As everyone knows, the gaming industry is terribly stressed right now. With lock-downs, occupancy limitations, loss of mega-conventions and mandated closures of live entertainment and special events, these are challenges for even the most robust balance sheets and their crisis managers.
Las Vegas has seen the disappearance of international customers due to travel restrictions, airline scheduling cut-backs and just plain fear, all of which have decimated the high-end gaming market. Overall occupancy levels for the city’s 150,000 hotel rooms, which was 88.9% in 2019, averaged only 42.7% through August of this year. More troubling is the fact that a markedly lower ADR has attracted more than its fair share of non-gamblers, a few of whom have been nothing more than troublemakers and disrupters.
The traditional gaming and convention segment have fared no better. The Las Vegas Convention and Visitors Authority (LVCVA) released its tourism survey for the year to date (ending August 2020) showing total visitors of 12.7 million, which statistics already included an extraordinarily fine first quarter. By comparison, visitation in 2019 was 42.5 million, not including the 6.6 million who came to the city as convention attendees. There has been no measurable convention attendance after March 2020 and total visitors, which had been averaging nearly 4 million per month, charted only 1.5 million total visitors in August 2020.
A recent midweek partial closure of dining facilities and other amenities at the Encore, a part of the Wynn, underscores just how important the convention business is to Las Vegas, and the loss of special events is equally disconcerting. The new Allegiant Stadium, home of the Las Vegas Raiders, was completed on schedule in August, yet as of October 15th, no fans have been allowed to view a game. Concerts have been cancelled and the National Finals Rodeo, a sold-out, ten-day event with its 170,000 visitors, which had been the mainstay for December occupancy, was relocated this year to Texas.
While most resort properties have partially reopened in compliance with government restrictions, some, such as the Palms, which had completed a $690 million makeover and was closed by Station Casinos even prior to the pandemic, still remain shuttered as the company rethinks its marketing focus. Others, whose cash position has been materially impaired or whose facilities have not been competitive, are actively looking for purchasers. With recently completed mergers, acquisitions and consolidations, “superfluous assets” that might not reflect the new image of the acquirer, or can be disposed of to reduce overall leverage, are being shed. Twin Rivers Casinos, which has been on a recent acquisition binge, purchased the Bally’s name from Caesars and intends to use it for its sports wagering site and other gaming properties.
During the last downturn several years ago, Boyd Corporation abruptly ended construction on its multi-billion dollar Echelon project and sold the property and partially completed structure to Resorts World. Most believed that for Boyd, it was the right decision and perhaps saved the company.
There is still room for optimism even in this latest apocalypse. With an abiding confidence in the future of Las Vegas, Resorts World and several other entities that were committed to construction prior to the pandemic are progressing steadfastly with their grand opening plans. The LVCVA never stopped construction on its new convention expansion and the state-of-the-art Caesars conference center at the Link is nearing completion for an opening in early 2021. The Virgin Hotel & Casino, formerly the Hard Rock and Circa, the flashy and exciting downtown hotel owned by Derek Stevens, should be ready by the end of this year. And South Point owner, Michael Gaughan, just opened a new 40,000 square foot equestrian center. Other projects, such as the Madison Square Garden Sphere at Venetian-Palazzo, is still moving forward, albeit at a more measured pace. But contrarily, the Drew (formerly the Fontainebleau) still shows no visible signs of progress or a finite completion date.
When the government finally granted permission for a partial reopening of resorts and restaurants, diversion-deprived visitors and locals flooded the casinos and the local slot taverns. This was just an inkling of the pent-up demand that’s out there.
While I mentioned a few bright spots for those who measure success by the number of construction cranes, the snapshot is still mostly discouraging. It’s difficult for most executives to maintain their game face when they have to furlough their biggest asset, loyal team members, and hear experts predict a possible resurgence of the virus, which could defer a full recovery until 2022, or as distant as 2024.
I have experienced the cyclical nature of Las Vegas during my 65 years living here and working as an executive in the resort industry. However, I’m sure most agree that nothing compares with the depth of this disruption and its impact. Nor have I seen the displacement of so many jobs and the permanent closure of so many small businesses. This is unquestionably, the worst of times.
Those who can survive the crisis, mentally and financially, do have some hope on the near horizon, which is a more lasting sign than stimulus checks and tax credits for convention attendees. When the government finally granted permission for a partial reopening of resorts and restaurants, diversion-deprived visitors and locals flooded the casinos and the local slot taverns. This was just an inkling of the pent-up demand that’s out there.
The concern is whether the return customers would find the new environment to their liking. The social distancing and mask requirements met early resistance, but in an effort to assure safety, the gaming regulators reminded the casino licensees to obey the rules or face significant fines. Several locations have already received formal complaints, but the overall compliance and the commitment to safety have always been excellent. Proving safety to its invitees always begins with the business.
