“Forget crypto, still gold to mine here,” headlined Barry Jonas in an overview of the casino market in Black Hawk, Colorado. The Truist Securities analyst was coming off an investor tour of the local casinos, primarily those operated by Monarch Casinos, Penn National Gaming, Caesars Entertainment and Bally’s Corp. Given the recent expansion of its Black Hawk property, smallish Monarch loomed largest in Jonas’ view, which included a “Buy” recommendation.
The former Riviera Black Hawk, which Monarch picked up for $76 million in 2012, recently underwent a $480 million transformation that included the addition of a 23-story, 516-room luxury hotel tower, including a large complement of suites. A sportsbook, nine stories of parking, and new dining options were added as well. Monarch controls 30 percent of the slot inventory with its 1,100 one-armed bandits.
Even with construction disruption, Monarch’s market share continued to grow to 23 percent. Of the new-look Monarch Black Hawk, Jonas wrote, “The property is designed to attract higher-worth gamblers with a Vegas-esque experience and noted some success thus far.” Augmenting the Las Vegas-style vibe is Colorado’s new, no-limit betting permission (wagers had been previously capped at $100), as well as the addition of poker and keno. Those aren’t high-roller games but Monarch execs told Jonas they expected to keep growing their VIP clientele.
Monarch CEO John Farahi “noted the company continues to evaluate strategic/M&A opportunities, ideally acquiring underperforming properties in promising markets with stable regulatory environments,” paraphrasing Jonas. Unlike REIT-maniac rivals, Farahi prefers owning the real estate that comes with the gaming revenue. He is also mulling a special dividend to shareholders, while the aforementioned acquisitions would be made with the goal of keeping leverage at or under five times cash flow.
Farahi’s rivals in Black Hawk have also been busy. Bally’s scooped up the Golden Gates, Golden Gulch and Mardi Gras casinos for $51 million two years ago. That gives Bally’s an arsenal of 565 slots, 31 table games, and sportsbooks branded respectively to Bally’s, DraftKings and FanDuel. Noting Bally’s modest cash flow, Jonas opined, “we suspect the property has seen a negative impact from [Monarch’s] expansion. We also note BALY operates the only horseracing track in CO in Aurora (30 miles west of Denver) in addition to” online sports betting.
Capitalizing on the centrality of its properties, Bally’s is ceding first-stop play to Monarch and Caesars, trying instead to be players’ second option. Its main rival in this respect is The Lodge, owned by Jacobs Entertainment, which has far exceeded Bally’s in marketing and maintenance. Bally’s “has seen declining market share in Black Hawk as besides sportsbook renovations, no major capital has been invested in the properties in many years,” wrote Jonas, adding that some improvement had been seen since mid-February with the installation of 52 new slot machines. The company believes it can double cash flow, although that is seen as a three-year trajectory.
Jonas arrived in Black Hawk right on the heels of Caesars’ announcement that Isle Black Hawk would be rebranded as a Horseshoe. (The company also owns a Lady Luck-branded casino in town.) Caesars deploys 1,190 slots and 40 tables, and Horseshoe is converting its buffet into a sportsbook, plus over 400 hotel rooms. It has improved annual cash flow from $35 million to $60 million since 2017 and is also benefiting via overflow traffic from next-door Monarch.
Less beneficial has been the impact of newer, improved Monarch upon distant Ameristar Black Hawk, reported Jonas. Penn has drastically downsized its slot floor from an apogee of 1,400 to the current 950, giving it 25 percent of market inventory. It also has 38 tables and 536 hotel rooms, along with a Barstool Sportsbook. Once cashless gambling is legalized in Colorado, possibly late this year, Penn hopes to hit the market first with its Everi-made solution.
Black Hawk is the primary market for gamblers from Denver, “a very healthy feeder market for the gambling hub that continues to drive growth. Denver has a population of 3M+ with a median household income +30% above the national average and a high propensity for gambling as Denver’s airport is among the largest sources of air traffic to Las Vegas,” Jonas noted.
In one respect, Black Hawk surpasses even Macau. Wrote Jonas: “The market currently has 1,450+ hotel rooms following [Monarch’s] expansion, though multiple operators still believe the market is underserved as hotels are full nearly every weekend … Black Hawk currently has the highest [gross gaming revenue] per hotel room in tracked markets, topping Macau this year, which was previously the only market ahead.”
Part of the winning formula is a larger tranche of young players, first seen during the pandemic and proving durable. They are also more inclined to favor sports betting and table games, particularly at Ameristar, which may explain that property’s slot-inventory reduction. Convention business is improving “though there remains a way to go before reaching 2019 levels.”
Meanwhile, operators say they are focused on widening profit margins and narrowing costs. Penn’s and Caesars’ buffets have been casualties of cost cuts—but not Monarch’s. Operators are eying current inflation with concern. Jonas observed that gambling “has historically been resilient to higher gas prices and Black Hawk, about an hour drive from Denver, is no exception today.”
The nearer challenge is labor or rather the lack thereof. “This has continued post-COVID as wage inflation pressure has been real. Despite offering higher wages than the nationwide gaming average, smaller players in the market have struggled to attract talent,” Jonas wrote. In Colorado, wages must be listed in job postings, favoring the more prominent players in the market with their deeper pockets. Monarch is currently the highest-paying gaming employer in town, even though middle-management jobs prove hard to fill. Added Jonas, “Operators continue to invest in technology to lessen the dependence on human capital as well as slim down operating models to maximize the resources they employ.”
The promotional environment was regarded as rational, with any advertising spend being mutually beneficial, as 60 percent of Black Hawk players patronize at least two casinos per visit. That should improve still further if operators can achieve their goal of converting day-trippers into vacationers. The consensus view of Full House Resorts’ in-progress Chamonix in Cripple Creek is that it poses little or no threat, mainly because of distance (Colorado Springs is Full House’s feeder market), Cripple Creek being two hours away.
There was less agreement on igaming, which looms potentially on the 2024 election ballot. It’s favored by Penn, which has seen online sports betting bring customers into Ameristar, and by Bally’s, which “believed it would be a positive especially for cross-selling and more effective marketing given increased customer data,” per Jonas. Monarch’s Farahi was a dissenter, regarding i-gaming as “detrimental.” (Monarch has no significant online presence.)
