Fissures Appear in Las Vegas Strip, According to Expert
Casinos on the Las Vegas Strip have been recovering at a rapid pace since the darkest days of the coronavirus pandemic, but there are hints that fatigue might be setting in.
In a note to clients on Tuesday, Deutsche Bank analyst Carlo Santarelli stated that recent quarterly earnings reports from operators with a presence on the Strip show that "cracks have emerged." This could be further tested with Caesars Entertainment (NASDAQ: CZR), the second-largest Strip operator after MGM Resorts International (NYSE: MGM), reporting its first-quarter results after the US markets close that day.
For the past 12 consecutive quarters, casino revenue in Las Vegas has grown steadily since the market recovered from the pandemic in Q2 2021. In Q1 2023, the Strip surpassed 2019 levels for the first time. However, according to the analyst, there are some recent reports that highlight a slowdown.
In March, Nevada recorded a year-over-year decline in GGR of 1.65%, marking the first decrease in eight months. While some of this softness was attributed to a 37.2% drop in convention attendance, a tough comparison was made because the ConExpo-Con/Ag construction equipment trade show took place in March 2023 but not in March 2022.
High-End Events vs. Mid-Tier Properties
According to Santarelli, there's a divide between how marquee events like the Las Vegas Gran Prix and the Super Bowl affected Strip operators. Specifically, high-end integrated resorts such as Caesars Palace, Wynn and Encore, and MGM's Aria, Bellagio, and Cosmopolitan saw a boom from these events, while mid-tier operators like Caesars' Flamingo and Harrahs, MGM's Excalibur, and similar venues experienced more modest results.
Another potential issue is the gap in how these events impacted different levels of venues. The Formula One race was a major success for high-end Strip resorts, but mid-tier properties didn't reap the same benefits.
Santarelli added that "the lower to mid-tier properties have largely peaked and begun to decline." Some operators have already reported softness in regional casinos in the Midwest, South, and other areas – a trend that could potentially spread to destination markets like Las Vegas.
High-End Las Vegas Properties at Risk
In a slow or slumping economy, wealthy consumers tend to hold onto their money. This should be good news for operators of lavish Strip integrated resorts. However, Santarelli points out that competition is still fierce for wealthy bettors and there are already signs of attrition in this segment.
"The one constant, however, has been the high-end strength, which is best evidenced by the baccarat segment, which has carried GGR to positive comps over the last 12 months. We believe this segment has reached a plateau and, despite competition for this customer continuing to heat up, is likely to fade, thereby exposing more clearly, the other underlying stagnation that is present in the market today," concluded the analyst.
Conclusion
While recent earnings reports have given clues that the Strip's recovery may be slowing down, there are still signs of strength in high-end casinos. However, competition for these customers remains intense, and the overall economic situation could impact the market in the near future.
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Source: www.casino.org
