Indy Gaming: Resort closures won’t change Vegas trajectory, analyst says
It won’t take long for the room nights lost by two resort closures to be gobbled up by other Strip hotels, according to an analyst. So goes the nature of a destination heading toward another record year. Also, what’s happening with IGT’s merger with Everi and one final Steve Wynn historical comment on The Mirage.
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Almost 5 percent of the Strip’s hotel room inventory available at the beginning of the year will be gone by next week.
However, the closures of Tropicana Las Vegas in April and The Mirage on July 17 bode well for the major resort companies, one gaming analyst told the investment community. The Strip already has experienced record-breaking hotel room rates in the first five months of 2024.
Ahead of the July 4th holiday, CBRE Equity analyst John DeCree wrote in a research note that the sentiment of investors toward the Strip has been low. In quarterly earnings conference calls in April and May, several casino company leaders discussed increased operating expenses and economic uncertainty in 2024.
But DeCree believes the warning signs might have been misread. Vegas is different. When the number of available hotel rooms decreases, the prices for those rooms increase.
“Overall fundamental performance on the Strip has held up,” DeCree wrote, given that Strip gaming revenue is up 3.5 percent through May compared with a year ago.
Although hotel room occupancy through May is flat compared to the same five months of 2023, the average daily hotel room rate is up by more than 6 percent. In February, Super Bowl LVIII at Allegiant Stadium helped drive an average single-month record Strip room rate of $248 a night.
DeCree said he expects second-quarter earnings, which resort companies will begin releasing by the end of July, will be in line or slightly ahead of expectations.
He noted the 1,500 midpriced rooms that vanished with the Tropicana’s closure immediately were grabbed by other midtier Strip properties. He expects the nearly 20 Strip hotel-casinos operated by Caesars Entertainment and MGM Resorts International to “consolidate the demand” leftover when The Mirage’s 3,000 rooms come off the market.
DeCree estimated The Mirage had more than 1 million occupied hotel room nights in 2023, which generated almost $600 million in revenue.
“This represents significant underlying demand for the Las Vegas Strip that will need to find a home," DeCree wrote. He suggested an “under-occupied resort,” such as Golden Entertainment’s STRAT Hotel, Tower and Skypod, also could be a beneficiary of the displaced business.
“While there are many variables that could impact our analysis, we see a clear benefit for all Strip operators with more customers chasing fewer rooms and ultimately driving higher average daily room rates,” DeCree wrote.
At the end of May, the Strip had slightly more than 154,000 available hotel rooms. The total includes the 3,700 rooms added in December with the opening of the Fontainebleau Las Vegas.
Nine acres of the 35-acre Tropicana site will be replaced by a $1.5 billion Major League Baseball stadium for the relocated Oakland Athletics. It’s unclear, however, what Bally’s Corp., which operated the Tropicana, will build to replace the resort.
Meanwhile, Hard Rock Entertainment will transform The Mirage into the Hard Rock Las Vegas, which will include a separate guitar-shaped hotel tower. Hard Rock, which is owned by Florida’s Seminole Indian Tribe, hasn’t disclosed how many hotel rooms will eventually be on the site, which will be closed until at least spring 2027.
“The significance and longevity of the supply contraction remains underappreciated,” DeCree wrote.
IGT adds to digital presence as merger with Everi heads toward completion
The gaming industry’s largest pending merger is months from being finalized but that’s not stopping International Game Technology (IGT) from making moves to solidify its pending U.S. digital presence.
The company announced plans this week to add “Prosperity Link,” one of its more popular casino slot machine games, into its online casino platform in Pennsylvania, Michigan, New Jersey, Connecticut and West Virginia.
IGT Digital, which includes its sports betting platform and online operations, and the company’s slot machine division, is merging with Everi Holdings in a $6.2 billion transaction. The deal, which was announced in February, is expected to close by the end of the year. The coalesced company, which will be headquartered in Las Vegas, will take on the IGT name.
“We expect these combined businesses to be well-positioned strategically,” Jefferies gaming analyst David Katz wrote in a research note Monday.
IGT’s worldwide lottery business will take on a new name and remain headquartered in Italy.
Wynn said he forgave Mirage naysayers
Here is one last nugget on The Mirage before next week’s closing.
It was much discussed within the investment community 35 years ago that the Strip resort needed to clear $1 million a day in revenue to cover costs for developing the $620 million property. Junk bonds — a financial tool popular in the late 1980s — covered $565 million of the costs.
In a 2009 interview, the resort’s developer Steve Wynn told me The Mirage beat the odds by a wide margin.
"For all the people who thought we'd fall on our ass, I forgive them," Wynn said 15 years ago. "We not only made $1.1 million a day in gaming revenue, but people forgot about the noncasino revenues, which was about $800,000 a day."
What I'm reading
🎰 Concerns grow over gambling addiction in the military – Contessa Brewer and Jessica Golden, CNBC
Some 3,100 slot machines on U.S. military installations in a dozen foreign countries produce more than $100 million annually in revenue and are seen as a morale booster for the welfare and recreation of servicemembers akin to activities such as golf, libraries and other entertainment.
💸 Will Trump's Las Vegas idea to end taxation on tips catch on? — Gabby Birenbaum, The Nevada Independent
Attracting the support of union leadership was always a near impossibility, but the Trump campaign hopes rank-and-file workers hear the message.
💲 New Jersey fines DraftKings $100K for reporting inaccurate sports betting data to the state — Wayne Parry, The Associated Press
DraftKings isn’t licensed in Nevada, but this incident will certainly be addressed by state gaming regulators if the company ever moves into the state.
🏒 The dysfunctional family affair that poisoned Arizona Coyotes — A.J. Perez, Front Office Sports
“[Alex Meruelo, owner of the Grand Sierra Reno and Sahara Las Vegas,] managed the Coyotes like he was the head of a private equity firm with a distressed asset.”