What is going on in gaming?

Casino revenues and profits are up, but fewer customers and other serious economic issues are impacting the gaming industry. What is going on?

The post-pandemic economy is a mixed bag. Signs of recovery are accompanied by warning flags. The unemployment rate has returned to something close to 2019 levels, but 10 million jobs remain unfilled, particularly in service industries. Gaming is plagued with limits on an operation’s ability to deliver services due to a shortage of employees. Daily there are articles about small businesses closing their doors, because they don’t have enough employees to conduct business. There are also stories about wages increases, without any governmental prodding; wages are going up dramatically in many sectors. Companies like Walmart and Amazon, notorious for low pay, have raised their pay scales significantly. Besides raises to basic salaries, many, if not most, companies are offering hiring and retention bonuses. Recently, an Indian casino in California offered a $2,500 bonus for cooks. Thousand-dollar bonuses are becoming common, as are hourly wages about $15.

Adding to the complexity is a shortage of materials. For casinos, that can include paper products, food, and cleaning materials, among other things. Supply chains for many products have been disrupted, lowering their availability. For example, housing prices are escalating in part because lumber supplies are limited, delivery times are uncertain, and the cost is soaring. This has led to a shortage of homes for sale and rent driving up prices.

Fuel, groceries, and other essentials are under pressure from the same forces. My local supermarket shelves look much like they did in the first few months of the pandemic: empty. Rarely are the shelves fully stocked in the “old” way. Something is always in short supply or not available at all. Combined with the shortage of employees to do the ordering and stocking and the supply-chain disruption, my local store often looks like one in the developing world in the midst of a civil war.

As we all know, car dealerships and parts distributors, florists, toy stores, gas stations and many others are having the same issues. The reasons are different in each industry, but the problem is common across them all. Casinos, specifically, are being hit by both the labor shortage and the disrupted supply chain. And yet it is a banner year for revenue and profits. Given those problems, why are revenues so much better? It is a head scratcher.

The most common answer is pent-up demand. People are eager to be out and about after being locked in for months. Another explanation is the increase level of unemployment compensation. Millions of unemployed people received regular checks, while having lots of free time on their hands. A third regularly cited cause is the federal stimulus, found money intended to jump-start the economy. In the case of casinos, it is doing its job. In addition, Carlo Santarelli, an analyst for Deutsche Bank, thinks he has found another source of the cash people are using to gamble: It is borrowed from other industries.

Santarelli is becoming the go-to guy in gaming analysis; no report on corporate earnings, jurisdictional revenue, or trends in gaming is complete without one of his quotes. He is not without his critics. Dave Portnoy of Barstool fame suggested Santarelli should be fired for being “catastrophically wrong.” Santarelli suggested that Penn National, a stakeholder in Barstool, was a sell, not a hold or a buy as other analysts had rated it. Portnoy took it personally. Still, Santarelli does his homework and knows the gaming industry as well as anyone on Wall Street.

In a report, Santarelli wrote that between April and July 2021, an estimated $18 billion in recreational spending shifted from amusement parks, movie theaters, concerts, live spectator sports, and other recreational and entertainment options to casinos, sports betting, and other forms of legal gambling. In his analysis, Carlo includes horse racing, lotteries, and online gambling, as well as casinos. He does not say that casinos got the whole kit and kaboodle, but a healthy share.

According to my calculations, between April and July 2021, casinos, VLTs, igaming, and sports betting generated $18.7 million, compared to $5.1 billion in 2020 when the industry was shut down for part of the year and $14 billion in 2019. Those numbers do not include lotteries, horse racing, or Indian gaming. The difference between 2021 and 2019 is $4.7 billion, an increase of 33 percent. Part of it comes from the increase in sports and online gambling in the last two years. The remainder could easily have come from other recreational industries. Certainly, live concerts and movie theaters are just starting to recover from the pandemic.

