Brian Sandoval Moves On

Beginning in 1996, Brian Sandoval was Nevada Assemblyman, chairman of the Nevada Gaming Commission, Attorney General of Nevada, a judge serving in the United States District Court or the District of Nevada and in 2011 he became Nevada’s 29th governor.  Throughout his twenty plus years in politics he was always considered among the best and brightest, a rising star.  Nationally, he was considered for a Supreme Court nomination and as a vice presidential candidate on the ticket with Donald Trump; he declined both of those opportunities.  Although Sandoval is a Republican in an increasingly blue state, he is in all ways a “favored son” and remained very popular to his last day in office.

In 2013, I was flying between Las Vegas and Reno when Brian Sandoval, in his first term as governor, boarded the plane late and ended up sitting in a middle seat.  Sandoval got on alone. He did not have a guard or an entourage and he got no preferential seating.  He acted like an ordinary Nevadan, took his seat and talked to his neighbors; he was what Nevadans expect of their elected officials.

Nevada is a very small state with very little political influence in Washington, D. C.  Occasionally, someone like Harry Reid rises to a position of power.  When that happens, Nevadans treasure the opportunity.  It means, for example, federal assistance to lower the train tracks in downtown Reno, help with the Core of Engineers when Reno was desperately trying to control the Truckee River during peak runoffs and hundreds of other projects throughout the state.  A person in a national position of power can do a great deal to assist fellow citizens with the federal bureaucracy.  Outsiders could never understand why Nevadans supported Harry Reid. It was easy –  if we needed him, he took our calls.  Harry got old and retired, but we had hope with Brian Sandoval, our new star on the horizon.  He promised to be our brightest star ever, outshining even former congressman, governor and Ronald Regan’s best friend, Paul Laxalt.

Sandoval had what it takes; charm, political savvy and he understood Nevada and Nevadans.  He understood us because he talked to us, he listened to us.  Over his two terms as governor, I saw Brian Sandoval several times and twice talked to him.  Once, in passing, at a public gathering I had the opportunity to tell him I had written a piece about him, Brian Sandoval: The Middle Seat Governor.  The second time was at my nephew’s graduation.   In 2014, my nephew graduated from ACE High School, a trade school.  The graduation was in a small events center next to the Governor’s Mansion in Carson City.  Governor Brian Sandoval and his family attended the graduation and stayed for lunch.  There were about twenty young people graduating and the governor shook their hands and spoke to each one, wishing them well.  I went up to him afterwards to tell him why I had written about him. Brian Sandoval was accessible  to all Nevadans.  We could talk to him anytime we saw him and we did see him because he was involved in our lives.

By now, you have probably heard that Brian Sandoval is leaving politics and going to work for MGM Resorts.  In his new capacity he will be attempting to help MGM get a casino license in Japan and assist the company in any way he can as it spreads into sports betting in this country.  MGM thinks it has found the perfect person for both of those jobs and Sandoval thinks MGM is the right company for him as he moves off into the private sector.  I am sure that both are correct in their assessment of the other.  Still, the decision makes me slightly uncomfortable and part of me wishes it were not true.  I think the announcement came too soon on the day after he left office, and that means he must have been planning the move while still governor.  But that is not what makes me uncomfortable.  Nevada is losing a valuable asset, one that will be hard to replace.  I am sure the new governor, Steve Sisolak will do a fine job and so will our newly elected members of Congress.  However, none of the others bring the same promise to Nevada.  Did we not think he might run for president and did we not think he had a chance, even when in our heart of hearts we knew no Nevadan was ever likely to become president?  Can you just imagine a Middle Seat President, attending a small tech school graduation, shaking hands and eating off a paper plate?  The loss of that possibility is enough to make a grown man cry.


Playing Loose and Fast with the Truth

Imagine if you can, a 30-something couple sitting at a table in their local bar.  They are telling their friends about a trip they took recently.  In the story, the couple on vacation in a faraway place called The Strip, decided to go down to the hotel swimming pool.  It was a nice sunny day and they had nothing to do before dinner.  On the way to the pool they stopped and played a slot machine for a few minutes.  They won a bit and then continued on to the pool.  In telling the story to their friends they said “We had a bit of spare change so we put it in the slot machines … and won a couple of dollars. So we put it back in and the next thing we knew we’d won $493. Luckiest dip ever.” they said.


