Finally, after weeks of snippets and anecdotes, we have some hard facts to interpret the outlook for the U.S. casino industry after Covid-19. And the early results are encouraging.
Louisiana’s casinos generated 77.5 percent of last May’s revenues on a daily average though operating at just 25 percent capacity. Arkansas generated 74.9 percent of last May’s daily average though limited to 33 percent capacity. Both figures are same-store, factoring out Diamond Jacks in Louisiana that is permanently closed and Cherokee in Arkansas which had not yet opened last May.
Overall same-store revenues fell 64.4 percent in Arkansas and 65.4 percent in Louisiana as casinos were open for less than half of the month.
Caesars presented another set of encouraging numbers. Caesars’ regional casinos grew EBITDA and margins from the first reopening on May 18 through June 10.
Regional EBITDA was up an estimated 35 to 40 percent on revenues that were flat to up 2 percent, CZR said.
Nevada’s casino EBITDA tumbled 70 to 80 percent while revenue dropped 56 to 58 percent.
EBITDA margins rose 10 percentage points at regional properties and 17 points in Nevada.
Again, those numbers were produced with limited capacity.
So, what do they tell us?
The initial reaction to them has been positive and supported by anecdotal reports and comments from property managers throughout the country that the healthy business volumes are holding up.
One reason for the positive results is no doubt because the quality of customers is higher on average than before the closings. The first customers back are going to be avid gamblers who spend more in casinos than do tourists. The casinos no doubt help that dynamic by targeting their marketing to their best customers.
Another much-discussed reason is pent-up demand. In an ideal world, as pent-up demand wanes, casino properties will reopen more amenities, attracting a greater number of customers.
The higher EBITDA margins on lower gaming revenue reported by Caesars is also early evidence that casinos can cut costs enough to more than make up for lower revenue. That will be more difficult to maintain as expensive amenities reopen, though casinos promise significantly reduced permanent expense structures and more targeted, hence less expensive, marketing.
There may be another reason for casino business to doing relatively well—it’s nearly the only game in town. You can’t go to the movie theater. There are no ball games to attend. Large crowds for social events are banned. Heck, let’s go to the casino.
We’ve seen this phenomenon before. In 2005, Hurricane Katrina wiped out the Mississippi Gulf Coast and much of Louisiana’s casino industries.
One of the few open casinos was Boomtown in Harvey just across the Mississippi River from downtown New Orleans. For several months, Boomtown was a literal boomtown thanks to its entertainment monopoly.
Eventually, the surrounding world reopened, customers returned elsewhere for their entertainment and Boomtown went back to being a basically nondescript locals joint.
Our position has been to be cautious in reading much into early revenue and EBITDA reports, and certainly anecdotes by people making field trips or naïve local news reporters looking to make their stories important.
As we’ve said before, it’s likely going to be a number of months to get a clear picture of industry recovery. Certainly, we expect casino entertainment to be a winner over time. But for now, patience and prudence should be the stock investment themes.