Another interesting possibility for the casino boom is season tickets to live sporting events. Let’s call it the “DJM Theory,” named after a friend who suggested it. Most season tickets holders, and there are millions of them, opted to defer their 2020 tickets, when seats were empty, until this year, rather than asking for a refund. So now they have money that they would have allocated on another season’s worth of tickets. What better way to spend some of that money than head off to a casino?

For example, DJM estimates that in the Denver area alone, more than $200 million in season tickets were paid for in 2020 — $200 million burning a hole in the pockets of fans. This year, Denver Bronco fans can bet on the games in Colorado remotely and in person; in addition, the tables in Black Hawk have new and much higher limits. If just 10% of that money finds its way to the casinos in Black Hawk, it will have a big impact.

The subject is complicated and resists any simple, one-dimensional solution. But casino revenue is up and the money is coming from somewhere. Undoubtedly, one place is the government and the pandemic stimulus programs. According to the Santarelli displacement theory, other places helping to fuel gaming are entertainment venues that have not fully reopened. And then there is the DJM season-ticket-holder theory. Whatever the source, casinos are generating more revenue. Santarelli ended his analysis by saying we will just have to wait and see how long the trend lasts. And so say I.

Is A New Day Dawning in Macau?

The fog may be lifting in Macau, a least slightly. Several recent events illustrate the issues and point toward potential changes in gaming there.

To begin with, the Gaming Commission has reorganized itself and expanded, nearly doubling in size. The stated intent was to better oversee the gaming companies. At the time of the announcement, however, the underlying motivation seemed difficult to grasp. That is no longer true. The government of Macau has rereleased its five-year plan, which includes an expanded role for regulation. In the plan, Macau will concentrate on achieving its diversity goals and a sustainable tourism industry by 2025.

To accomplish the former task, new industries, including technology, finance, and retail will be encouraged. The latter will be addressed, in part, by limiting VIP gaming and thereby reducing the risk and volatility in gaming revenue. Casinos will not only have difficulty in getting permission for VIP tables, but will also be expected to concentrate efforts on mass-market gamblers instead. The issue may be moot, as other measures in China are set to curtail rich, high-rolling gamblers.

In addition, the oversight of casinos will pass directly into the hands of the government. Authorities propose an increase of legal requirements that include suitability evaluation, worker guarantees, non-gaming elements, cash deposits, junkets, the number of licenses and concessionaires, the distribution of dividends, the percentage of shares owned locally, and concessionaires’ social responsibility.

As with all such communications from officials in China and Macau, the announcement was vague and without any detail. Still, it caused a major meltdown in the stock prices of Sands China, Wynn Macau, Galaxy, MGM China, and Melco. In one day, the group lost 26 percent of its value, more than $18 billion. The selloff was driven by fear that China was getting ready to make it impossible for a casino-resort to make a profit in Macau — or worse, drive the Americans out of town.

The fear is easy to understand: China has been cracking down on many business practices and social behaviors. The crackdowns have had a major impact on Chinese companies. The possibility that China’s “social credit score” could be extended to gambling is particularly frightening for investors. But it certainly lurks on the sidelines, as China increases its pressure on non-acceptable conduct.

However, by the day following the initial meltdown, numerous experts and Macau insiders had begun to recommend caution. They all believed that the market’s reaction was extreme, even foolish. Each of the experts stated that everything on the laundry list of potential changes had already been known. And of course, without any detail, it is impossible to predict the actual impact. The only certainty is the public consultation; that began on September 15. The licensees, junketeers, and other industry leaders will be surveyed first. That will be followed by four public consultations where local residents, elected officials, and other Macau businesses will be given a chance to express their views on the casino-resorts. The consultations are scheduled to be finished by the end of October. The officials then have six months to write a report and make recommendations.

