Despite gaming companies stocks hitting annual lows in the wake of the announcement, Nevada’s casino operators are positioned to ride out the shutdown, analysts suggest.
Nevada governor Steve Sisolak has announced that the state’s 441 licensed casinos will remain closed until 30 April. Speaking at the start of the month, the governor said the extension reflects the latest guidance from the federal government. As part of efforts to halt the spread of the coronavirus pandemic, Sisolak had previously ordered all non-essential businesses, gaming, and schools in Nevada to close for 30 days on 17 March.
“This is only common sense,” said Sisolak. “If your business brings groups of people together, it should not be open. I know the impacts of this decision will reach far and wide into the homes and lives of our Nevada families,” he added. “This was not an easy decision to make.”
The day after the announcement, Wynn Resorts, Las Vegas Sands, MGM Resorts International, Caesars Entertainment, Boyd Gaming, Red Rock Resorts, Penn National Gaming, Eldorado Resorts and Full House Resorts stocks all fell to annual lows.
Brendan Bussmann, director of government affairs and a partner with Las Vegas-based Global Market Advisors, acknowledged that several gaming and hospitality stocks “have not been this low since the Great Recession over 10 years ago”. Nevertheless, he contended that gaming and tourism stocks can be counted on to rebound.“The gaming industry is a great bet for the long term because of its resiliency and continues to be the comeback kid as it has faced its challenges over the last 20 years,” he affirmed. “The biggest sign for its reemergence will be when Nevada and the rest of the country opens again and Asia has stabilised.”
The length of the shutdown remains a key issue facing the industry. A recent report from Macquarie Securities found that some operators have as little as five months before they run out of cash.
“US gaming has been one of the hardest hit sectors in the consumer space since the beginning of the crisis,” Macquarie gaming analyst Chad Beynon wrote. “The casino shutdown domestically coupled with high debt loads is pushing investors to ask, how long can these balance sheets last in this current environment?”
Boyd Gaming is burning about $3.2m daily during the shutdown and would run out of cash in about 9.4 months at that rate, according to the report. MGM Resorts International is burning $14.4m daily and would run out in nine months. Penn National is burning $6.4m daily and has 5.2 months before it runs out. Red Rock Resorts is burning $1.7m daily and has 13.8 months; Golden Entertainment is burning $1m daily and has 10.4 months.
“The daily burn will remain the same. The only thing that could change by the day is if you’re laying off employees – but you can only cut so much,” Beynon clarified. “I don’t think the daily burn changes. Only the amount of time they have left changes.”
Jefferies gaming analyst David Katz said he is optimistic that banks will work with casino companies and amend credit lines when necessary, as they did during the 2008 recession.
Nomura Instinet analyst Harry Curtis also expects the landlords of casino operators – property companies such as VICI Properties and Gaming and Leisure Properties (GLPI) – to give their tenants some temporary rent relief until the Covid-19 crisis has passed.
Almost 25 percent of Nevada’s total labour market works in leisure and hospitality, according to seasonally adjusted January data from the Nevada Department of Employment, Training and Rehabilitation. Katz said many workers’ ongoing employment will depend on how long the shutdowns last. “It really depends how long the closures last and what we come out like on the other side,” he said. “The shorter it is, the easier it is to bring back people who are furloughed. Once it’s past 60 days, people really have to find something else to do, and the re-onboarding is not so smooth.”