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Indy Gaming: Research gives AGA ammunition in fight with illegal gambling operations

Howard Stutz
Howard Stutz

Good morning, and welcome to the Indy Gaming newsletter, a weekly look at gaming matters nationally and internationally and how the events tie back to Nevada.

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American Gaming Association CEO Bill Miller told attendees at the Global Gaming Expo in October that the nation’s legal casino industry misses out on some $300 billion that gamblers wager annually with illegal betting operations.

He was off by more than $200 billion.

The Washington, D.C., trade group released a study last week that found Americans gamble an estimated $511 billion annually with illegal online sportsbooks and internet casinos, and unregulated slot machines.

According to the study conducted by The Innovation Group, the illegal operations cost the gaming industry $44.2 billion in potential gaming revenue – nearly half of the combined $92 billion produced by legal commercial and tribal casino operations in the United States last year.

State governments, according to the study, lose out on $13.3 billion in yearly tax revenue – almost $2 billion more than states collected in 2021.

Miller called the illegal sites “a scourge on our society,” adding, “We have always known that the illegal and unregulated market is expansive, but this report illuminates just how pervasive it is.”

The unanswered question, however, is what the legal gaming industry can do to halt the activity.

In April, the AGA asked the U.S. Department of Justice to crack down on illegal, online sportsbooks and casinos as well as unregulated “skill game” slot machines.

But with a divided Congress following last month’s midterm election, it’s unclear whether Capitol Hill will actually jump on the issue.

AGA Vice President of Government Relations Alex Costello said Tuesday the illegal gambling research was sent to all 535 members of Congress. She said the trade group received a few comments back from representatives from states without legal gaming.

“It’s almost a bigger problem for their constituents because there is no legal option,” Costello said. “I think we can all agree that the illegal market is really dangerous. It’s an issue that we could work with members that we don't typically have strong relationships with. We can point out how their constituents are getting taken advantage of.”

Even with the midterm election turnover, she said “congressional allies” have pressed the Justice Department to take a further look into the issue.

“The Department of Justice obviously has a ton of priorities and a ton of things that are pulling at them,” Costello said. “But the more congressional pressure there is, the better chance we have of moving the ball forward up the ranks through DOJ.”

During his G2E remarks in October, Miller said taking on the illegal gambling market was one of three initiatives the AGA would focus its efforts on over the next 12 months.  

“Illegal gambling is arguably the greatest threat to our industry,” Miller wrote in an email to the AGA membership after the study was released. “The unfortunate reality is about a third of the U.S. gaming market is being captured by illegal or unregulated gambling. We will use this research to strengthen our case to federal and state policymakers and law enforcement agencies for the need to act now.”

The Innovation Group, which has offices in Las Vegas, surveyed nearly 5,300 U.S. adults, examining their past-year gambling behaviors with both legal and illegal operators as well as their observations of unregulated gaming machines.

The study estimated how much Americans wagered with illegal operations — $63.8 billion on sports, $337.9 billion on unregulated casino sites and $109.2 billion on illegal slot machines, which have been found in states such as Pennsylvania, Georgia, Virginia and Missouri.

Attendees gather at the booth for s[orts betting provider OpenBet, which resembles a sports bar, during G2E on Oct. 11, 2022. (Jeff Scheid/The Nevada Independent)

If there was any good news in the research, it involved sports betting. The AGA said the expansion of legal sports wagering to 36 states and Washington, D.C., has sliced into the operations of illegal offshore sportsbooks.

However, AGA researchers projected Americans will place $100 billion in legal sports bets in 2022, implying that illegal sportsbooks are still capturing 40 percent of the market.

Previous AGA research shows that more than half of Americans who bet on sports with illegal operators believe they are wagering legally.

In his April letter to U.S. Attorney General Merrick Garland, Miller said legal sports betting expansion has cut into illegal markets, but not by a large enough margin.

He cited AGA research that showed 74 percent of sports gamblers believed it was important to only wager with legal providers. However, 52 percent continued to patronize illegal bookmakers. Most of the sports bettors – 63 percent – told researchers they were surprised to learn the sites they were using were unregulated and illegal sportsbooks.

“The availability of these illegal sites is driving confusion,” Miller wrote in the letter.

Legal online casino gaming is only available in six states – New Jersey, Michigan, Connecticut, Delaware, West Virginia and Pennsylvania. Nevada has only legalized online poker. According to Eilers & Krejcik Gaming, only one state – Indiana – may be considering legalizing online casinos in 2023.

The MGM Grand hotel and casino sign
The MGM Grand and New York/ New York as seen on Monday, March 20, 2017. (Jeff Scheid/The Nevada Independent)

VICI increases its Strip ownership, will soon control the real estate of 10 resorts

Real estate investment trust VICI Properties increased its ownership concentration on the Strip, buying out rival REIT Blackstone’s 49.9 percent ownership of MGM Grand Las Vegas and Mandalay Bay in a $5.5 billion deal.