The recommendations will then be drafted into law, which will go before the Legislative Assembly of Macau. In the meantime, the first of the casino licenses begins to expire in 2022. It is almost certain that the date will be extended until the final law is in place. At that point, operators will be given an opportunity to present their proposals for a license. By then, it will probably be sometime in late 2023. That should leave plenty of time for the casinos in Macau to recover from the pandemic and get back on the path to profitability. Between now and 2023, the casino operators will continue to do everything they can to appease officials in China and Macau. It is a game they have each learned to play very well. Don’t expect any of them to be hauled away in chains anytime soon. Thus, if you own stock in any of those companies, you probably have lots to time to decide if it is a good investment.

One of those taking issue with the market overreaction was Andrew Scott of Inside Asian Gaming. Scott says the reasons that casinos in Macau have been so successful are “the Chinese propensity to gamble, Macau’s proximity to mainland China with its 1.4 billion people and particularly its richest province of Guangdong with a population of 125 million, the general rise in wealth of China and its rapidly expanding middle class, and an enormous multi-billion investment by the six concessionaire companies…” He concludes his analysis by saying none of that has changed, so just relax.

I admit to having jumped to conclusions, but Scott and others like him talked me down off the ledge. So now with the benefit of their inside knowledge, I’m forced to conclude that Macau is not entering a new era, at least not yet. And if it is, no one knows what that era will look like.

Where Oh Where Has the Powerball Frenzy Gone?

As of this writing, the jackpots of Powerball and Mega Millions are each approaching $400 million. Should one or both not be won over the next week, the jackpots should be near $500 million. That’s a lot of money, but not the biggest jackpots on record by a long shot. In 2016, a Powerball jackpot hit at $1.5 billion; since 2012, nine Powerball jackpots have gone over $500 million.

Mega Millions has a comparable history. A $1.5 billion jackpot was hit in 2018 and since 2013, five Mega Millions jackpots over $500 million have been won. The size of those jackpots is not an accident, but the product of mathematical engineering. Early in the history of multi-state lotteries, lottery directors realized that bigger prizes stimulated lottery sales significantly. Both lotteries increased their odds from 1 in 50-some million to one in 250 million to 300 million and upped their prices.

It worked. As the advertised top prize rose from $100 million or $200 million to more than $300 million, lottery sales increased dramatically. And when the jackpots started to surpass $400 million, $500 million, and even $600 million, sales went through the roof. When the two jackpots combined for more than $1 billion, it affected sales even more than those smaller jackpots. Now, however, the jackpots have seemingly plateaued and reaching $500 million is becoming rare; sales don’t respond to a $400 million jackpot the way they once did.

The lagging sales are concerning for the management of both Powerball and Mega Millions. They are trying to find a rejig that will bring back the buying hysteria of those billion-dollar jackpots. A billion-dollar jackpot would do the trick, but that is beyond their control. Powerball’s latest attempt to create more excitement and ticket sales was the addition of a Monday drawing to its lineup. It has been only a couple of weeks, but so far the extra drawing does not seem to be the solution.

The sales problem has a number of potential causes. For example, it is possible that in some way, the pandemic is having an impact. There is also the possibility that jackpot fatigue has set in and nothing less than record-level jackpots will shake lottery customers out of their lethargy. One other possible reason is legalized sports betting. Since 2018, sports betting has been on the move.

By now, it is an old story, but in May 2018, the Supreme Court changed the gambling landscape forever when it ruled that the federal law against sports betting was itself illegal. That decision opened the door to sports betting in any state that chooses to legalize it. In the latest count, 31 states have some form of legalized sports betting. The monthly handle nationally is in the $3 billion range, but it should increase to at least $5 billion, if not more, during this NFL season.

Except in the broadest sense, betting on sporting events and buying lottery tickets are not the same activity. However, they may have more of a shared customers base than most casino gambling does with lotteries. While sharing customers with lotteries, sports betting also exposes a key weakness in lotteries. Except for video lottery terminals, which are essentially slot machines, waiting for a lottery drawing is like waiting for grass to grow. And there is nothing to watch while you wait.

