent compared to last year, while win from its 125 tables was down a whopping 34 percent.
This was worse than management and the analyst community had anticipated when the Q2 numbers were released. Coupled with news reports that management will be looking to lay off some tables staff, it was enough to send investors running for the exits. The stock (NYSE: TRWH) fell roughly 10 percent as early August unfolded, and currently is down more than 30 percent from its peak in April, when TRWH started life as a public company via a merger of the Rhode Island properties and Delaware’s Dover Downs Hotel & Casino.
Yet experts say it would be a mistake to write off the Rhode Island portfolio, and Twin River in particular, as inevitable casualties of the Las Vegas-scale competition Wynn has brought to metropolitan Boston.
That’s certainly the view of Frank Fantini, a noted publisher of gaming industry research and a long-time investment advisor in the space. “There has been a lot of speculation at this point. I think if you look at the results so far, it’s only been one quarter, and for the slow summer period this is normal.”
Stifel analysts Brad Boyer and Steven Wieczynski agree. “Call us crazy, but we are sticking with our Buy rating on TRWH shares following in-line 2Q19 earnings and news of Encore Boston’s greater than anticipated impact on the company’s flagship Lincoln, R.I., property,” they wrote in an August 13 research note obtained by GGB News.
Of course, the analysts are looking at share price as a function of TRWH’s broader prospects, and what they see is a well-managed mid-sized player in regional gaming nationwide with a solid balance sheet, access to capital, plenty of free cash flow, $170 million on hand to return to shareholders through buy-backs and a track record of growth through strategic M&A𑁋think Dover Downs and Hard Rock Biloxi, and last year’s deal with Century Casinos to acquire three properties in Black Hawk and, most recently, a $230 million all-cash deal with Eldorado Resorts to add Isle of Capri Kansas City and Lady Luck Vicksburg to the portfolio.
As Boyer told GGB News, “This isn’t a company that will be generating 70 percent of EBITDA from Twin River.”
But there’s a bigger picture framing Twin River, too, he says, and certainly it’s shifting, and will continue to do so as Encore ramps up. Yet, he wonders whether the longer-term fundamentals really have altered all that much.
“I think Twin River has locked down a convenience market, if you will, especially when you branch out from northern Connecticut, that market north to the coast. That’s always been fertile land for Twin River.”
He believes Twin River, a racino originally and a fixture of New England gaming since 1992, enjoys a “first mover” advantage that can’t be discounted, and geographically, a deeper, closer-in relationship with its core customer of machine gamers. That consumer demographic will reassert itself when fall arrives, they curtail their travel, and the convenience factor kicks in.
“Twin River obviously doesn’t have the amenities set of a Vegas-style resort property, and Encore comes into the market with a property that’s as good as anything on the Las Vegas Strip,” said Boyer. “If you’re a high-end table player really there’s no reason to go to Twin River. Especially on the table games side, players want the amenities, they want to be pampered, to be sent of Vegas, and all the rest of it. In that respect, Encore is probably hitting (Foxwoods and Mohegan Sun) more than anything. They’re really the only other resort-oriented properties in the market.”
Fantini said, “It’s going to be interesting as time moves on to see the impact of Encore on Foxwoods and Mohegan Sun, because they’re much more of a competitor in table game play.”
For Boyer, it’s instructive in this respect to look at Plainridge Park Casino in southeast Massachusetts, which took a percentage hit on the slot floor in July very similar to Twin River’s.
“Speaking with management there, they don’t expect that to hold. They think it should moderate,” he said. And he expects this will apply across the state line as well, where “weather and traffic favor Twin River.”
“One of the things I found interesting on the Wynn (second quarter) call,” Fantini noted, “they talked about the slots at Encore, they didn’t say they were bad on slots, but they did say they were looking for improvement. I think you can infer that they were disappointed.
“We don’t know what’s going to be true in six months, but the results so far are pretty much what you’d expect: the high-end companies are going to be stronger on tables, and mid-range companies like Twin River are going to be stronger on slots.
“Twin River can be happy being mainly a slots operation. Which is how they started.”