When the transaction closes next year, VICI will own the land and buildings associated with 10 Strip resorts that are managed by three companies – MGM Resorts International, Caesars Entertainment and Apollo Global Management.

VICI acquired 50.1 percent of MGM Grand and Mandalay Bay when it closed its $17.2 billion purchase of rival REIT MGM Growth Properties in April.

“We like the deal as it simplifies VICI’s structure and highlights VICI’s multiple paths for growth despite the company’s larger base and a rising interest rate environment,” Truist Securities gaming analyst Barry Jonas told investors in a research note last week when the deal was announced.

VICI is paying Blackstone $1.27 billion and will assume the firm’s $3 billion in debt on the properties. MGM’s rent for the two properties will be $310 million annually starting next March.

“This transaction also provides us with the opportunity to further grow our partnership with MGM Resorts as they look to capitalize on the growing vitality of the South Strip,” VICI CEO Edward Pitoniak said in a statement.

New York-based Blackstone is retaining its 95 percent ownership in the Bellagio and its 100 percent ownership in Aria and the non-gaming Vdara at CityCenter.

Earlier this year, Blackstone sold the Cosmopolitan of Las Vegas to a group of real estate investors while MGM Resorts acquired the operations. The total deal value was $4.1 billion.

VICI has 43 gaming properties across the U.S. operated by eight different casino companies.

JMP Securities gaming analyst Mitch Germain told investors VICI continues to see value in Las Vegas even as the company has moved toward non-gaming transactions with hotel-operator Great Wolf Lodge, New York City entertainment venue Chelsea Piers and spa developer Canyon Ranch.

VICI has access to more than $5.25 billion in cash and bank financing.

“VICI Properties’ significant liquidity position enables the company to remain aggressive on the deal front,” Germain said. “VICI was the logical buyer for these assets … while the deal with Blackstone simplifies the VICI story… making the company’s financials easier to analyze.”

VICI also owns the real estate associated with The Mirage, whose operations are being acquired by Hard Rock International for almost $1.1 billion.

Encore Boston Harbor, one week prior to its opening in June 2019. (Sreyan Sarkar/Creative Commons via Wikimedia Commons)

Wynn Resorts completes a REIT deal for Encore Boston Harbor

Wynn Resorts completed a $1.7 billion sale of the land and buildings covering Encore Boston Harbor to a real estate investment trust (REIT). 

The proceeds will boost the company’s balance sheet as the planned development of a gaming and hospitality resort on Al Marjan Island in Ras Al Khaimah, United Arab Emirates, moves forward.

The transaction with San Diego-based Realty Income Corporation was previously announced in February.

Wynn will continue to operate Encore Boston Harbor under a 30-year lease agreement with an initial annual rent of $100 million. The agreement calls for the rate to escalate by 1.75 percent annually over the first 10 years.

In a statement, Wynn said the sale gives the company a balance sheet with $4.4 billion that can be used for various corporate purposes.

The 671-room Encore Boston Harbor opened in 2019 and is Massachusetts’ largest hotel-casino. In a July interview, Wynn CEO Craig Billings said the company owns 11 acres adjacent to the hotel-casino that will be used to build a parking garage and a theater along with other non-gaming entertainment elements.

During the company’s third-quarter earnings conference call last month, Billings said Wynn would unveil renderings for the company’s UAE project early next year.

Strip performers dressed as showgirls walk near the Venetian Resort Las Vegas on the Strip on Tuesday, Nov. 16, 2021. (Jeff Scheid/The Nevada Independent)

Apollo hands out $11 million in awards to Venetian complex employees

Apollo Global Management, which has operated the Venetian, Palazzo and Venetian Expo for the past 10 months, gave more than 7,000 employees an early holiday gift Tuesday.

The company announced that each employee – regardless of seniority or position – will receive $1,500 through a financial distribution. The $11 million in awards were revealed during an employee town hall meeting.

Apollo paid $2.25 billion for the operations of the Venetian complex in February as part of a $6.25 billion purchase from Las Vegas Sands Corp. Real estate investment trust VICI paid $4 billion for the land and buildings.

Las Vegas Sands provided Apollo with $1.2 billion of seller financing, with the private equity company putting up another $1.05 billion in cash and financing.

In November, Apollo received approval from the Nevada Gaming Control Board to distribute a dividend of an estimated $620 million to investors and hand out bonuses to the resort’s 7,000 employees.

Venetian CEO Patrick Nichols, who took over the operations in June, recognized employees for their hard work and continued commitment to the properties during the event that included food from the resort’s restaurants and a performance by the property’s new improv comedy show.