Quick decisions and something to watch are key elements in all gambling. A slot machine is not only the fastest action a player can get, but while a player waits for the results of each wager, the spinning reels provide visual entertainment. Sports betting does not provide a payoff as quickly as a slot machine, but it can offer moment-by-moment decisions that can result in payment. Every play in a game is a possible decision for the bettor and the gambler has something exciting to watch. Sports has another advantage: It is not a random drawing, depending on luck alone. A gambler’s knowledge and choices are important. With the wide array of broadcast and streaming options, a dedicated gambler can watch his/her bets in action 24 hours a day. In many states, the gambler can bet remotely in the midst of the action.

The really big lottery jackpots captured the attention of the nation. During the runup to both of the $1.5 billion jackpots, the country was on pause. Traffic was halted by the lines of cars waiting to buy a ticket. Discretionary spending on anything, including casino gambling, was disrupted when everyone was buying Powerball tickets. Random groups of people banded together to buy as many tickets as possible, hoping for a life-changing miracle. Anyone with the slightest inclination to make a bet was eager to buy a ticket that might result in a billion-dollar windfall. The media could not get enough of the story.

That frenzy is what the directors of Powerball and Mega Millions are trying to recreate. However, now, they have competition for those dollars and those customers. The big Powerball jackpot hit in January, the Super Bowl month. If that same jackpot were available in January 2022, it would attract attention, but nothing compared to the Super Bowl. The next Super Bowl will offer most Americans an opportunity to make a legal wager on the game. The number of people making a wager will be in the tens of millions and the number of wagers many times that number.

The excitement a sporting event, much less a championship, can generate is almost certainly to exceed that of a lottery drawing. And if in the process the gamblers win, all the better. It is not a zero-sum game, so there is no limit on the number of winners; in the mega jackpots, one and only one set of numbers wins. Powerball and Mega Millions will not disappear because of sports betting. But if they want to be the center of attention again, they had best schedule their big jackpots for July and August when sports bettors have little to interest them.

The personhood of Crown Resorts, its crimes, and punishments

According to Wikipedia, “Corporate personhood is the legal notion that a corporation has at least some of the legal rights and responsibilities enjoyed by natural persons. In most countries, corporations, as legal persons, have a right to enter into contracts with other parties and to sue or be sued in court in the same way as natural persons.”

Natural persons have many privileges and protections under the law, but they also have obligations. People are obliged to follow the law. People who violate the law are subject to punishments. The punishments range from a minor fine to imprisonment and even death.

Punishing a corporation for violating the law is not as simple. Clearly, a corporation can be fined. It is common to read of a fine for violating regulations. In gaming, one of the most common offenses for which a corporation is fined is permitting a minor to enter a casino and gamble. For more serious offenses, a gaming corporation can lose its license to conduct operations in that jurisdiction. In practice, that means selling the business to a licensed company. The corporate assets and employees simply change hands.

Instead of selling, a corporation may elect to change key executives and board members— becoming, in a sense, a new person. Unlike a natural person, a corporation can reinvent itself by replacing its leaders and methods of operation. Determining when the point of purity is reached and a new entity has emerged poses intriguing questions: How many individuals need to be replaced? What operating procedures require changing to become a new and guilt-free corporate individual?

That is the challenge for Crown Resorts in Australia, which is under investigation for breaching the law. Crown needs to make enough changes to receive regulatory approval, while still functioning under the Crown label.

The company’s difficulties started in 2016, when 18 Crown employees were arrested in China for illegally recruiting Chinese gamblers. It took another downturn when Australia media did an exposé on the company and another when an official investigation into Crown was announced in August 2019 and a separate investigation later. The hearings in the first investigation began in January 2020. At first, news trickled out in an article or two a month; in 2021, the dam broke. Sometimes daily, but at least weekly, there have been articles concerning Crown, the investigation, and its implication, not just for Crown, but gaming in general in Australia.