It is not an unusual story, I have heard others like it – a woman buying a winning lottery ticket while purchasing gasoline, a man at the track placing an impulse bet on his way to buy a beer, putting a single dollar in a Megabucks machine and hitting the big one and dozens of other variations on the theme.  A person pauses, makes an unplanned wager and wins. Sometimes it is a life-changing experience, but more often it is like the couple and the slot machine, a little extra spending money.  The size of the win is not what makes this story notable.  It is notable because it attracted the attention of The Guardian in England; the headline was: “BA flies into gambling storm with casino winners’ ad.”  You see, it was not an actual story; rather, it was a television commercial for British Airways Holidays.

The advert, as the English call it, is raising some cane.  Some of the people who saw it were anti-gambling campaigners and members of parliament who shared their view.  They lodged complaints with the Advertising Standards Authority, claiming the commercial “promotes gambling and portrays it in a glamorous and frivolous way, and that it’s therefore irresponsible.” It is the Authority’s job to police the airways.

The English are fond of wagering and because of that fact the government has numerous regulations to control and limit gambling in the United Kingdom.  Last year, the government determined that FOBTs, a type of slot machine, needed to be further controlled and wagers be limited to no more than 2 pounds.  The crackdown on FOBTs was driven by the same social concerns as the complaint against British Airways, the need to protect children and those vulnerable to gambling addictions.  All gambling advertisements in the United Kingdom are subject to close scrutiny with an eye to protecting the vulnerable; the time of day and the contents are taken into consideration.  The gambling industry has taken some extraordinary measures to see that it is conforming to the proper standards, but British Airways is not a gambling company, or at least its passengers hope it isn’t.

British Airways was doing what it says it has been doing for three years, telling the vacation stories of its customers. The commercials use the memories of holiday travelers to encourage others to travel, not to gamble.  It is a very strange dilemma for the airline and BA says the ad was reviewed and cleared.  You can see why BA is perturbed.  The case does not fall into the normal category of advertisements that offend the authorities; those that do offend are gambling ads.  In them, bookmakers try to convince would be gamblers to take a chance on a particular sporting event, horse race or political issue such as the odds that Brexit would pass.  When those advertisements use young sexy women, broadcast during “family time” or play too often in the midst of an athletic competition they can expect to get their fingers slapped.

The critics say the airline was glorifying gambling.  To me the advertisement glorifies taking a vacation and having a good time; sometimes having a good time means getting lucky; lucky to catch a spectacular sunset, lucky to get a ticket to Hamilton or lucky to meet the love of your life.  The critics are overreaching as people are want to do these days when nearly every subject is polarized.  The polarization is not just an American phenomenon and not limited to our current political situation.  It is an international phenomenon; we live in a world of black and white, right and wrong.  My right is the only true right, yours is only right if it agrees with mine, otherwise it is a wrong and probably should be punished.

The world is filled with drummers beating the drum of righteousness.  British Airways got caught up in the chant of some of those drummers, chanting “bad, bad, bad, bad, BAD!”  It seems to me they are mistaken in this case.  The BA ad can hardly attract children or the vulnerable to a dangerous activity.  Those at risk cannot, upon seeing the commercial, run out and begin gambling and ruining their lives.  To reach those gambling dens depicted in the ads, a person has to spend hundreds of pounds on a ticket and fly 16 hours to get to Las Vegas.  Las Vegas is not an impulse buy, nor are any other casino jurisdictions served by British Airways.

We live in dangerous times.  One of the things that makes the times dangerous is those drummers. They put all of us at risk.  Any of us could make a same simple error in judgment like that of British Airways – that is if you think it was an error.  Beware of those drummers, they have an axe to grind and they play loose and fast with the truth.  Any time you hear their thumping pay close attention to the facts, not the chant.


