The third quarter of 2023 is in the books and in a couple of weeks we’ll start to get official word as to how it went and why, as companies release earnings and host investor conference calls.
Based on comments that CEOs and CFOs made at September’s spate of investor conferences, we can expect to hear more of what we’ve been hearing for a year, at least – core customer spending is holding up though lower-value players are cutting back; visitation is soft but that is offset by increased spending per customer; the Las Vegas Strip is strong and Macau is rebounding; and casino companies are managing to maintain margins on operations and marketing discipline, though inflation is eroding that progress to some degree.
In short, more of the same. Just replay calls from quarters one and two.
Perhaps more enlightening will be current trends and the outlook for the remainder of the year. That is because the fourth quarter might be when we learn whether the gaming industry is managing through long-anticipated challenges or whether those challenges are finally taking their toll.
Here’s some of what we’ll be looking and listening for:
- Las Vegas. Visitation and gaming revenue have been consistently strong, though some of August’s Strip success came from an unlikely-to-repeat spike in baccarat hold.
The key question is simple: is strength continuing? There have been some anecdotal reports that astronomic prices being sought for Formula One week in November have fallen significantly, but that may be expected as the hope of price gouging is replaced by the reality of mere price assertiveness.
More important will be whether international travel continues to rebound, whether core customers continue to spend and whether advance bookings for trade shows and conventions remain strong.
It will also be interesting to see if pricing, as in hotel room rates, continues to offset rising costs.
The locals market seems to be showing some of the same softness as regional markets elsewhere. Further weakness could be some concern for upcoming months and quarters.
One issue will be labor relations as union contracts expire. The consensus expectation is that casinos will retain their historically good relationship with unions and the effects of new contracts will be manageable.
- Regional casinos. Legacy gaming business throughout the country has been softening while there has been some speculation that the offset of sports betting and online wagering growth has been slowing.
- Digital gaming. If football wagering has been somewhat lower than expected so far this young season, it will put greater focus on the promise of operators to convert more revenues to profit rather than spend it in marketing wars. Anecdotally, at least, promotional spending in newer markets appears to be aggressive by at least some of the major operators.
- Suppliers. So far, concerns over what happens in the economy does not appear to be spilling over onto suppliers who continue to appear to have flowing pipelines of orders for new products. Companies with games on participation leases and financial services providers like Everi can offer objective insight into gaming trends.
- The economy. It seems like we’ve been waiting on a recession and other “lagging” effects of tighter Federal Reserve policies and of inflation since Grover Cleveland was president. We’ll be studiously reading those tea leaves again.
- Macau has been two stories. One is the loudly proclaimed rebound from Covid shutdowns and the ability to convert a greater portion of revenue into profits as casinos shift to direct marketing to high rollers by cutting out the middle men—junket operators.
And that is a good story, but we’ll wait to see if gaming revenues return to pre-Covid levels before calling an all-clear.
The other story is about the government requiring spending on non-gaming attractions to make Macau a powerful destination. We’re skeptical. Macau historically was a backwater Portuguese trading post. It wasn’t the Florence or Paris of the east and every report about casinos spending millions of dollars to rebuild the glory that never was leaves us a little, well, uninspired.
The longer-term story in Asia, and internationally, may be the rise of competing markets – Singapore, Philippines, Korea, maybe Thailand, and eventually Dubai, Japan and perhaps elsewhere.