“We’ve inspired our team members to think like owners and being able to announce this Venetian Las Vegas appreciation award today really makes what was an idea, a tangible reality,” Nichols said in a statement.

Sands Macau. Photo via Wikimedia Commons

China’s zero-COVID policy continues to destroy Macau gaming revenue

Macau is headed toward its lowest single-year gaming revenue total in almost two decades after government-imposed zero-COVID policies continued to keep gamblers away from the Special Administrative Region’s casinos in November.

Through the first 11 months of 2022, Macau's gaming revenue totaled $4.8 billion, down 50.9 percent from 2021 when Macau casinos collected $10.8 billion. While averaging more than $486 million a month in gaming revenue, the casino market is in danger of not reaching the $7.56 billion collected in pandemic-plagued 2020, the first time since 2006 the market had less than $10 billion in gaming revenue.

“Until we see a material change in visitation and spending patterns and a clear indication visitation restrictions are gone, we believe the near-term outlook for Macau will remain murky at best and the next three to four months from a gaming revenue perspective should be written,” Stifel Financial gaming analyst Steven Wieczynski wrote in a research note.

The Macau Gaming Inspection and Coordination Bureau announced November’s gaming revenue of $376 million a few days after the government tentatively renewed the gaming licenses for the market’s six casino operators, including MGM Resorts International, Las Vegas Sands and Wynn Resorts.

Analysts said the 10-year licenses removed a major overhang for the former Portuguese colony that opened its casino industry to U.S.-based casino operators in 2003.

However, the joy was short-lived after the revenue announcement.

J.P. Morgan gaming analyst Joe Greff told investors China may be ready to ease travel restrictions into Macau and reduce or eliminate the draconian zero-COVID measures, which include mandatory quarantines and business shutdowns when a single positive COVID case is discovered.

“We think China’s actions may ultimately be different than its words given several steps recently to gradually improve travel mobility, which has been the biggest impediment for an inflection in Macau’s fundamentals,” Greff wrote in a research note.

“We know that in various and small sample sizes that when Macau is accessible, demand is strong,” he wrote. “The problem is that this has been few and far between.”

Jefferies gaming analyst David Katz said any continuation of the zero-COVID policy “leaves uncertainty” over the market’s recovery.

The new licenses, which will require the casino operators to invest as much as $12 billion each into non-gaming entertainment and attractions, will go into place at the beginning of 2023.

Las Vegas Sands CEO Rob Goldstein has said the company has invested more than $15 billion since it became the first U.S. operator to enter the market in 2003. In its relicensing application, Sands said it would continue that level of investment to help broaden the appeal of Macau as an international tourism destination.

“In the coming decade and beyond, we will remain steadfast in our strategy of continuous investment in Macau, in its economy, its people and its community,” Goldstein said in a statement to the Macau Daily Times.

A man walks past a sign at the Las Vegas Ball Park on Thursday, Aug. 14, 2021. (Jeff Scheid/The Nevada Independent)


Via Front Office Sports

Oakland Mayor-elect Sheng Thao wants to keep the A’s from moving to Las Vegas but won’t break the city’s budget in the process. Thao, who will replace term-limited Mayor Libby Schaaf in January, has maintained her priority of keeping the team in Oakland. 

“I am going to put every single effort into keeping the A’s here. But I refuse to allow for the taxpayers of Oakland to be held responsible for any of the finances of developing the stadium.”

-          Oakland Mayor-elect Sheng Thao

Via research note from Deutsche Bank gaming analyst Carlo Santarelli

Hyatt Hotels is acquiring Dream Hotel Group for $125 million with an additional $175 million over the next six years, based on the opening of new properties. Dream Hotel Group operates 12 hotels across the Americas, Europe, and Asia. Another 24 properties are under development, including the $550 million Dream Hotel Las Vegas on the Strip’s southern end near the “Welcome to Las Vegas Sign”.

“We view Hyatt’s acquisition of Dream as being consistent with the company's strategy to expand its brand portfolio on an asset-light basis, with a focus on adding more urban and resort properties that feature modern food and beverage concepts capable of drawing non-hotel guests to the property.”

-          Deutsche Bank gaming analyst Carlo Santarelli

Via research note from Truist Securities gaming analyst Barry Jonas

Truist Securities boosted its ratings covering MGM Resorts International because the firm expects the casino company to outperform its peers on the Strip given a strong event calendar and the return of midweek business travel. MGM operates 10 Strip resorts and several event venues.

“The event calendar could drive relative outperformance. The Consumer Electronics Show, Con/Agg, and the inaugural Formula 1 race should drive room rate compression – many days are already sold out – and drive a sizable (spending) on gaming (and) non-gaming activities.”

-          Truist Securities analyst Barry Jonas

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