A Wild and Crazy Year for Gaming

The narrative that has grabbed the most headlines and inches of copy in 2018 is sports betting.  The Supreme Court of the United States overturned the Professional and Amateur Sports Protection Act of 1992 in May, or as one clever headline put it – SCOTUS kicked PASPA to the curb.  Following the demise of the sports betting prohibition, Delaware started taking bets. It was quickly followed by New Jersey, West Virginia, Rhode Island and Mississippi; and most recently Pennsylvania.  The story will continue to be one of the most important gaming stories in the foreseeable future.  Virginia, Maryland, Massachusetts and Michigan are likely to be taking bets in 2019.  But taking the bets is only part of the story.  Equally important in the narrative are the teams, the media and the major gaming corporations that are forming new alliances and creating new practices.  MGM is also a part of the subtext of this story. MGM has signed agreements with the National Basketball Association, National Hockey League and National League Baseball. It also entered into a partnership with GVC Holdings, a bookmaking and online gambling corporation, to do the technical side of the wagering at MGM properties wherever it is legal.

New casinos up and down the East Coast and their attendant impact both positive and negative have been the second biggest story of 2018.  It has been a good year for Maryland casinos, in fact, the last two years have been good for Maryland’s casino gaming.  In December 2016, the $1.2 billion MGM National Harbor opened, adding an average of $50 million a month in gross gaming revenue to the state’s total. Maryland is not alone in having a record breaking 2018; New York and Massachusetts are having banner years.  In each case, the reason is the same: added capacity, more casinos and more slot machines.  In Massachusetts, MGM Springfield drove the revenue and the headlines. In New York, it was Resorts Catskills in the starring role.  By way of contrast, Pennsylvania, Connecticut, Mississippi and Indiana are a long way from setting records this year.  The growth and decline of gaming revenues in the region was the result of the new casinos, which took business from existing ones.

The “Me Too” movement also found its way into the gaming narrative in 2018.  Early in the year, Steve Wynn was accused of sexual harassment.  The accusations led to Wynn resigning from Wynn Resorts and selling his stock. Wait, did I just say Steve Wynn left the gaming industry?  I did, Steve has been the face of innovation in gaming since 1978, but in 2018 he was forced out and for the first time in over 40 years Steve Wynn has no role in the gaming industry.  In the wake of Steve’s exit, the company board of directors added several women and dropped a couple of long time board members.  It also recruited Phil Satre to become chairman of the board in an attempt to shore up the company’s reputation.  The company is in the process of building a $2 billion casino near Boston and the Massachusetts gaming commission is investigating.  The commission wants to assure itself and the public that Wynn Resorts should be allowed to operate a casino in Massachusetts. The next hearing on the subject is scheduled for early January; it seems unlikely that after investing $2 billion in building the property that Wynn Resorts could lose the license, but it could happen.  And if it does happen there are at least two suitors standing in the wings demanding a chance to take over.

Those are the three biggest stories of 2018.  But there were others.  Atlantic City has grabbed more than its share of the spotlight in 2018.  There are two new casinos in the Boardwalk City – Hard Rock and Ocean Resorts.  Actually they are old casinos that have been remodeled and rebranded.  New casinos, sports betting and online gambling helped the struggling casinos in Atlantic City to show growth after years of decline.  Pennsylvania did not have a record setting year for revenue, but it did set some records with legislation to expand gaming options in the state.  Lawmakers in Pennsylvania authorized ten mini-casinos, slot machines in truck stops, online gambling and sports betting. Operationally nothing much has happened yet; only three casinos started taking wagers in 2018.  The bulk of the expansion will take place in 2019 and 2020.  When all of the new gambling options are built, opened and paying taxes, the gaming landscape will have been totally transformed.

The year might also be called the year of the REIT.  Every major transaction in the industry during 2018 included a REIT component.  Boyd, MGM, Eldorado, Caesars and MGM all wrapped up deals with REIT partners.  The casino corporations own the operations and pay a lease fee to the REIT which owns the real estate.  It looked like the perfect solution in 2018; whether REIT partnerships will be as attractive in a few years when capital expenditures and deferred maintenance becomes an issue is another question.

And there you have it, the gaming industry in 2018 in a few paragraphs.  Sports betting goes national, new casinos open up and down the East Coast, Steve Wynn exits, Atlantic City gets a makeover, Pennsylvania opens Pandora’s Box and REITs come to town; what a year.  The events of 2018 were enough to make a casual observer dizzy and the year fully deserves to be called a record breaker

Are There Signs of Recovery in Atlantic City?

