Analysts from Fitch Ratings Services expect the Las Vegas Strip to “return to growth mode,” according to a report released Friday.
In a post-Global Gaming Expo study, Alex Bumazhny – Fitch’s senior director of corporates – wrote that single-digit gaming revenue growth for Las Vegas Strip casinos will take place in the near term, “as long as the U.S. economy does not falter.”
The positive prognosis comes after the stock prices of most of the major Strip casino companies faltered following poor third quarter projections in August. Third quarter earnings will start coming out officially next week for the gaming sector when Las Vegas Sands Corp., and Boyd Gaming Corp. hold quarterly conference calls on Wednesday and Thursday.
Bumazhny, who visited Las Vegas during G2E along with Colin Mansfield, director of U.S. corporates, said Las Vegas remains a “competitive market” for leisure and convention visitation. New convention facilities have been developed, but there is limited new hotel space.
Citing the non-traditional revenue-per-available room (RevPAR) metric – which Wall Street uses to gauge profitability – Bumazhny said the market showed signs of stabilization and the casino operators that Fitch analysts spoke with during G2E said they expect better performance in the fourth quarter and 2019, following weak trends during most of this year.
“Attendance and RevPAR declined year-to-date through August and operators are guiding to a weak third quarter, due primarily to event scheduling and lingering weakness from the October 2017 shooting,” Bumazhny said.
Las Vegas convention attendance is down 2.4 percent this year, but Bumazhny said the absence of the large CON/AGG Expo, a trade show for the construction industry, hurt the overall number. The show is in Las Vegas once every three years.
The Fitch report cited the explosion of legal sports betting across the U.S. following May’s U.S. Supreme Court ruling. Delaware, New Jersey, Mississippi, West Virginia and a New Mexico Indian tribe have added the activity to casinos and racetracks.
Bumazhny said Las Vegas Strip casinos will continue to attract sports betting visitors for large events, such as the NCAA basketball tournament and the Super Bowl because regional casino operators don’t have the facilities to house a large influx of sports gamblers.
“Regional operators are not inclined to invest in large scale sports books,” he said. “The Strip is also more conducive to host such events due to its lodging and leisure amenities. Therefore, we do not think sports betters will stay away from the Strip, en-masse, if sports betting is legalized in their home states.”
Fitch also expects the roll out of sports betting to slow down after the summer rush to market.
The analysts said New Jersey is the only state with the size and regulatory framework, coupled with a low tax rate and mobile sports betting, “to facilitate a robust betting market.” Fitch estimated the state will eventually reach $350 million in annual betting revenue, surpassing Nevada.
Meanwhile, the Strip is in the process of adding a large amount of hotel capacity for the first time since the Cosmopolitan of Las Vegas’ opening in 2010. Both Resorts World Las Vegas and The Drew (a redesign of the shutter Fontainebleau project) are expected to open in two to three years, each providing more than 3,000 hotel rooms.
“However, over 3.3 million square feet of convention space will be added from 2018 to 2020, which we view as a capital efficient and scalable way to drive lucrative convention mix and further drive up average daily rates,” Bumazhny said.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
