While the contest between Donald Trump and Joe Biden makes the headlines, some investors in gaming stocks will focus on Colorado come November 3.
On that day, Coloradans will vote on whether to allow the citizens of its three gaming towns to decide, in local referendums, on the betting limits and table games to be allowed in their casinos.
Passage of the statewide referendum giving the towns that authority could be significant for casino companies there, and perhaps a game-changer for some.
At present, casinos in Black Hawk, Central City and Cripple Creek are limited to slots and to table games that would have been in existence when the historic mining towns were in their heyday more than a century ago—games like poker and blackjack.
The current betting limit of $100 is fine for slots.
However, that limit at the tables, and the absence of currently popular games like baccarat, means many Colorado gamblers fly to Las Vegas for the experience they desire (it’s no coincidence that Denver is one of Sin City’s biggest fly-in feeder markets).
Keeping those gamblers home would benefit all Colorado casino operators, which is why Caesars has put $1.1 million into the referendum campaign, and Penn National $750,000.
But the big proportional impact would be on the smaller companies, especially the two that are developing destination-quality resorts in their towns: Monarch Casino in Black Hawk and Full House Resorts in Cripple Creek.
There are two other relatively small public companies in Colorado—Twin River, which has purchased three small casinos in Black Hawk, and Century Casinos, which owns a small casino in neighbor Central City.
Because their properties are so small, the immediate impact on Twin River and Century might be limited, but both companies have growth ambitions, and could reinvest along the lines of what Monarch is doing in Black Hawk.
The model for such investment is Penn National’s Ameristar in Black Hawk, the only destination-quality casino resort in Colorado. The property reportedly does more than $70 million a year in EBITDA.
Similar results at Monarch could add $50 million or more of EBITDA to its current operations, a big sum for a two-property company with total adjusted EBITDA of $61.6 million last year. The results would be greater if Monarch can pursue the full Denver market, including those resort-oriented and big gamblers who now fly to Las Vegas.
Monarch would also be able to rapidly pay down its already modest debt, putting it in position for its next growth opportunity.
The results could be dramatic for Full House, too. The company is planning a $100 million transformation of its Bronco Billy’s casino in Cripple Creek into a destination resort, the first in the town that taps fast-growing Colorado Springs as its feeder market.
Assume a 15 percent return on investment—and very possibly 20 percent, given the uniqueness of the project—and Full House would double last year’s $18 million in EBITDA. The project is currently on hold because of Covid-19, but remains in Full House’s plans when the world returns to normal.
A big question is whether the referendum will pass. We haven’t seen polling results on the question, but there is history. Colorado voters passed a casino referendum in 1990 to allow gambling in historic mining towns. In 2008, they passed a referendum raising the bet limit from $5 to $100. Last year, they passed a referendum allowing sports betting. Sports wagering is another plus that’s just starting to benefit Colorado’s casinos. As in other states, the online component can be a proportionately greater benefit to small operators like Full House.
One advantage that gambling referendums have in Colorado is that gaming is limited to remote historic mining towns, so the not-in-my-backyard syndrome is absent.
It can be assumed that the three towns would pass the follow-up local referendums, given that gaming is their only economic reason for being. They did that in 2008 in raising the bet limit to $100.
It’s worth noting that these towns have very small populations. Cripple Creek has around 1,200 residents, Central City under 800, Black Hawk around 130. In other words, to make it happen, it doesn’t take too many people to favor expanding their only industry.