The casinos in Atlantic City are having the best year they have had in ten years and some people are beginning to speculate the city is back on the road to prosperity.  For the first ten months of 2018, the casino win is $2.387 billion, up 5.76 percent from 2017.  There are good reasons for increases; Atlantic City has now has online gambling, two new casinos and sports betting.  Online gaming in particular has added significant revenue each month for four years and it has grown each month over the previous year. In November internet gaming was up 30.7 percent to $26.9 million.  That is more than any single casino, except Borgata. Sports betting has been legal for six months. In November, it generated $11.5 million in win for the casinos.  For the month, casino revenue was up 12.6 percent to $209.1 million.  The increase is due to $33 million from the newly opened Hard Rock and Ocean Resort casinos.

The revenue growth comes after a long decline, but it has a long way to go to reach pre-Pennsylvania and pre-recession numbers.  In November 2006, the casino win from the 12 operating casinos was 406.1 million; in 2018, not counting sports or online gaming, the nine operating casinos generated $209.2 million, a very long way from 2006.  Atlantic City appears be in recovery, but that road is not a certain one and it is littered with landmines.

The landmines are, as everyone knows by now, competition from other states.  Since 2006, Pennsylvania has added 12 casinos. After twelve years, Atlantic City should have absorbed that competition.  It might have, if it were not for the new casinos in New York, Maryland and Massachusetts.  Even that added competition could be eventually absorbed if the expansion stopped, but it won’t.

Pennsylvania recently authorized 10 new mini-casinos with 750 slot machines and 30 table games each.  Those mini-casinos are still two years or more down the road, but sports betting is in the immediate future.  Hollywood Casino sports book is open and booked $1.4 million in bets in its first two weeks in November.  Sugar House Casino in Philadelphia and Rivers in Pittsburgh started booking sports in December, but have not yet reported revenue.  When all of the casinos and min-casinos in Pennsylvania have sports betting, it is bound to have a significant impact on sports betting in New Jersey.  The Keystone state has also had fantasy sports betting for six months. In November it generated $3.24 million in revenue.  There is one more big shoe yet to drop-slot machines in truck stops. Thus far over 60 truck stops have applied for a gaming license that will allow five machines at each stop. Pennsylvania is on the verge of its largest expansion since authorizing slot machines and Atlantic City will feel the impact of this expansion for years to come.

It is a sign of our times.  The Great Recession hit the casino industry everywhere, and except for Las Vegas, few jurisdictions have fully recovered.  They are not recovering for several reasons.  Mississippi, Louisiana and Indiana have been hit by major weather events that exacerbated the affects of the recession and several states have passed non-smoking regulations. But of course, the major factor everywhere is additional competition.  Since the beginning of the recession, five major states have added casinos and VLTs.  And there is more expansion to come; Virginia, Arkansas and Texas are moving toward casinos, and eight states have added sports betting.

All of that means that Atlantic City is probably not on its way to a major recovery and certainly not on the road to the prosperity of 2005 and before. The city does however have a brief time to gather in the wheat while the sun shines.  The rollout of mini-casinos, sports betting and VLTs in truck stops in Pennsylvania will take time.  But when it is completed, Atlantic City’s potential market will have been diminished dramatically once again.  Atlantic City’s narrative is the national narrative in miniature.

Nationally, gaming revenue was up over five percent in October, but nearly all of the growth was the result of expanded capacity.  There were more casinos and more VLTs in 2018 than 2017.  The resulting increase in revenue does not necessarily equate to more revenue for the casinos that were operating in 2017.  In fact in most cases it means less. New casinos take at least part of their revenue from existing ones, just as the two new casinos in Atlantic City cannibalized that market. In November only one of the existing casinos reported more win in 2018 than 2017. The rest gave up some of their customers to the Hard Rock and Ocean Resort casinos..

