After the year Las Vegas casinos had in 2020, investors can hope for a recovery to materialize in the second half of 2021, and accelerate next year. Yet, based on the available data, there does not appear to be much to support this conclusion.
Sure, widely distributed COVID-19 vaccines and relaxing casino restrictions will help, but there is still no convention activity in Las Vegas and little gambling is taking place. It may pick up, but there doesn’t seem to be any momentum to kickstart a full casino revival.
Go nowhere fast
The Las Vegas Convention & Visitors Authority recently released its December data showing the volume of visitors to the city plunged 64% compared to 2019 and is down 55% year-to-date. It also indicates that after a brief increase in summer, visitors are staying away from Las Vegas in ever-increasing numbers.
Vegas McCarran International Airport reported that there were 22.2 million arrivals and departures last year, a 57% drop from the 51.5 million people who passed through the airport in 2019.
The lack of visitors meant that hotel occupancy in Las Vegas was also negligible. The total occupancy rate for December was just under 31%, and for the year it was only 42%, or just 19 million people. This is the lowest turnout for over 30 years for the city.
This is also why many hotels are closed during the week and open only on weekends. Wynn Resorts (NASDAQ: WYNN) implemented midweek closures at his Encore hotel in October, while Sands of Las Vegas (NYSE: LVS) completely closed the Palazzo. Likewise, MGM Resorts (NYSE: MGM) close its hotels at the Mirage and Mandalay Bay resorts Monday through Thursday.
Its revenue per available room (revPAR) also exploded in December, plunging 71% from the period last year to just $ 30.93, and that’s much worse than the revPAR of 50, $ 65 registered for 2020.
It’s true that the growing number of coronavirus cases has led to further crackdowns and restrictions, but there is simply no real demand for in-person gambling at the moment.
And it’s not just Las Vegas, either. New Jersey, for example, continues to operate under some of the most oppressive guidelines in the country, and Gov. Murphy just extended his public health rules for the 11th time, though he eventually authorized a food and beverage service. drinks 24 hours a day and for casinos to increase floor capacity from 25% to 35%.
Other casino operators in regional markets are also struggling with strict social distancing and shutdown mandates, and even in the world’s largest gambling market, Macau, China, casino operators are sick.
The travel and tourism industry has been decimated. The American Hotel & Lodging Association predicts that while American hotels will create 200,000 jobs this year, the industry will remain nearly 500,000 jobs below its pre-COVID-19 employment level of 2.3 million workers .
The AHLA does not expect the industry to return to 2019 levels until 2024.
The United States Bureau of Labor Statistics reports that more than half a million workers in the hospitality and entertainment industry lost their jobs in December, and since last February, employment remains down by 23%, or some 3.9 million jobs.
The only thing that can allow individual casinos to survive this calamity is online gambling and sports betting.
A home run opportunity
MGM Resorts reported annual profits last week which showed revenue plunged 60% from 2019, generating an adjusted loss of $ 3.94 per share, compared to adjusted earnings of $ 0.77 per share per share. last year.
Vegas Strip revenues are down 61%, regional revenues by 45%, and Macau revenues by 77%. Yet MGM’s online sports betting and casino games application BetMGM has gained “significant market share” across the country.
Sports betting is the fastest growing segment of the market, and New Jersey has quickly become the sports betting capital of the country, yet MGM’s Borgata is the third-largest sportsbook in the state, behind FanDuel and DraftKings.
Wynn Resorts are also looking to expand their own market presence, while Las Vegas Sands, which has long opposed online gambling due to moral opposition from late President Sheldon Adelson, may even enter the scene.
Become smaller to grow
What these results highlight is that it is not really necessary to be physically present in a casino to play, and consumers find there are more opportunities in sports betting to get some action.
Even if the restrictions on casino floors are relaxed, don’t try to get the industry to rebound quickly. It seems more hope than reality that casinos will begin to recover at a sizable level later this year, if not next year.
Casinos have a long way to go, and just as the pandemic has revealed that retailers and restaurants have too many stores, casinos may find they have too many gambling halls and hotels and need to grow into smaller ones. operations if they want to survive.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.