The problem with these rules and pronouncements is they seem to lack consistent science to support them. Some customers conclude that the medical community doesn’t speak with one voice and has become rebellious about lockdowns and regulations, which are constantly subject to reinterpretation. While everyone wants a property to have visible cleaning and screening protocols, the heightened angst and fear by some, and the anger and disgust by others, are often imputed to the resort operator, who is trying its best to be both accommodating and compliant.
Realizing that the required response to the pandemic has caused a good part of the excitement to be drained from resort experience, it has forced casino executives into their own version of Operation Fun Speed. The resort industry is flush with talent and the resolve to reinvent itself. Executive sessions, which always included an agenda item for a future retreat to consider the evolution of their marketing strategies in order to address the younger demographic, have stopped passively ruminating on the problem and are now jolted to immediate action to consider new concepts and fresh ideas.
A prime example of innovative thinking is the announcement by Atari that it will open two new hotel properties, one in Las Vegas and the other in Phoenix. Designed by the GSD Group and the prestigious Gensler Architecture firm, the hotels will offer modernized, video game-centric nostalgia. As the press release proclaimed, the properties will provide immersive entertainment, retro-style gaming arcades, themed nightclubs and eating areas. The exterior of the buildings will feature gigantic light and screen displays. Perhaps buffets will return as an eating option through the use of the automat concept of the 1950s where dishes of food were displayed for the taking behind glass doors.
While the gaming industry will cast a watchful eye at the success of this non-gaming project and other substitutes for the more popular offerings that made Las Vegas famous, in short run there’s still an immediate need to supplement income lost during the closures.
That new focus has been online sports wagering. New Jersey regulators took the lead, offering online casino-style games and welcoming applications from their existing casinos and racetracks to offer in-state sports wagering, both in-house and online. These licensed locations were allowed to sell skins to other sports wagering operators to conduct online betting. It was a gift for established betting shops such William Hill and Draft Kings, but also provided opportunities for others, some of whom were new entrants to the industry. Partnerships are being made with professional sports teams and the leagues themselves, which allowed them to receive a piece of the pie without the necessity for licensing.
Many tribes are concerned about the prospect of reopening their state compacts to add sports wagering for fear the state might seek a more extensive renegotiation. Nonetheless, there are many untapped markets in this sector.
The success of New Jersey’s internet casino revenue is evident. Today, over 70% of the New Jersey sports wagering handle comes from online wagers. The Press of Atlantic City reported that through September, there has been a 113% increase in online gaming revenue to $87.6 million and the New Jersey Division of Gaming Enforcement reported a sports betting handle of $748 million in September shattering all records. New Jersey is not alone. Pennsylvania’s online sports wagering also continues to set new records each month.
To facilitate the convenience of online customers’ individual wagering accounts could be established that did not require a visit to the casino, which was always a Nevada requirement. The innovative technology employed by Barstool Sports, William Hill, Draft Kings and others, necessary for the maintenance of these customer accounts, and together with geo-fencing software to prevent wagers from being made beyond the state’s boundaries, have made the systems auditable and have assured the regulators that they were safe from tampering and abuse. The great variety of betting options and the ease of placing wagers, including in-game betting, are also evolving.
Since the United States Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA) in May 2018, 25 states have laws authorizing sports wagering and four more states, South Dakota, Maryland, Louisiana and Virginia, are either voting whether to legalize or amend their state constitution to permit it, or have bills pending before their state legislatures.
Native American casinos seem anxious to add sports wagering, but are unsure of the regulatory pathway allowing wagers off reservation property. Many tribes are concerned about the prospect of reopening their state compacts to add sports wagering for fear the state might seek a more extensive renegotiation. Nonetheless, there are many untapped markets in this sector.
Sports wagering, which in Nevada was once considered to be an amenity to traditional casino offerings, has become a mainstream revenue center, especially in states with larger populations. More importantly, it doesn’t seem to detract from casino visitation. With these successes has come the consolidation within the sports wagering industry, with each major operator fighting for the betting handle within each state. On that basis, it’s likely we’ll see the market reduced to three or four betting behemoths.
There are many aspects to the resort experience that cannot be replicated online. New products are being developed by slot machine manufacturers to provide electronic alternatives to live games. Stadium style betting stations, which allow patrons to wager on live games in a social setting, have become more acceptable, and new wagering concepts substituting for live game action are either available now or on the drawing board.
Promoting the element of personal interaction with customers, the smaller regional casino operators are unafraid of the future. When the little guy also has the support of their financial partners on Wall Street to acquire their larger brethren, or take properties from the discard pile, all in the midst of a staggering downturn, I see that as a reliable indicator that the gaming industry is on the verge of recovery.
As the medical community works to find vaccines and possible cures for COVID-19, I would conclude that while these are the worst of times, the anticipation of tomorrow’s innovation and reinvention can also make these the best of times.
