Is the Las Vegas Industry Strong Enough to Withstand Corona Crisis?
Coronavirus has turned the entire world upside down at the start of the year. The disease initially emerged in Wuhan in December 2019 and has spread all over the globe ever since. By early-April, more than 1 million cases and 50,000 deaths were reported. Unfortunately, the numbers are growing rapidly and there are no signs of better days. The pandemic left an unprecedented impact on the world's economy. The Las Vegas casino industry is not an exception. The Governor of Nevada, Steve Sisolak, shut down all nonessential businesses for 30 days on March 17th. Given the current situation, it is clear the lockdown will be extended.
Nevada Gaming Control Board reported that 465 state-licensed casinos made more than $12 billion in revenue in 2019. The whole economy of the state will be severely damaged by the shutdown of its most profitable industry. It took no more than three weeks for the Las Vegas casino giants to report enormous losses. Here is the quick breakthrough of dives in the local casinos' stocks, shown in percentages:
Red Rock Resorts – 41%
Penn National Gaming – 36%
Boyd Gaming – 29%
MGM Resorts International - 27%
Eldorado Resorts – 25%
Caesars Entertainment – 24%
Las Vegas Sands – 10%
Consequences of the pandemic
The gamblers can simply move their action from land-based to online casinos, which they did. SugarHouse Casino online have already reported a 20% growth in the number of new registrants as a consequence of the brick and mortar casino shutdown. Nevertheless, the casino employers do not have an alternative. A decent number of them have already been fired and others are expected to join them in no time unless a miracle happens and stops the pandemic.
Some state's casinos announced they would keep their workers and offer regular/part-time pays and health benefits for the next couple of weeks. The question is what will happen after these two weeks? The president and CEO of the American Gaming Association, Bill Miller, aware of the horrific situation, asked for help from the federal government. He underlined the significance of Nevada as an epicenter of the American gambling industry.
Investors are wondering whether the gambling operators can survive in case of being shut down longer than expected. As you might know, most Las Vegas casinos are heavily dependent on Macau. The Chinese government banned all casino operations on February 4th there, causing significant losses to Las Vegas heavyweights more than a month before they were also suspended following the Covid-19 expansion to the United States.
How long can the biggest casinos survive with zero income?
Nonetheless, the current situation is much better in Macau whose casino market is much more likely to rebound in the near term. This is why the gambling companies who are more exposed to Macau rather than Las Vegas (Las Vegas Sands, Wynn Resorts, Melco Resorts & Entertainment) are expected to stay solvent for a longer period.
Many popular analysts have done the maths to reveal which operators were expected to last longer than others in some worst-case scenarios. In the situation where casinos have zero income, the calculations reveal the industry that keeps Nevada alive may have just 13 months before running out of funds altogether.
Penn National are probably in the toughest position. They are burning $6.4 million a day and have only five months before running out of cash at this rate. MGM Resorts International are burning whopping $14.4 million on a daily basis, but can last nine months. Boyd Gaming Corporation are losing $3.2 million per day and can stay alive for 9.4 months with zero income. Golden Entertainment Inc. are burning $1 million daily and they would run out of cash in 10.4 months during the shutdown. Red Rock Resorts are losing $1.7 million a day and have just under 14 months before running out of cash.
Can Las Vegas casinos beat coronavirus?
As you can see from the aforementioned statistics, some casinos have more capacities to weather the storm than others. Although some casinos can last almost one year without income, we believe the banks will provide aid much sooner if the pandemic does not slow down. The banks amended credit lines during the previous economic crisis and they are most likely to work with casinos once again.
All states, Nevada in particular, want casinos to survive. This business makes almost 25% of the state’s entire labor market. No matter how harsh the crisis might seem to be, the local online gambling industry has the capacity to deal with it and save the liquidity of the main operators. As old Persians said, this too shall pass.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes