The potential for the gaming industry’s participation in any forthcoming federal stimulus package may have halted the sector’s stock market free fall.
Thursday’s 188-point increase by the Dow helped gaming stocks gain back a few of the dollars lost during Wednesday’s massive decline. The market has been in a freefall for the past few weeks over the growing COVID-19 coronavirus pandemic.
The gaming community, led by the American Gaming Association and the Congressional Gaming Caucus, has been lobbying on Capitol Hill for the industry’s inclusion in the prospective stimulus package, which has been estimated at $850 million to $1 trillion. The gaming industry believes it should be grouped in with the tourism and hospitality sectors.
On Wednesday, the AGA said the U.S. economy stands to lose $21.3 billion in direct consumer spending from the legal gaming industry due to the shutdown of virtually all of the country’s casinos and resorts in an attempt to halt the coronavirus’ spread. The closures have left an estimated 616,000 members of the gaming industry workforce on the sidelines.
“The federal government must act swiftly and comprehensively to get America’s hospitality employees, and the small businesses that support them, back to work,” said AGA CEO Bill Miller. “Gaming employees (and) their families and communities are bearing the brunt of this economic standstill and will continue to suffer if Congress and the administration don’t take immediate action.”
The Seeking Alpha website suggested that the growing belief that consensus will soon be reached on a government financial aid package has led some analysts to recommend that investors “nibble on the sector after the bruising sell-off.”
The larger gaming companies all saw increases Thursday.
MGM Resorts International was up 7.84% to close at $7.70, Las Vegas Sands increased 7.11% to close at $40.36, and Wynn Resorts gained 8.28% to close at $46.58.
Regional operators also saw upticks. Boyd Gaming shares increased 42.98% to close at $11.21, Penn National Gaming was up 34.73% to close at $6.09, Twin River Worldwide increased 13.04% to close at $8.67, and Las Vegas-centric Red Rock Resorts increased 53.72% to close at $5.78.
The two regional companies involved in a $17.3 billion merger also saw stock increases Thursday. Eldorado Resorts was up 9.44% to close at $7.77 while Caesars rose 42.61% to close at $5.02. Eldorado, which is the acquiring company, hopes to close the deal in the first half of the year.
Slot makers hard hit
Gaming equipment manufacturers have been some of the hardest-hit shares on the market.
In a note to investors Thursday, Stifel Financial gaming analyst Brad Boyer said in the last month, shares of AGS are down 87%, Everi Holdings is off 86%, and Scientific Games is down 80%.
“With the majority of global casino operations shut down in the wake of the COVID-19 outbreak, shares of the industry’s primary equipment providers have come under significant pressure,” Boyer said.
Last week, according to a securities filing, 16 Everi executives and directors bought company shares in an effort to show support for the business. Chairman Miles Kilburn spent $204,600, or $3.41 per share, on 60,000 Everi shares. CEO Mike Rumbolz bought 50,000 shares for $186,000, or $3.72 per share.
On Thursday, Everi closed at $2.01, up 21.82%
Boyer blamed the “outsized” declines in the sector on three factors: elevated debt, the risk of burning through cash and liquidity, and the gaming industry’s uncertain outlook.
“It is safe to assume no CFO or CEO underwrites a business or capital structure plan in which he/she projects how the business would hold up in a prolonged zero revenue environment,” Boyer said. “Unfortunately, this previously unthinkable scenario is currently presenting itself to global casino operator management teams and those of its primary suppliers.”
Scientific Games rose 15.16% Thursday to close at $4.71, AGS saw a 28.57% increase to close at $1.35, while International Game Technology, which Boyer did not mention in his note, closed at $4.12, up 8.71%.
“Shares across the group have come under significant pressure, and investors’ singular focus has shifted to balance sheet risk and available liquidity,” Boyer said.
Stock transactions
Everi wasn’t the only company that saw directors and management buying under-valued shares of their businesses.
On Monday, Gaming and Leisure Properties Chairman and CEO Peter Carlino was one of seven directors who acquired stock in the real estate investment trust. Carlino paid almost $970,000 for 47,000 shares at between $20.10 and $21.35.
Shares of GLPI closed Thursday at $17.53, up 15.79%.
Several directors of Golden Entertainment bought shares in the company earlier this week. On Thursday, President and CFO Charles Protell spent $45,000 on 10,000 shares of the company’s stock. Shares closed at $4.39 Thursday, up 1.15%.
On Wednesday, MGM Resorts granted restricted stock to 16 directors and officers under the company’s incentive plan. The shares, which have no value until they vest later this year, can be redeemed any time afterward.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
