The Gaming Industry in the Wake of COVID-19
Perhaps no sector of the economy has been hit harder by COVID-19 restrictions and the economy’s shutdown than the casino and gaming industry. Now at a virtual standstill, the industry will likely change in many ways once the economy restarts. To find out what form these changes might take, GLG spoke with Tim Merrill, President of Maverick Gaming LLC, which operates casinos in the Midwest and on the West Coast. He formerly served as Senior Vice President of Casino Operations for Sands China, a unit of Las Vegas Sands located in Macau. Edited excerpts of the discussion follow.
Give us a quick overview of where things stand now.
It’s useful to look at the industry as serving two markets: the destination market and the regional market. For the destination market – think Las Vegas – everything has been affected: hotel revenue, entertainment, food, beverage, and, obviously, gaming. Some sports betting applications are still online, but that’s an insignificant profit center for most casinos compared to slots in the hotel. The business that will take longest to recover is probably MICE (meetings, incentives, conferences, and exhibitions). Las Vegas, for example, has already seen bookings for 2020 canceled; we’ll see if 2021 will be the same. Leisure customers are likely to come back sooner, but trade show organizers will wait before they start booking for 2021. Since regional market casinos generally have limited amenity facilities, for them it’s really about food and beverage in addition to the main revenue driver: gaming.
Where is revenue coming from now?
Not many hotels are open in Las Vegas right now, but several are open in regional markets and generating a minimal amount of revenue. There are sports books, too, but the challenge is that nobody’s playing now. All in all, very little revenue is coming in.
How are expenses being controlled?
Layoffs have reduced casinos’ biggest expense: labor. Food and beverage expenses also have been drastically reduced. On the gaming side, various leases for slot machines and their revenue share will all go to zero. On the hotel side, you can manage down your supplies because you’re not using them. And gaming taxes go down because there’s no gaming.
Unfortunately, utilities don’t come down as far as you might think; you still have to keep the lights on and surveillance working, and the hotel floors need to be air conditioned or they’ll mold. Your insurance cost doesn’t really change, even on the benefits side, because most of the companies are trying to keep the benefits on for their team members. Tech is also a hard cost you can’t cut much. You can ask vendors and systems providers to suspend your billing, but that’s really about deferring payments, not eliminating them. In sum, operators are trying to minimize every variable cost they can and stay liquid. Right now, cash is king on the balance sheet.
Since the government’s stimulus package excluded small casinos, how do you see their prospects?
I split them into two groups: those that own their land and those that don’t. The companies that have not spun their land off may weather the storm better than those that have and are now on the hook for rent payments, even though they’re closed. From a capitalization standpoint, even some of the major players are starting to struggle. So other than companies like Las Vegas Sands, I don’t think anybody’s capitalized enough to weather a two- or three-month closure.
Most of the industry’s interest payments to their banks were due March 31, which many missed. So even if business resumes in early May, it will take several weeks before significant levels of business will return, especially in the regional markets, because people have to get a paycheck under their belts, and that means companies may not be able to pay their second-quarter debt payments at the end of June. So businesses must be careful with the cash on their balance sheet because every state has minimum requirements for cash in the cage before the business can open. If you go below that, you run a risk of being delayed or having to raise additional capital.
What will be the biggest challenges for casinos when they reopen?
First, it’s paying the bills that have been deferred, especially food. If you have an outstanding bill with your food supplier, you’re going to have to pay that before you get another food shipment.
Second is labor. Casinos probably won’t bring back everyone immediately, because the business volume just won’t be there to support it. It’ll be challenging to get the right level of staffing in place yet not blow out your cost structure while trying to scrape together a bit of additional cashflow during the ramp-up period.
The third is customers. Small retail customers, who’ll have to pay their own bills first, will probably lag a month or two behind the bigger players, who likely will return but at a lower frequency until their own small businesses bounce back.
Finally, there’s the regulatory challenges. Because of the layoffs, several processes aren’t being completed right now, from licensing to tax payments, and even if they are, states are operating at a minimum staffing level, so the work isn’t getting processed. When this is over, the industry will need to ensure it’s operating in compliance with regulations.
About Tim Merrill
Tim Merrill has 14 years of gaming experience and is currently President at Maverick Gaming, LLC. Prior to this, Tim held various positions at Sands China Ltd., including Senior Vice President of Slot Operations and Senior Vice President of Casino Operations. Before that, Tim worked for the Las Vegas Sands Corp. and held multiple positions, including Corporate Executive Director of Slot Operations, Executive Director of Slot Operations, and Director of Training and Project Management.
This article is adapted from the April 9, 2020, GLG teleconference “Casino and Gaming Update, COVID-19 Implications on Regional and National.” If you would like access to this teleconference or would like to speak with Tim Merrill or any of our more than 700,000 experts, contact us.
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