Are the perks we’ve been accustomed to receiving in Las Vegas casinos going to be a thing of the past?
Just like our grandparents and parents were scarred by the Great Depression that forever changed how they looked at money and watched every penny and expense the rest of their lives, analysts expect to see that in the gaming industry for a while to bolster earnings.
The coronavirus has put the casinos in cost-cutting mode that started with laying off employees who hadn’t returned to work as properties reopened to a 50% state-mandated capacity. It’s likely to extend to player promotions and amenities like buffets, shows and nightclubs. They have been curtailed for safety and social distancing, and Barry Jonas, director of equity research/gaming at Truist Securities, said whatever perks return may not be at the same level again because many are considered loss leaders.
Casinos are finding customers coming to their properties for now are more hard-core gamblers who don’t need the amenities to attract them. Since many Strip properties’ models are based on amenities to attract tourists, they will return in some fashion. But Jonas said there will be more thought behind it, and at casinos where amenities aren’t as vital, there will be even more scrutiny.
“The question is do more amenities need to come online? The answer is yes, but they need to be more profitable,” Jonas said. “Maybe not at the same margins as the casinos are seeing today, but you see focused and disciplined management styles from larger organizations who just came through the eye of the storm. It was not too long ago where we were questioning every one of our operators’ ability to survive. We have now passed that with revenues coming in and profitability up.”
Casinos have long worried that customers would not come through their doors without a buffet. That fear is gone, and Jonas said management will look at other amenities once outside entertainment such as concerts, movie theaters and cruises return.
“You will see more amenities, but I don’t think we will go back to where we were,” Jonas said. “Ultimately, the consumer will determine the level of amenities that come back. The operators are seeing margins they never imagined possible, and I think it will be difficult to go back.”
What’s vulnerable are poker rooms, celebrity chef restaurants and anything else is a loss leader such as a nightclub or their use of celebrity DJ’s.
“Anything they thought they needed to drive people into the door will get a second look,” Jonas said. “For Vegas, it might be more profitable and can stay, but operators are saying it needs to make money and not be a loss leader. I don’t think we will see the same level of spend as we once did.”
At its conference call last week, Station Casinos CEO Frank Fertitta III said, without naming them specifically, a lot of amenities won’t return. They generate traffic but not high margins, he said.
It’s not only amenities but promotional spend as well that was cited by Fertitta. Caesars Entertainment CEO Tom Reeg told analysts not to expect a return of promotional spending in regional markets, calling them unnecessary.
Jonas said what that means is players are likely to see a cutback in casino promotions such as free play on slots, free meals, free rooms and other inducements they’ve gotten in the past for their casino play.
“We were heading in that direction anyway, but we just saw an acceleration of cutting that out,” Jonas said. “It was a few players — Eldorado-Caesars — being the most visible — but there were a number of operators that held onto this belief of ‘let me have a loss leader because ultimately players will develop into profitability.’ They gave a lot of free play and free rooms and thought it would be worth it.
“That attitude is now much different. Players are getting less and employees are getting less, and the vitality of these businesses are secure.”
Ross O’Hanley, a senior vice president at Eilers & Krejcik Gaming, said a lot of operators have to be concerned about giving away too many promotions now to lure people to their properties and that they expect it once the pandemic ends.
Jonas said the promotional spigot may eventually be turned back on as needed. But whatever is done will come nowhere near as it was pre-COVID.
“It’s becoming more quantitative rather than hosts trying to entice players for future gain,” he said. “If you want a free room, you better understand the value you bring to the casino to make sure it’s profitable for them. The bar has been raised, and the level of play will go up dramatically for everything whether free play, free meals, shows and room nights.
“The COVID experience has taught operators they need to be very focused on the bottom line and profitability now. That’s the environment.”