The investigations are nearly over and Crown is scrambling to appease. Observers and, certainly, Crown stockholders are eager to hear the conclusions. There are hints that Crown may be denied a license at least for its latest venture in Sydney. Crown Sydney is a $2 billion resort that is open, but without a casino. That casino license is a major part of the investigation. The press has concluded that not only is Crown unfit for a license, but regulation in Australia needs a serious revamping. According to reports, regulators knew or should have known that Crown was not playing strictly by the rules. Crown’s treatment of Asian VIPs and their cash raised concerns over money laundering. Numerous employees have testified that they knew about the questionable money handling and opining that senior company officials also knew, and some regulators knew or should have known. A major question has been whether the company’s CEO, chairman, and board members also knew.

The doubt has led to wholesale changes in the company, including a new CEO and chairman of the board; the majority of the board of directors are also new. Even property-level managers have been changed. Most recently, Ziggy Switkowski was appointed chairman of the company. Switkowski was selected to replace Helen Coonan after the counsel assisting the state of Victoria’s Royal Commission declared that Coonan was not a “credible” face for change at the group. Besides the management changes, the company has revised its VIP programs, tightened its money-handling procedures, and made good on some underpaid taxes. New management believes it has done enough. It is unlikely that the Commissions investigating and the new Gaming Commission will agree. They will still want a pound of flesh.

The cleanest solution would be a sale.

The original Crown management, which at one time included James Packer, did not want to sell. There were four offers, but as the accusations increased and the risk elevated, the would-be suitors backed away. If they return to the table, the price is likely to be much reduced. However, with a new management team and board, there may be a strong interest in selling. The old Crown was a Packer company. The people were Packer people, loyal and dedicated to James Packer and his company. They had a vested interest in retaining control. The new team is not a Packer team and seemingly has no vested interest in maintaining control.

Whether Crown sells or is licensed after paying fines and agreeing to some very strict operating conditions, the issue illustrates the murky legal status of the corporate person, Crown Resorts. We will soon know the extent of Crown’s crimes and its punishments. That will tell us how a guilty corporate person can become a guiltless corporate person, at least in Australia.

Is Nevada Ready for Online Gaming?

Long noted for its conservative and carefully considered regulations, Nevada is giving igaming a thought. The Nevada Gaming Control Board (GCB) scheduled a meeting to solicit input on the subject, but then postponed it. Instead, the Gaming Control Board held a non-controversial workshop on esports. After generating little opposition, esports received the regulators’ approval. The reason is simple: Esports is a very minor part of gaming and sports. Esports’ popularity is growing, but it does not threaten to disrupt organized sports or traditional gaming.

On the other hand, the possibility of legalizing online gambling in Nevada is generating significant opposition. Online gaming has always been a contentious issue in the state. MGM, Caesars, Boyd, and Wynn have already embraced the concept in other jurisdictions. Other casino companies, like Red Rock, South Point, Circa, Monarch, and Golden Gaming, oppose igaming in Nevada. Until he died, the champion of the anti-igaming cause was Sheldon Adelson. Adelson opposed it not just in Nevada, but nationally, donating generously to politicians who were willing to fight its legalization. However, without Adelson, Las Vegas Sands changed sides. Within months of his death, Sands had begun exploring igaming options. The fight within his own company is not the only battle Adelson lost; he lost the national fight against remote gambling.

Midway through 2021, five states already have full-blown online gaming, several more are in the ramp-up stage, and still others are exploring the idea in state legislatures. Remote gaming is fast capturing the imagination of lawmakers eager to keep up with the next-door neighbor and raise more revenue for state coffers. In part, remote-gaming growth is being driven by the phenomenal expansion of sports betting. In less than two and half years, 28 states have legalized sports betting in some form. Significantly, the states with the highest handle, win, and tax collections are those that permit remote sports wagering.