It will take a long time before the national picture of the gaming industry stabilizes.  It may be possible by 2025 to make definitive statements about any jurisdiction.  All of the new gaming options should have been absorbed by then; that is if there is no war, recession or major natural disaster.  Predicting the future of any jurisdiction is rather like forecasting weather; tomorrow is pretty easy to anticipate, a month into the future is rather obscure and a year becomes a guess.  A decade from now is the stuff of crystal balls and court jesters.  With that said, things look pretty good for Atlantic City in December and probably for most of 2019 and possibly even 2020.  Is that a sign of recovery or just a sign post on a very long and treacherous road?

A Lottery Payroll Deduction; Speed Dialing Tax

According to Wikipedia, speed dial is a function available on many telephone systems; it allows a person to place a call more quickly and with much less effort.  It is a great idea, a person no longer has to laboriously push all those buttons or touch numbers on a screen.  In an act of absolute genius a lawmaker in Michigan has found a way to put paying taxes on speed dial.

The tax is not an obvious or direct tax, but a tax nevertheless.  Representative Beau LaFave, a Republican from Iron Mountain, Michigan thinks the ideal way to put $100 million into the State School Aid Fund is for every worker in the state to play the lottery, using a payroll deduction system. LaFave thinks going out to buy a lottery ticket is just too much work; but buying a lottery ticket is good for the state and good for education.  So why not put the special lottery on speed dial?  In fact, if just half of the 4,700,296 people employed in Michigan opted to play 50 cents a week on the lottery, the state would get a hundred million dollars; and if more played, wow, just think of the possibilities.  The lottery game has not been created yet, but LaFave suggests the top jackpots would be $10,000; that would assure employers no one would quit their jobs if they won.  As good as the idea is, the bill probably is not going to get a proper hearing in Michigan’s legislature – yet.  An article in the Lottery Post, made light of the idea, but the Post did feel the need to remind the Michigan legislature and everyone else that playing the lottery is not an investment strategy and lottery tickets should be purchased for entertainment purposes only.

At first blush the story looks like something from The Onion, heavy in irony and humor.  But actually the lawmaker’s idea is a more transparent way to look at state lotteries.  Anti-gambling advocates have been calling lotteries a regressive tax for a long time; claiming it is a tax paid by the people who can least afford it.  Other taxes, including gaming taxes are assessed as a percentage of sales or value real estate.  Lotteries do not pay or charge a tax as such.  Instead, a lottery is a fixed percentage of all wagers, rather like a pari-mutuel bet at a racetrack.  That money, minus the operating expenses of the lottery, goes into state funds as directed by the enabling legislation. Lotteries have been used by governments to raise money in this country since revolutionary times.  It has been effective, but as opponents point out, lotteries appeal to a very small percentage of the population, or did until recently.  The advent of the multi-state, mega-jackpots has changed that.  When one of those jackpots gets over $400 million the number of players goes up dramatically; it may never reach 100 percent of the population, but it certainly exceeds 50 percent in some states.  The trigger point is an evolving process. At first a jackpot of $200 million created a purchasing frenzy, but that magic number keeps creeping up; now it is actually getting close to $500 million.

Regardless of the size of the jackpot that creates the lottery ticket buying craze, the mega-jackpots have changed the way lottery officials and lawmakers think about lotteries.  Those big jackpots put lots and lots of money into state coffers.  It makes officials hungry for more ways to drive sales.  And that brings me back to Beau LaFave.  His idea is perfectly logical; it not only eliminates the need for the worker to leave his/her house to buy a ticket, it eliminates the need to make a decision to buy a ticket.  Once a year the worker just checks the box and bang, he/she is in action the whole year. When workers are in action, they will want to watch the weekly (or monthly) drawings.  They are going to want to tune in to see if they are getting a bonus this week or month.  And of course, when more people watch, more people will sign up; and probably workers will want to have more taken out of their paycheck; why just .50 cents a week and not a dollar, or two or five?  If Michigan were successful, other states would follow suit.  And as with all other things economic in this country, the states that would really make money from such a scheme are California, Texas, Florida and New York. California has 18.6 million people employed; if each had a dollar a week deducted from their paycheck the gross would be $969,108, 400.  If the state gave back 80 percent in prizes, $193,821,680 would be leftover for schools or whatever. That is just a dollar a week, if workers got excited enough with the prizes and the drawings and started to raise their deduction the numbers could get really big.

