Not all casinos are inflation-proof, Hard Rock International CEO warns
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At the opening party of the swanky new Hard Rock Hotel Thursday Manhattan, fashionable guests lined up to sample bluefin tuna, delicately carved off the fish in front of them, and a freshly grilled mushroom hors d'oeuvre, topped with a generous slice of truffle.
Yet, Jim Allen, the CEO of Hard Rock International and the chairman of Seminole Gaming, is already looking ahead to his next big project, a new resort hotel on the current site of The Mirage on the Las Vegas Strip, and what it will cost to build.
"Prices for building materials have just exploded," he said.
Higher prices are also beginning to pressure his customers, said Allen, who anticipates the cost crunch to last potentially through the first or second quarter of 2023.
"We look at gasoline anywhere from $5 to $6 a gallon," Allen said. "There's no doubt that in most regional gaming markets that customer is a day-tripper, utilizing gasoline to get to the facility. And when that's up 30% to 40%, that's going to be problematic."
Results from April illustrate the softening across the nation, Allen said. The company has casinos in several states, including New Jersey, Oklahoma and California.
He said he can be more candid in his assessment because Hard Rock isn't a publicly traded company. CEOs of public casino companies like Caesars and MGM Resorts, on the other hand, have said on their earnings calls higher prices have not dampened customer demand. Rising gas and grocery prices are only having an impact on customers who spend the least, Red Rock Resorts CEO Frank Fertitta III said in his quarterly earnings call May 3.
Indeed, as Americans contend with inflation levels not seen in 40 years, consumers are opting to spend more on going out and traveling as Covid restrictions ease.
U.S. casinos set a new record in March, with commercial gross gaming revenue of $5.31 billion, the first time commercial GGR has surpassed $5 billion for that month, according to the American Gaming Association.
Ed Pitoniak, CEO of VICI Properties, the largest property owner on the Las Vegas Strip, pointed to gaming revenues in Las Vegas 35% above 2019 levels in March, and room rates tracking 30% higher.
But Hard Rock's Allen said Las Vegas is the exception, although the company's properties in Florida are doing well, too, he said – for now.
"We're still doing very, very well in Florida, but softening," he said. "You're starting to see some signs."