Where it is legal, remote/mobile sports betting is king of the hill. In New Jersey, Colorado, Pennsylvania, Indiana, Virginia, and Michigan, 90 percent of all wagers are placed remotely. Consequently, the handle in those states is many times higher than that in states with retail betting only. Every lawmaker in the country interested in sports betting as a source of revenue knows that story.

Online gambling is beginning to attract the same attention and for the same reason — money. In New Jersey and Pennsylvania, online revenues are about one-third of all gaming revenues and in Michigan, remote gambling generates half of the total gross gaming revenue and pays an equivalent tax rate.

The tax is what catches the eye of lawmakers, even in Nevada. Legislators see online gaming as a way to double the amount of gaming tax they collect with little or no effort. What a deal! The slight downside to that rosy picture is online casinos do not invest billions of dollars in a state. They do not employee thousands of people and there is no multiplier effect that new casinos create. In some states, that is not a consideration. Since it entered gaming in 2006, Pennsylvania has opted for maximum tax rates. Officials and politicians apparently do not recognize that their tax model generates a tiny fraction of the investment, employment, and additional economic activity compared to lesser tax-rate states.

Casino operators in Nevada have been following the events in other states with interest. Now, it’s with some trepidation. A group of operators sent a letter to the Nevada Gaming Commission on the subject. The letter asked the state to slow down, look at the issue carefully, and take their concerns into account. There is no way to know for certain, but it seems highly likely that Boyd, Caesars, MGM, Sands, and Wynn have been lobbying for legalizing online gaming in Nevada. Each of those companies has already invested heavily in building an online presence.

Online gaming is a complicated subject, but from online shopping, we know a few things. The most important is that size matters. The largest companies with the best-known brands dominate; think Amazon. You can also compare the statistic from sports betting in states with mobile betting. Regardless of how many licenses have been granted, four companies control each of those markets. Actually, two companies usually garner over 60 percent of those markets. Everyone knows who they are, because we all recognize their names, FanDuel and DraftKings.

Imagine being a small casino in Nevada with an online division. Your customers in Winnemucca, Elko, Pahrump, or Henderson log in and look for a game. They could choose your casino or, say, Caesars. Which do you suppose they would choose? Besides the name, Caesars offers all the benefits of its huge rewards system.

There is also the issue of cannibalization. The money spent on igaming is not spent in a brick-and-mortar casino.  Here, although it is probably obvious, I have to disclose that in general, I do not think legalizing online gaming is good public policy. It could put too many vulnerable people at risk. At the same time, it is necessary to acknowledge that the train has already left the station.

Online gaming is a fact, and it is expanding for the same reasons any business expands. It is both popular and profitable. The trend will not end until it has reached a peak of acceptance. But I suspect Nevada may be the last to embrace it. Although there are some very big proponents, there are more, if somewhat smaller, opponents. And as ironic as it may be, I believe the need to protect the vulnerable will make sense to Nevada lawmakers and regulators. Officials in Nevada are also very aware of the benefits of investment and employment the state enjoys because of its retail gaming industry. Online/igaming gaming may eventually come to Nevada, but I do not think the Silver State is ready for it now.

Going to the mall in Pennsylvania

On August 12, Penn National opened Hollywood Casino York. It’s the second “mini” casino to open in Pennsylvania. The $120 million Hollywood Casino is in the York Galleria Mall in Springettsbury Township in York County, Pennsylvania, in a space formerly occupied by a Sears. The new casino was not exactly cheap; besides the $120 million, Penn paid $50 million for the license. Regardless of the cost, Penn officials and local dignitaries are very enthusiastic and hopeful.

The mall needs help. There are 40 vacant stores, with the others struggling to survive after the key tenants like Sears closed. A local official said, “There’s definitely not as many people at the mall than there were 10, 15 years ago. We’re hoping that [the casino] provides some more exposure to the mall and gets some more people out.” That is the challenge, to get people out and spending money. Hollywood Casino York is designed to do just that.