Okay, I have taken this thing too far and made it ridiculous.  That may be true, but once an idea like this is on the table, some lawmaker will begin to make calculations based on the particulars of his/her state.  After all, the payroll lottery would not hurt anyone, it would help the state and provide instant bonus to some workers.  I mean a dollar or two a week, who would miss that? And it would be so quick, so effortless with speed dialing.

Mass Shopping, Big Sales and the Thanksgiving Weekend

Thanksgiving has become the busiest travel and shopping holiday of the year.  It is a great time for retail sales and travel destinations, but it is not without its potential liabilities.  In the long-term, those who benefit today may suffer and in the short-term other businesses are suffering now. Regardless of the implications, Thanksgiving has become a culture changing phenomenon.   An estimated 54 million people left home during the Thanksgiving weekend to visit family, sight-see, shop or party.  Las Vegas welcomed 300,000 visitors over the period; forecasts anticipated $226 million in spending by those visitors.  As impressive as those numbers are, they are tiny in the national holiday picture.

For decades, Thanksgiving has been billed as the beginning of the Christmas shopping season, the most import retail period of the year.  In recent years, the weekend has become known for its special shopping days; Black Friday, Small Business Saturday and Cyber Monday; more than 164 million Americans shopped during the four day period, 116 million, have said they intended to buy and browse on Black Friday.  Master Card tracks the spending and says $23 billion were spent on Black Friday, a $2 billion increase over 2017, even though the number of actual shoppers was thought to be down by 9 percent.  Small Business Saturday had a record $17.8 billion in sales, an increase of $5 billion with 104 million shoppers.  The decrease in shoppers on Black Friday is in part the result of online shopping; on Black Friday $6.2 billion was spent buying online; that is a $1billion increase over last year.  Cyber Monday is the busiest online shopping day of the year; 75 million people spent nearly $8 billion this year on Monday.  The decrease in shoppers on Black Friday is also the result of increased shopping on Thanksgiving Day, Small Business Saturday and a continuation of Friday sales into Sunday.  Black Friday used to be a singular event, now there are five major shopping days over the Thanksgiving weekend.

Black Friday is called black because for years it has been the day that brought retail sales out of the red and into the black.  That one day and the next three weeks account for one fifth of all retail spending in the country.  That percentage is certain to grow as more “big sales” days and events are added to the calendar.  For the casino industry the expansion of Christmas shopping all through the Thanksgiving holiday will have a negative impact in the near future, if it has not already.  It is the worst time of year for casinos and gaming in general as people only have so much disposable income.

The Christmas shopping season has always been hard on casinos. The more people spend shopping the less they will have for casinos.  Revenue drops by as much as forty percent from the previous month during the shopping season that lasts from the day after Thanksgiving until the stores close on Christmas Eve.  However, the best week of the year for casinos begins then; the week between Christmas Eve and New Years is the casino industry equivalent of Black Friday.  Casinos hope for enough revenue to bring them into the black for the fourth quarter from that week.  The huge increases in shopping over the Thanksgiving weekend only makes the week more critical for casinos.

As exciting as numbers from Black Friday, Small Business Saturday and Cyber Monday are, they also are indicators of sales and profit decreases at other times.  A long time ago, a friend of mine was helping me develop methods for analyzing casino special events.  Working at the Comstock Hotel I had learned to put all of the expenses, even the indirect ones into the equation, but I neglected the very important element of displacement.  In my friend’s model, the trips a customer did not take because they had come to a special event had to be considered.  Over the years, as the Comstock increased the number of its special events, a clear trend surfaced. The good customers waited for a special event to visit; gone were the spontaneous visits. The reason was simple; we offered a better experience at a discounted price.  In the jargon of retail sales, our customers waited for sales.

Thanksgiving weekend and the next three weeks have become one gigantic sale.  The sale not only moves a great deal of normal purchasing into that period of time, it teaches all buyers that if they wait, everything will be drastically reduced in price.  The result is slower sales during the rest of the year and reduced profit margins during peak periods.  Those were the lessons we learned at the Comstock; customers reduced the number of visits and we subsidized the trips they did take.  We displaced much of our best customers’ playing time and discounted our services at the same time.  Special events began as a great way to stimulate business in slow periods, but in time they became the predominant business model. It was not a successful model in the long term.  I think that is one of the problems with bricks and mortar retail businesses; they have become special events, sales-driven businesses.  Online retail sales have certainly contributed to the problems of traditional retail stores, but the sales-driven business model is also to blame for the demise of so many bricks and mortar retail outlets.  And of course, it adds another level of competitive pressure to the casino industry.

