Locals casinos endure pandemic better than Strip
As the pandemic continues to wear on the state’s gaming industry, there’s more evidence that casino companies catering to locals are better positioned to endure the financial turmoil than their Strip counterparts.
The Nevada Gaming Control Board’s most recent report on October gaming win showed that while gross gaming revenue at Strip properties declined by 30 percent year over year to $375.8 million, locals revenue fell by around 11.1 percent.
It wasn’t that big a surprise.
Southern Nevada casinos operated by Red Rock Resorts Inc. (Station Casinos), Boyd Gaming Corp. and Golden Entertainment Inc., which has the Arizona Charlie’s properties in addition to The Strat in its portfolio, have the advantage of catering to customers who don’t have to come from hundreds of miles away.
The big question facing the locals market is whether new directives ordering casinos to operate at 25 percent of capacity for at least the next two weeks instead of 50 percent will affect their properties.
Brendan Bussmann, director of government affairs for Las Vegas-based Global Market Advisors, thinks the three-week “pause” ordered by Gov. Steve Sisolak that began Nov. 24 is bound to affect the industry.
“Anytime you reduce capacity by 50 percent, it is going to have an effect on the operations not only on the gaming floor but also with further restrictions on restaurants and other nongaming amenities,” Bussmann said. “Hopefully, this is just a three-week pause and not longer, or we may start to see some further effects on the locals segment due in part to reductions of volumes but also potentially reduction of hours of their employees.”
‘A faster recovery’
Gaming industry analyst Joseph Greff of New York-based J.P. Morgan concurred and said in a recent report to investors that Red Rock and Boyd are better investment choices than companies that dominate the Strip.
“The Las Vegas Locals market is exhibiting a faster recovery than the Las Vegas Strip gross gaming revenue, as evident on Boyd and Red Rock Resorts third-quarter earnings conference calls — which makes sense given the general Clark County area population benefit from payroll protection programs and unemployment checks and the retiree base in the area,” Greff wrote. “We continue to prefer Las Vegas Locals exposed operators, Boyd and Red Rock Resorts over Las Vegas Strip operators.”
Bussmann expects the three-week pause won’t dramatically affect casino companies but will be more detrimental to the Strip properties.
“The locals market will likely continue to hold as long as we do not see a prolonged pause or full shutdown,” Bussman said. “The Strip is entering its slower portion of the year. So they likely only will be affected on weekend volume, as the midweek continues to be soft without the business and meeting and convention customer.”
There are plenty of reasons why the locals casinos are outperforming the Strip, but the biggest is the drop-off in midweek visitation from conventions, meetings and trade shows on which Strip properties are far more dependent.
Golden Entertainment Chief Financial Officer Charles Protell made a point of telling investors in the company’s third-quarter conference call Nov. 5 that the company’s lack of dependence on conventions and meetings is helping its bottom line while Las Vegas Strip counterparts are struggling.
The Las Vegas Convention and Visitors Authority recently reported that visitation was down 49.4 percent in October compared with October 2019. For the first 10 months of 2020, it’s down 54.2 percent to 16.3 million people.
It also reported midweek occupancy rates of 38.6 percent on the Strip compared with 64.2 percent on weekends.
For seven of those 10 months, the LVCVA recorded no convention traffic, and for the year, convention visitation is off 69.6 percent.
Fewer airline passengers
Another factor that hurts Strip properties more than the locals: the reduced number of airline passengers, most of whom favor a Strip experience when they arrive.
McCarran International Airport reported a 57 percent decline in passenger traffic in October and a 56.6 percent downturn for 2020 compared with 2019.
International passenger counts are even more pronounced. In October, passenger traffic counts were down 95 percent, while for the first 10 months of 2020 they are off 77.1 percent. Based on current projections, McCarran won’t see 1 million international passengers this year.
In earnings calls in the second and third quarters, Strip property executives have lamented that they have become glorified regional casino properties serving only California and Arizona customers. Compared with their domestic and international counterparts, regional visitors spend far less when they are here.
The three-week pause ordered by Sisolak will include dates that Las Vegas casinos, both locals and on the Strip, have seen big business in past years. The National Finals Rodeo, scheduled Dec. 3-12, draws thousands of people to Las Vegas even though most of them never set foot in the Thomas & Mack Center where the rodeo is staged.
Rodeo officials say the rodeo and affiliated events produce a $200 million economic impact for the city every year. Rodeo visitors commonly gather at more than 25 casinos across the valley to watch the rodeo on closed-circuit television broadcasts and then participate in rodeo afterparties or attend one of the many country music concerts staged in casino performance venues.
This year’s rodeo is scheduled at Globe Life Field in Arlington, Texas, because Nevada’s health and safety directives would not permit the usual 17,000 people from attending rodeo performances nightly. The gate from ticket sales is what provides the $10 million prize pool for winning cowboys and $3 million for its stock contractor.
But local organizers for the rodeo said the Professional Rodeo Cowboys Association agreed to extend its contract by a year and that the National Finals Rodeo would be back to Las Vegas in December 2021.
Is the gaming industry the place to invest?
While analysts like Greff favor locals stocks to Strip companies, Bussmann is confident in a long-term rebound for all.
“For the long term, gaming is still a strong investment,” he said. “While we will see some ups and downs through additional restrictions, there is not an industry I would bet more on to be innovative and resilient than gaming.”
And one Strip executive, Caesars Entertainment Inc. President and CEO Tom Reeg, was even more confident of industry resiliency in his company’s third-quarter earnings conference call with investors in November.
“What I tell you today is when we get into a post-COVID world, the pent-up demand you’re going to see for gaming in general and Las Vegas in particular is going to be beyond your wildest dreams,” Reeg said.
Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.