Long Climb Ahead for Casinos

Updated: Jun 21

By: Abhay Nayyar

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With the ongoing battle against the COVID-19 pandemic, there seems to be a long road back for the casino gaming industry specifically in Las Vegas. With revenue drastically lower than previous quarters, state’s gaming operators in Nevada missed out on nearly $933 million in revenue compared to the same month in 2019.

Those in particular such as casinos such as MGM compared to Caesars Entertainment are very susceptible currently as analysts have downgraded the casino’s stock to $15 from $34. This is in part due to MGM's reliance on room revenue rather than its gaming block which has caused greater stress on the company’s cash flow.

However, Caesars Entertainment currently faces the highest credit risk as its merger with Eldorado moves forward, potentially providing enough liquidity to stay afloat for 1 more year. While they have cut down on costs leading to a daily cash burn of $9.3 million versus $17 million, the company has only just enough liquidity to operate at zero revenue levels through 2020. Additionally with no real moat and its $19 million in debt future liquidity seems unlikely.

The recovery for the Strip’s casinos face a numerous amount of challenges that lie ahead. Given their reliance on air travel and lack of hotel conventions/events these gaming companies must try to figure out alternative ways as currently they burn cash to stay afloat. Passenger traffic at McCarran International Airport fell 96.4 percent in April and Las Vegas visitor volume fell 97 percent last month, and as Las Vegas reopens Thursday the leading airline operating at McCarran said they’ve only recorded “modest improvements” in bookings to the city so far. As such it will be key to monitor the other industries that are linked with casino gaming. Additionally, with a low pricing power exacerbated by an over-reliance on OTA’s, these casino’s must learn to deal with very high fixed costs.