Acquisitions, Mergers and REITs: The Way Things Are Done These Days

The sales of three properties, Greektown in Detroit, Atlantic Club Casino in Atlantic City and Kentucky Downs in Kentucky, were announced in the same week.  Terms were not disclosed on the Atlantic Club or Kentucky Downs, but Greektown was reportedly sold for $1 billion to Penn National and VICI Properties.  Penn is paying $300 million for the casino operations and VICI $700 million for the real estate and buildings.  Penn will lease the casino and hotel from VICI for $55.6 million a year.  VICI is a very new company, a real estate investment trust (REIT). It was formed as part of the Caesars bankruptcy and went public in February 2018.  It owns twenty Caesars properties and in June did its first deal with Penn, buying the real estate of Margaritaville in Bossier City, Louisiana.

REITs look like a pretty good business model.  They own the real estate and get a guaranteed annual rent that is calculated to be a good return on the invested capital.  On the other hand, the casino company gets the casino operations but without the huge debt had the company purchased a casino on its own; there is a set annual lease payment and no debt covenants.  Besides VICI, there are two other major REITs in gaming. MGM Growth Properties (MGP) owns the real estate for twelve MGM properties and a Hard Rock casino in Ohio.  Gaming and Leisure Properties (GLP) owns the real estate of forty-four gaming properties with the casinos managed by Penn, Eldorado Resorts and Boyd Gaming.  REITs have become a big part of the casino industry.  Currently there are approximately seventy-five casinos and racetracks are owned by a REIT and leased to a casino company.

 REITs are not new, but the current REIT-owned casinos trend is very recent.  GLP was incorporated in 2013, MGP in 2015 and VICI in 2018.  As the REITs have been growing and acquiring more properties, their casino partners have been able to expand dramatically.  Until very recently, Eldorado Resorts was a small Reno company with a presence in Reno and one casino in Louisiana.  Since 2014, Eldorado has added twenty properties to its portfolio.  The price for its last acquisition, Tropicana Entertainment owned by Carl Icahn was $1.85 billion. Eldorado paid $640 million, GLP put up the rest.  Eldorado will pay $88 million a year to GLP.

Boyd Gaming has been around a long time, it started with the California Hotel and Casino in Las Vegas in 1975.  Today Boyd has twenty-nine properties in ten different states.  This year, Boyd added five casinos to its portfolio with some help from its REIT partner.  GLP has been an important element in Boyd’s recent acquisitions.  Penn National did not start out as a casino company; it began by operating race tracks in Pennsylvania in the early 1970s.  It went public in 1994.  In 1996, Penn acquired racinos in Pennsylvania and West Virginia.  In 2003, it bought Hollywood Casino Corp and became a full-fledged casino company.  In 2013, Penn spun-off the real estate of twenty-nine casinos and racetracks to the newly formed GLP.

Given the fact that Caesars and MGM both have REIT partners, one could almost argue that real estate investment trusts have become as important as their gaming partners; and neither could move forward in any significant way without the other.  The success of REITs is also an indicator that the gaming industry has fully matured where consolidation is the dominant narrative.  Small start-up companies and new jurisdictions without any competition are things of the past.  The industry is in the final stages of expansion into Maryland, Massachusetts and New York.  After those three, there are not many more possibilities left, a few but not many. The real movement in the industry over the last couple of years and into the foreseeable future is consolidation.   Caesars, MGM, Boyd, Eldorado, Penn and maybe Wynn are going to be looking to acquire more existing properties. Each of these companies already own casinos in most jurisdictions and because of monopoly and anti-trust laws most acquisitions of multiple properties are going to require selling some of those properties.  Those five or six companies are going to keep shuffling and reshuffling the deck until they own every casino resort of any value in the country.  And most, if not all, of those transactions are going to have a REIT partner.  That is the way things are done these days, isn’t it?


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