We’re about to enter a quarterly earnings season, and what management says about the near-term future will be as important as it has ever been in the era of public full disclosure.
In order to give investors as full an understanding as possible, two things will be necessary:
- CEOs and CFOs will have to be candid. In other words, avoid management-speak and glib reassurances of future bookings appearing normal.
- Sell-side analysts will have to ask trenchant questions, reserving their follow-ups for pressing the CEOs and CFOs to prove and justify. Implicit in that, save the time-wasting questions about the minutiae of earnings modeling for later.
Conveying as valuable as possible a picture of the future will not be easy. We suspect that “uncertainty” will be the word most commonly used because the future impact of tariff wars is just that, uncertain. Compounding that difficulty will be the fact that the conference call forums are public and managers will be even more careful than usual about what they say.
We expect that most of the concern over any negative consequences of the trade wars will be expressed by brick-and-mortar casino operators. However, the Alberta decision to halt importation of U.S. gaming machines and the decision by Hong Kong-listed Paradise Co. to suspend export of its games to the U.S. certainly indicate that the impact will be felt beyond U.S. casino companies.
As for those casinos, it will be interesting to see if the roles of recent years will be reversed with a more sanguine outlook for regional casinos than for those in destination resorts, especially Las Vegas. The regional customer, after all, is more likely to be Joe and Mary from across the street for whom a quick trip to the nearby casino for an evening of entertainment is still practical, rather than the international traveler deciding to avoid the U.S. and the prospective conventioneer not coming this year because his employer is cutting back on expenses.
Likewise, companies heavily into the locals business such as Red Rock Resorts, Golden Entertainment, Boyd Gaming and Monarch Casino may be least affected by any economic downturn and could offset some consumer weakness by winning the business of customers deciding to seek entertainment close to home.
It is early in the tariff wars and we know very little about their impact other than opinion surveys showing that people are worried about the future and that airlines are reporting slight digit declines in foreign travelers. Indeed, any reports that forward hotel and convention bookings are holding up may be more a function of not being felt yet rather than efforts by management to be disingenuous. Still, it will be important to seek out as much such data as possible.
Another question: What ability do casino operators have to cut costs? They went through an intense cost-cutting cycle for several years because of Covid and might find it difficult to find more savings. After all, a casino can’t close its now non-existent buffet or not clean a guest room that otherwise would not be cleaned, anyway.
Finally, operators, especially in regional markets, now have more experience competing with slots routes, online companies and gray forms of gaming. There is no question digital gaming is taking a bite out of brick-and-mortar business. Just look at the latest New Jersey revenue report, where legacy casino revenue declined 3.7 percent to $231 million while iGaming jumped 23.7 percent to a greater $244 million. Or look at Illinois, where routes have now long out-revenued casinos.
Traditional operators have been reluctant to get into the route business, have generally not been successful online operators and have mostly failed to stop the proliferation of gray gaming.
In sum, between trade wars and the ever-changing methods of gambling, there will be a lot for casino executives to discuss in those conference calls.