The new casino will have Barstool sports and a cashless option when playing slots or table games. It will be fresh and new and that will help draw some traffic from older casinos in the state. Long term, it may be a challenge to pay the 51 percent tax on slot revenue, compete with online gaming, and still make a profit. Gaming in Pennsylvania is booming, but most of the boom is online, not on the ground.

The Category 4 mini casinos in Pennsylvania are mainly going into empty spaces in existing malls. Empty malls are a plague on the land. Long before the pandemic, the economy was in the later stages of a radical shift in consumer behavior. The retail malls that began spreading across the country after the Second World War are a casualty of that shift. Shopping malls were a phenomenon of the times. They replaced the freestanding downtown in towns everywhere. In the post-war boom, every family had a car and many had two. The cars got people to and from work. They allowed people to buy houses in subdivisions in the suburbs. They also made it possible to drive to the mall to shop. But going to the mall was more than shopping; it was a major social component of suburban living.

People still live in housing developments, but they don’t go to the mall nearly as often. They shop elsewhere. The change was gradual. The first stage of the economic shift when big box stores like Walmart started to dominate the landscape; they took business away from the stores in malls. A consumer could go to Walmart and buy everything: food, clothes, electronics, tools, music, DVDs, medicine, furniture, garden supplies, auto supplies, books, and toys. It no longer was necessary to go to the mall and go from store to store when everything was all in one place. Malls struggled to survive and many of their tenants did not make it.

The second stage was the Amazon shift. When Amazon entered our lives, it was no longer necessary even to leave the house. We did not have to drive to a big box, much less one of those diminished struggling malls. Anything and everything could be ordered online and delivered to your doorstep.

One necessity that neither Walmart nor Amazon could fulfill was the social component. People used to go to the mall to stroll, watch other people, meet friends, and engage in casual conversation with strangers. Very few places are left where being with people in that sense is possible. Some cities, like New York, Chicago, or San Francisco, have it; you can walk in the streets of those cities and indulge in being human. Another place where it’s still possible is in a casino.

If the mini casinos in Pennsylvania survive and prosper in the future, that is likely to be the reason. In Pennsylvania, you can play all of the casino games online, remotely from your home, or car, or sitting in a park. For purely gambling purposes, there is hardly any reason to go to a casino. But for other purposes, human purposes, you have to go where people are, like a casino in a Sears store in a mall in York County, Pennsylvania.

The question on the minds of everyone interested in the development of online gaming in Pennsylvania and elsewhere is, is that enough? Since it started in 2019, igaming has grown to be 25 percent of total gaming revenues. That percentage increases monthly. At least a portion of the online revenue is cannibalized from existing casinos. In time, that trend does not bode well for bricks and mortar, whether the full-blown or the mini version. Casinos could become like downtown business districts, catalogue sales, malls, and retail giants like Sears and Penny’s—in other words, relics of old business models. That could happen, except for one thing: our human character.

For some purposes we are not living beings, we are purchasing spending robots; whatever is the fastest and most convenient way to discharge that duty, the robot chooses it. However, that is not all that we are, we are also living, breathing, caring, sharing, and contact-needy beings. We need to be around others of our kind and if the place to do that is in a casino in a mall, so be it.

The best laid plans, timing and restarting old projects in Las Vegas

Marriott has posted on its website that a Marriott-branded resort-casino will open on the Las Vegas Strip in 2023. The company claims that the property will be a game-changer, ushering in a new generation of resorts — brave words for a long-challenged project. Both the site and the building that Marriott is heralding have an extended history of big promises unfulfilled. The Fontainebleau, a looming abandoned hulk on the north Strip, ran into several brick walls, due to changes in the economic climate, since construction began in 2007. Marriott, obviously, hopes the timing is better this time.

It is said that timing is everything and that applies to casinos as well. Take CityCenter in Las Vegas and Revel in Atlantic City.

