Optimism high among casino execs during Las Vegas investor forum
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Nevada-based casino companies are poised for a strong 2022, judging by the upbeat comments from executives during an investment forum this week at Wynn Las Vegas.
Casino executives said business is approaching or surpassing pre-COVID-19 levels, many companies are showing favorable group business calendars and leisure visitors continue to crowd casino floors.
Joe Greff, a gaming industry analyst for New York-based J.P. Morgan, published several reports Monday and Tuesday following executive presentations at the J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum.
Two key takeaways are that consumer demand is strong and that younger customers are finding their way to casinos.
Greff detailed presentations from Caesars Entertainment Inc., Wynn Resorts Ltd., MGM Resorts International, Boyd Gaming Corp., Red Rock Resorts Inc. and Las Vegas Sands Corp.
Caesars
“Demand is strong and highly correlated with virus trends,” Greff said of Caesars. “Inflation, which has been around for several quarters now, has had zero impact on demand, and management anticipates any potential weakness in spend-yield to be offset by the continued improvement in visitation.”
Following a presentation by Caesars CEO Thomas Reeg, Greff said COVID-19 cases and subsequent mask mandates and restrictions have a very strong correlation with gross gaming revenue, while gas prices have historically had very little correlation.
“In Las Vegas, pricing power is incredibly strong and Caesars anticipates group business to improve over the course of the year,” he wrote.
Caesars recently said it is cutting back its marketing efforts that included advertisements featuring actors J.B. Smoove and Halle Berry.
“Caesars’ reduction in marketing spend was due to getting to a market share faster than previously expected,” Greff said. “Caesars is not concerned with what peers are doing, having launched a brand that is synonymous with sports betting. Loyalty is quite strong, and more so than investors give credit.”
MGM Resorts
MGM Resorts Chief Financial Officer Jonathan Halkyard made MGM’s presentation.
“Overall, MGM has a positive outlook on the consumer with demand inflecting positively beginning in October — the only blip being from omicron, which has now subsided,” Greff said of the company. “In Las Vegas, the recovery has been bifurcated between leisure-weekend and group-midweek.
“On the former, demand has remained strong given a healthy consumer backdrop and elevated savings rate,” he said. “On the latter, MGM is seeing business buildup in the first quarter and into the second quarter, and management expects to be at 90 percent of the pre-COVID level by year-end 2022. For 2023, group business should be at or above 2019.”
Wynn Resorts
Similar to its peers, Wynn Resorts has seen strong forward bookings from the leisure customer.
“Longer-term investment has allowed them to double down on the younger and more affluent demographic, with the average customer age down eight years,” Greff said. “Management feels confident about their ability to take price going forward. On the labor side, the full-time equivalent count is down relative to 2019 levels, but Wynn expressed continued confidence regarding hiring, referencing thousands of applicants, a relatively positive sign that we have not heard from peers.”
Wynn, which offered a presentation from CEO Craig Billings and Amir Markowitz, a corporate finance executive, explained Wynn’s strategy in developing gaming at Ras al Khaimah in the United Arab Emirates.
“With over twice the airlift capacity of the Las Vegas market and about 85 million passengers per year, the opening of a property in the UAE will allow 95 percent of the global population to access a Wynn brand within an eight-hour flight,” Greff said of Wynn’s strategy. “Having a property by the beach provides a new set of challenges, though management feels confident in their ability to execute given their complete control over the design. Importantly, Wynn is excited about regulatory progress in the UAE, with a Singapore-esque approach that is being taken and expectations for a reasonable tax rate.”
On the locals front, officials from Boyd Gaming and Red Rock Resorts indicated that the companies have found greater stability.
Boyd Gaming
Boyd CEO Keith Smith and Chief Financial Officer Josh Hirsberg said demand was described as largely sustainable and that business trends began to normalize in January with consistent demand from higher value customers.
“Out-of-town traffic was a bit of a headwind during the initial delta variant,” Greff said. “The omicron impact was more widespread across the database, especially with the older demographic. Boyd is starting to see more stability across the segments, and noted the younger demographic came back. Interestingly, additional competing amenities have not had any adverse impact on the consumer.
“Lastly, gas prices have historically not had a significant impact on the business given the localized and drive-to nature of its properties, though it noted that if gas prices were to sustain at higher prices for a sustained period of time could have an impact,” he said.
Red Rock
Red Rock Resorts Chief Financial Officer Steve Cootey said management has seen a nice inflection in demand with the removal of the mask mandate in February.
“By demographic, Red Rock has seen solid retention across the younger base, which remains above pre-COVID,” Greff said, “while the older segment has seen a recovery as COVID-19 cases have eased. Spend per visit across the whole portfolio is above 2019 levels. Demand on weekends has been sustainably strong, while midweek has seen improvement with group and convention momentum.”
The company noted that it continues to evaluate reopening its three closed properties – Texas Station, Fiesta and Fiesta Henderson — anticipating only doing so if it can generate incremental cash flow on a net basis. “Notably, the company has already recaptured or re-routed almost all of the traffic to its open properties,” Greff said.
For the new Durango Drive property it is building, Red Rock reiterated the market’s favorable population trends, high gaming propensity and limited nearby competition.
Las Vegas Sands
Las Vegas Sands, which last month closed its $6.25 billion sale of The Venetian, Palazzo and Venetian Expo to Apollo Global Management Inc., is focusing on its Asian markets of Macao and Singapore.
Daniel Briggs, senior vice president of investor relations for Sands, said the company sees the eventual return of demand to Macao, similar to what currently is being seen in Las Vegas.
“China’s zero-COVID policy will likely have to evolve, and without knowledge of how that may develop, uncertainty in the recovery will remain,” Greff wrote.
He said the Singapore market should benefit from the high level of COVID-19 vaccinations and additional airlift.
The Review-Journal is owned by the Adelson family, including Dr. Miriam Adelson, majority shareholder of Las Vegas Sands Corp., and Las Vegas Sands President and COO Patrick Dumont.
rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.
