May 17, 2021 Casino, Land-Based

Gaming in the Post-Covid Era

By

Thomas Zitt, EVP, The Innovation Group, examines whether the Roaring 20s are really around the corner.

It’s spring, and the gaming press is filled with season-appropriate talk of pent-up demand and a second-coming of the Roaring Twenties. In this article, The Innovation Group assesses what recent gaming revenue and company earnings results portend for a post-Covid world in regional US bricks-and-mortar casinos. Although consistent national patterns are hard to discern, recent signs have been encouraging. 

With states reopening anywhere between May and September, early results showed a variety of market responses. A handful of states actually enjoyed revenue growth despite pandemic-related restrictions, as pent-up demand was released and competitors remained closed.  

More recently, there has been a general up-and-down trend in many markets, with strong results in October giving way in November and December as the virus surged and some states curtailed operations (like New York’s curfew, which lasted through April 4) or shut down entirely (Illinois, Michigan and Rhode Island). January ticked back up while February was flat at best.

While the East Coast markets have generally been more cautious in reopening than the South, Midwest, and Mountain West, the gap has narrowed as Covid-19 cases have dropped. Of note: revenue in Deadwood, South Dakota, has grown every month since reopening as competing tribal casinos remained closed through late February.

March looked very strong in the states that had reported by press time. On a daily win basis, all states reported significant increases over February, and most exceeded daily averages set in the months before March 2020.

One reason revenue has been relatively strong despite capacity restrictions is that casinos have kept some of their best customers coming through the door. In the four states that still track admissions, win per visit has risen in the 20%-40% range.

Likewise, Red Rock Resorts in its 2020 annual report noted “favorable customer trends” after reopening most of its properties in June, “including strong visitation from a younger demographic, increased spend per visit, more time spent on device and increased return of our core customers.” Non-gaming has not fared as well. In a review of public filings by leading US gaming companies for Q4 2020, we found that revenue from amenities declined by 65% compared to a 20% drop in gaming revenue.

This shift toward higher-margin gaming operations, along with general improvements in efficiencies, has led to improved operating margins in regional and Las Vegas locals' casinos. Q4 operating costs were cut by a greater percentage than the decline in revenue in all but one regional segment. Boyd Gaming actually reported a gain in EBITDA in its Midwest & South segment, while its Las Vegas Downtown segment suffered an operating loss. Also of note is that Red Rock Resorts’ fee from managing Graton Casino Resort grew by more than 20%, suggestive of Q4 growth in the Northern California market. 

Regional operators are understandably jazzed by these trends, although the questions remain: What happens in a post-Covid world? When does Las Vegas fully reopen? When do people start going on cruises again? When do federal relief payments end? 

And what will it take to bring back the last five, 10 or 20% of gamers to the casino floor? Shutting loss-leader amenities during the pandemic was obviously non-controversial, but what will a permanent amenity package look like in the future? Will buffets reopen, and if not, what will take their place?

All this is to say that while there is mounting evidence US casinos are in for some very good months ahead, it remains to be seen at what level regional markets will stabilize once all entertainment and travel options are open to consumers. 

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