Happy Thanksgiving from GGB; Newsletter Returns December 4

FANTINI’S FINANCE: Sickening Slump

After 2013’s stellar performance, casino stocks have taken a big hit to start the new year. Regional casinos are off the most, but the slump has impacted all segments of the business.

Regional gaming revenues continue to decline and are taking casino stocks down with them.

As of this writing, the following operators are well off their 52-week highs:

Boyd                   38 percent
Penn National     28
Caesars              26
Pinnacle              22
Isle of Capri        17
Monarch             14
MTR Gaming       14

Those losses have been much greater than the Macau-Las Vegas-centric operators

MGM Resorts        12 percent
Las Vegas Sands   10
Wynn                    9

Gaming suppliers also have been hit hard:

IGT                          31 percent
Scientific Games      27
Multimedia Games   18
Bally                        13

The reasons for the declines  among regional casino operators is simple: revenues are down and below expectations.

There are some exceptions. Boyd and Caesars are giving back some of the spike that occurred when investors got excited prematurely about the launch of internet gaming in New Jersey.

MTR Gaming has a floor under it based on its pending merger with Eldorado Resorts.

But, by and large, both casino operators and their suppliers are down because revenues are down.

December was especially damaging to the mindset of investors.

Gaming revenues fell by 7.4 percent after rising in four of the previous five months, including a 7.9 percent blockbuster in November. It was the worst year-over-year comparison since October 2011.

Many of the reasons were obvious and well known—severe weather, one less weekend date than in 2012, a New Year’s falling mid-week, thus cutting the benefits of the historically biggest holiday of the year.

And we can’t forget the late Thanksgiving gave shoppers 25 fewer days before Christmas, meaning that consumers didn’t have time to go to casinos. They had to shop.

After all, you can always go to a casino next week or next month. But with Christmas staring you in the face, you better get out there and buy that sweater for Dad, iPhone for Junior, that pearl necklace for the most important person in your life.

Further, most employed people, by definition a casino’s best customers, must shop at nights and on weekends, which also happen to be the otherwise prime times to visit casinos.

Some evidence for this comes from Midwestern states that charge admission to casinos, thus allowing for a spend-per-visit calculation.

In Illinois, December admissions fell 16.8 percent below the previous year, yet win-per-admission rose 4.9 percent.

Missouri casinos experienced the same trend. Admissions fell 15.8 percent, while win-per-admission rose 4.7 percent.

Ditto Iowa. There, racino admissions fell 13.5 percent but win-per-patron rose 7.7 percent. Casino admissions dropped10.3 percent, yet win-per-patron increased 3.1 percent.

Now, some of the improved win-per-admission came from casino managers focusing on their best players as they try to cut marketing costs.

But it also shows that customers were spending.

Another way to look at it is changes in total revenue vs. total admissions.

State                   Revenue change          Admissions change
Illinois                 -13.2 percent               -16.8         
Iowa racinos         -7.5                              -13.5
Iowa casinos         -7.9                              -10.5
Missouri              -11.0                             -15.8

Other, non-gaming data suggest something of a consumer slow down in December, though numbers are mixed.

January wasn’t much help with one of the coldest and snowiest months in many years throughout much of the country.

Penn National’s Boomtown Casino in Biloxi even closed briefly because of ice. When Mississippi Gulf Coast properties close because of the weather, you know it’s a tough winter.

Of course, weather will normalize. Then the question becomes whether gaming revenues normalize, too.

Our guess is that they will, assuming the slowly improving economy continues to improve, though in its maddening fits and starts way.

If that happens, some of the regional casino stocks will prove to be good buys at today’s prices.

Articles by Author: Frank Fantini

Frank Fantini is principal at Fantini Advisors, investors and consultants with a focus on gaming.