Reevaluating old practices and assumptions By Ken Adams, CDC Gaming Reports May 25, 2020 at 6:00 pm The Reopening of 2020 has begun. and with it, a rethinking of previous business models and assumptions is underway. The first commercial jurisdiction to open was South Dakota; casinos in Deadwood began to reopen May 9. Two weeks later, regulators in Louisiana and Mississippi allowed casinos to reopen after two months of closure due to COVID-19. Other states are expected to follow in June and July, but no additional dates have been released yet. At the same time, Indian casinos in Arizona, California, Idaho, Oklahoma, Oregon, North Dakota, and Washington have also opened. The tribes are making the decision to reopen individually and autonomously, not by state edict or under the control of central authority as is the case with the commercial casinos. Each tribe is using different criteria. Some tribes have seen very few cases of the virus and are less concerned than other tribes. The tribes in North Dakota and Idaho have been virtually free of the virus and were eager to get going. The Coeur d’ Alene casino in Worley, Idaho was the first in the nation to reopen, on May 1st. On the other hand, the Navajo Nation, which covers nearly 28,000 square miles across parts of Arizona, New Mexico and Utah, has a higher rate of infection than any state in the country, with over 4,500 cases – and 150 deaths – in a population of 175,000. The Navajo are in no hurry to open. Photo illustrating cleaning Sycuan Casino’s cleaning procedure courtesy Sycuan Casino. During the waiting time between the mid-March closing of the nation’s casinos and the prospective summer reopening, there has been much speculation about the changes the virus has fostered. No one really knows what to expect when the doors open. Will there be long lines of people waiting to get in, as has been true in multiple locations so far? Or will the parking lots be empty as once-regular gamblers remain hunkered in place, unwilling or afraid to leave their homes? There are other questions being pondered, especially by investors and Wall Street analysts. A big question is whether the Eldorado-Caesars merger will go forward. There are still a couple of approvals to gained first, but the will of the two parties to complete the deal, and Eldorado’s ability to secure financing, are being questioned. Most observers believe it will ultimately be completed, but there’s already been one last minute change. In late April, Maverick Gaming backed out of an agreement to purchase three properties that are part of the merger. Twin River stepped in and purchased the properties, but for a much lower price. There was one other purchase agreement underway, a deal to sell the Wildwood Casino in Cripple Creek Colorado to Saratoga Racing, but it too was terminated. Both parties thought the timing was wrong. So that is another one of the unknowns in the aftermath of COVID-19: what will the transaction environment be like? One of the most significant unknows is Las Vegas; how long will it take the famous Strip to recover from this crisis? Las Vegas is more complex, and contains more unknowns, than any other jurisdiction. Observers, analysts, and local politicians have all waded in with visions for the new Las Vegas. Will the industry-standard buffets, free drinks, and liberal complimentary rooms be part of post-virus mix? Most observers seem to agree that Strip casinos will have to make some adjustments to attract customers. Common targets for change have been resort and parking fees. Two corporation have said they will discontinue parking charges; a reduction of resorts fees has also been discussed, but no definitive changes have been announced yet. There have been other areas of operations clouded by uncertainty. Poker is one of those. Wynn has said it will not open poker when it opens up its other table games, and even those games are not guaranteed a return to the old standard. On the Strip, it is virtually certain that the number of table games will be reduced dramatically, at least for the foreseeable future, and in other locations it could be worse. Craps, roulette even blackjack in smaller casinos are often marginal earners. The Bonanza casino in Reno, to take one example, is not planning on offering any table games when it reopens. It is a safe bet that the Bonanza will not be the only small casino to take advantage of the opportunity to permanently eliminate table games. Keno, which has been losing market share for decades, is another game threatened by the lockdown. The pandemic could well spell its demise in many casinos. Casinos have not said how many slot machines they will open initially, but most estimates put the number at approximately 50 percent. When and how the rest of the floor might be reopened will depend on the level of business. That is the key factor in determining the number of games casinos will have on the floor after the dust settles. But slot machines and table games are not the only things that are being reevaluated now. All of the major Las Vegas casinos operators have gone on record saying they will not immediately open all of their casinos. Caesars is going to open two of its eight casinos; MGM is opening two of its ten; and Red Rock – Station Casinos – is opening six of ten. In other words, a total of eighteen casinos in Las Vegas are not scheduled to open initially. It is far from certain that all eighteen will eventually resume doing business. Each of those corporations says it is waiting to make any long-term plans for the closed properties. Even the open ones will be operating at significantly reduced capacity, and that includes restaurants, showrooms, hotel rooms and gaming devices. But while those properties debate what to reopen, a handful of casinos in Lake Tahoe, Laughlin and Bossier City, Louisiana already have made the ultimate decision to give up. Lakeside Inn in Lake Tahoe pulled the plug April 14 after more than three decades in operation. Out of cash and with no opening in sight, the company was forced to give up after years of struggling in a declining market. For the Colorado Belle in Laughlin, the situation was much the same: with no cash and no opening pending, it was time to throw in the towel. Diamond Jacks in Bossier City said that it could not continue even with a potential reopening just days away. There are bound to be others. Every gaming company has had its cash reserves stretched to the limit. Casinos with too much debt or competition, or any other serious operational issues, are going to be severely challenged. The lockdown may prove to be the proverbial straw that breaks the back of others besides the Lakeside Inn, Colorado Belle and Diamond Jacks. After more than two months, this is where we stand. Casinos are beginning to reopen, and customers have demonstrated their desire to go back to the casinos. In the first few days, there have been reports of near-record revenues as eager gamblers have gone looking for outside entertainment after months of isolation. Still, some doubts remain. Not every casino is going to open as soon as it is possible. Some may never reopen. And, at least in the short term, those that do will have greatly reduced gaming capacity. The new conditions could create good buying opportunities for those so inclined, but finding buyers for casinos in some jurisdictions in not going to be an easy proposition. Additionally, games like poker, roulette, craps, blackjack, and keno may find a much smaller space available to them, if indeed there is any room for them at all. In a rebooted casino industry, the old assumptions and business models are going to be closely examined. After trying to live for months on cash reserves, every operator is going to question every expense, every assumption.