Okay, we’re finally getting data about how inflation and a slowing economy are affecting the American casino industry, and we’re finally seeing signs that they are having an effect.
Regional casino operators Boyd Gaming and Churchill Downs have reported second quarter results, and, while performance has been strong overall, there is an admission that lower-end business is being affected. Churchill Downs specifically cited impacts on play in some Mississippi and Louisiana properties.
As has been reported in this space before, revenue reports out of regional markets have been a mixture of growth and decline. That itself is a negative turn from the previously unbroken string of positive comparisons.
Nevada is the latest, and last, major jurisdiction to report June revenues. The numbers were not encouraging once past the Las Vegas Strip.
Here are some low lights from Nevada: Take away the Strip’s 22.7 percent jump and the state fell 6.98 percent, downtown Las Vegas dropped 11.6 percent, Reno 4.64 percent, and Laughlin 14.65 percent. Normalize for baccarat hold and even the Strip rose a more modest 6.2 percent.
In other words, look around the country and at lower quality players and conditions have softened. And any realist understands that the lower end isn’t the only segment to suffer if economic challenges continue or worsen – it’s just the first to go.
The next question is how much does it matter; and surprisingly, that answer might be: not much.
Barring an economic collapse that few to none see at the moment, American casino companies have so strengthened their balance sheets and have so restructured their operating costs that they might not only survive intact, but some might actually prosper.
Take Boyd as an example.
EBITDA margins have grown to, and should remain in, the low 50 percent area in the Las Vegas locals market and in the upper 30s in regional markets. Debt-to-EBITDA ratios are down to 2.3 times, or 2.8 times adjusting for rent expenses. Interest costs have been cut $20 million a year through debt reduction. Recently initiated dividends will continue, as will share repurchases for a combined $500 million a year returned to shareholders. Hotel bookings are strong. Business trends remained strong in July and there’s no compelling reason to think they will change, Boyd CEO Keith Smith said.
“We’re not losing sleep” worrying about being ready for a recession, Smith said when asked repeatedly on his quarterly investor call about a possible recession.
Or take Churchill Downs—CEO Bill Carstanjen sang a similar song as he cited strong trends in most markets and then ticked off the company’s long list of growth projects coming online this year, next year and in 2024.
In the coming days, we’ll hear from different perspectives. Strip operators like MGM Resorts and Caesars will say whether they expect good times to continue to roll. Golden Entertainment and Red Rock Resorts may suffer impacts from any appreciable decline in locals business.
And it has become common of late for sell-side analysts to lower financial forecasts and cut stock price targets as they try to factor in a slowing, and perhaps contracting, economy.
But as Boyd, Churchill Downs and earlier Monarch Casino results and outlooks suggest, the best operators might sail right through any economic storm to prosperous ports on the other side.
