Soon, we won’t have to rely on speculation and anecdotal reports about consumer demand for casino entertainment.
Real evidence is starting to pour in as the majority of America’s casinos reopen, and soon we’ll have actual revenue figures from states that reopened in May, such as Mississippi.
So far, the evidence is encouraging. Two equity analysts, Greggory Price of Barclay’s and Carlo Santarelli of Deutsche Bank, have pieced together evidence indicating that business is back by roughly 50 percent.
That’s a level at which casino companies say they can be cash flow-positive. And, as expected, Santarelli and Price find that the drive-to regional casinos are recovering faster than the Las Vegas Strip.
Las Vegas appears to be steadily returning as Caesars and MGM Resorts announce more casino reopenings, which they earlier said would be based on customer demand.
Las Vegas might also punch higher than its hotel occupancy weight, as the first returning customers are their best customers, meaning gamblers whose revenue-per-day to casinos generally is higher than that of tourists.
More support for the case of continued recovery comes from outside gaming. Hotel revPAR has improved for four straight weeks, with the latest Smith Travel Research report showing a decline of 65 percent from last year, a material improvement from a 75.6 percent drop four weeks earlier.
Additionally, consumers aren’t shying away from big-ticket purchases, which suggests long-term confidence. Home sales are strong. Automobile production is increasing, with Ford Motor COO Jim Farley saying the company will soon be at full production. Heck, even airlines are reporting business growing by the week, albeit slowly.
Of course, the reality is that statistics so far, while encouraging, fall far short of the full employment needed for true prosperity.
However, the Fed, Congress and the president are all committed to providing liquidity to the financial system and buying power to consumers. In its latest forecast, the Fed sees the economy growing 5 percent next year and 3.5 percent in 2022.
Now, no one, not even the Federal Reserve Board with its army of economists, can predict the future. That should be clear seeing how, in just a few months, the U.S. has gone from an era of seemingly ever-growing prosperity to a collapse of Great Depression proportions.
However, given what we know so far and as the casino reopening statistics start to dribble in, the odds seem to favor a recovery—assuming no renewed Covid-19 shock.
Of course, that doesn’t mean gaming stocks will rise, or rise much. Recovery is relative, and few see revenues reaching 2019 levels for several years, though a significant reduction in expense structures could result in greater profitability.
Nor will all the components of the gaming industry recover at the same pace.
In now-conventional wisdom, it’s likely that drive-to casinos will recover faster than those in fly-to markets. Companies serving Las Vegas locals will recover based on drive-to dynamics and the region’s ever-growing population, but spending may be dampened by an economy in which the big casino companies slash payrolls and spending with local vendors.
Providers of slot machines and related gaming technology are in a somewhat dependent position, as much of their revenues depend on those cost-cutting casinos opening their purses.
Sports betting, online gaming and contactless (the new more politically palatable word for cashless) gaming will grow. The question is how much those operations can be needle-movers. That will vary considerably from company to company. But they do represent opportunities for suppliers, as operators will need those products and services.
The shutting down of the economy came with lightning speed. The resumption of economic activity is occurring fairly fast. Our guess: it will be late this year before we can say with some confidence how fast and far the gaming industry will recover, and who the certain winners and losers will be.