CityCenter was a bold vision, a multi-billion-dollar complex with multiple hotels, condos, retail, water features, and casino. It was meant to be what its name implies, a “city within a city” of Las Vegas where people would live, gather, and play. The original price was $4 billion, but costs soared all the way to $9 billion in the heaty economic climate of the time. Unfortunately, CityCenter opened at the height of the Great Recession. The condos did not sell, the hotel rooms were not filled, and the people of Las Vegas did not gather there in flocks. CityCenter managed to survive, though with considerable restructuring.

Revel did not open during the Great Recession; it was unfinished. Construction had stalled because of the economic downturn when then-Governor Chris Christie came to the rescue in 2011. Thanks to Christie, the project restarted and managed to open in 2012. Revel filed for bankruptcy in 2013 and 2014, closed, was sold, and resold, changing owners, names, and operating philosophies like Zsa Zsa Gabor changed husbands. Like CityCenter, Revel was intended to shift the casino paradigm. Revel targeted an elite customer base with an elite design and operating philosophy. It had 13 restaurants, two nightclubs, two live-entertainment venues, and a two-acre roof top with 30,000 live trees and plants, pools, cabanas, fire pits, and a pine-grove restaurant. The casino was on the sixth floor, smoking was not allowed, and slot machines and their players were tolerated at best; it was trendy and avant-garde. Still, it might have succeeded if the times had been different. The timing was bad. From its original concept to the debut, there was a major recession, construction prices soared, casinos opened in Pennsylvania, and its lenders got cold feet.

Today, Revel is called Ocean Casino Resort. It is sixth on Atlantic City’s revenue chart, including casino, igaming, and sports — not what one would call a raving success. If Ocean City had Revel’s $2 billion in debt, it would not survive even today. But the debt is greatly reduced, and it caters to smokers and slot players just like every other casino in Atlantic City. It appears to be secure as the market stands today.

Enter Marriott in Las Vegas. Like Revel and CityCenter, the old Fontainebleau/new Marriott has its origins in go-go times of the past. In 2005 and 2006, it seemed that any casino in Las Vegas or Atlantic City would succeed. Investors and developers believed cost and debt did not matter, as anticipated, gargantuan, cash flows would overcome all obstacles.

The property was purchased in 2000 by Turnberry Associates. Jeff Soffer was the chairman of Turnberry and owner of Fontainebleau Resorts in Miami. His idea was to recreate the magic of the original Fontainebleau in Las Vegas. The project was unveiled in 2005, it began construction in 2007, and was in bankruptcy by 2009. The property has changed hands and names several times over the years, but in an ironic twist, Soffer’s son owns the project now. After standing unfinished for over a decade, it has a new name and a new interior design. It will join Resorts World, Virgin, and Circa as the new generation of resorts.

Marriott is not alone in pursuing a two-decade old dream in Las Vegas. Station Casinos has announced it is going to begin work on the Durango project next year. Construction is supposed to take 18-24 months, putting the grand opening right there with Marriott’s. Station purchased the land in 2000. It had expected to start construction in 2009, but the recession changed the plans. Station is not burdened by an unfinished building, trying to reenergize a dated dream; it gets to start afresh. Station knows the Las Vegas market; when it opens, the Durango casino will be what its customers expect. With over 40 years’ experience in Las Vegas, Station has no grandiose plan, no need to be the biggest, the best, or anything other than another Station casino. Its only promise is a “state-of-the-art sports book.” Its revenue projections are likely to be spot-on.

On the other hand, Marriott has no resort experience in Las Vegas and its revenue projections are at best a guess. Unlike Station, Marriott has no identity. It therefore has to create an identity and will not be satisfied with anything less than startling. Marriot thinks it can redefine the Las Vegas resort using the bones of 20-year-old concept, a daunting task. Marriott and Station are on a comparable timeline; their respective successes will depend on the product they present to public, their debt, and the cash flows. But they will also depend on timing. A pandemic, recession, or another 9/11 could undo the best laid plans, whether by mice or men.


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September 2021