Progress on the development of an efficient vaccine to thwart the spread of coronavirus sent the stock markets to record levels this week. The news also changed some thoughts toward the gaming industry, notably the length of recovery time facing the Las Vegas Strip as the market seeks to get back to pre-COVID-19 levels.
Fitch Ratings Service gaming analyst Alex Bumazhny said the availability potential of a vaccine – several drug manufacturers were optimistic distribution could begin as soon as next month – would allow destination markets, such as Las Vegas, “begin recovering more in earnest in the second half of 2021.”
Those comments are notable because it was just a month ago that Bumazhny and his team predicted the nation’s largest gaming market was facing a long recovery that carries into 2024.
Alex Bumazhny, Fitch Ratings Service
In a research note, Bumazhny said Las Vegas still faces a protracted return to 2019 numbers, but the vaccine might speed up the process. The Strip’s reliance on a bounce-back by airline business and conventions remains the hindrance. Fitch forecasts overall revenue on the Strip will be down 50% in 2021, a slight improvement from the 60% drop forecasted for 2020.
“While gaming declines are less severe, about two-thirds of the Strip’s revenues are non-gaming and will require a rebound in tourism and conventions,” Bumazhny wrote. “We do not envision a material increase in convention attendance or broader air capacity until there is a broadly available vaccine.”
There’s that V-word again.
Nevada Gov. Steve Sisolak brought up vaccine progress when he tightened coronavirus pandemic restrictions in response to a rise in statewide COVID-19 cases. Capacity limits for casinos, restaurants, and bars were reduced to 25% and included restaurants inside Strip resorts just ahead of the Thanksgiving holiday.
“I am hopeful that these restrictions will help reduce our caseload,” Sisolak said. “I don’t want to impose further restrictions, but we are too close to the real solution.”
The numbers are clear for Las Vegas and Southern Nevada, whose economic foundation is intrinsically tied to the gaming and tourism industry.
An empty Las Vegas Strip prior to casinos reopening on June 4
Through October, Strip gaming revenues were down 43.6%, the market’s visitation was off 54.2%, and airline passenger volume at McCarran International Airport dipped 56.6%. Convention attendance, the primary driver of mid-week visitation, is down 69.6% through October, which includes seven straight months of zero attendance.
“No state struggles with this more than Nevada due to the lack of diversity in our economy,” Sisolak said.
The Las Vegas Convention and Visitors Authority said midweek hotel room occupancy was 38.6% in October and down more than 47% for the year. The empty rooms are the primary reason MGM Resorts International closed its hotels at Mandalay Bay, The Mirage, and Park MGM between Mondays and Thursdays through the end of the year.
Even with a coronavirus vaccine, Las Vegas’ recovery is dependent on conventions and tradeshows returning – most of the major events have scheduled into 2021 and beyond – additional airline flights, and the willingness and general feeling of perspective Las Vegas visitors seeking a return to normal – whatever normal is.
Those reasons are why Fitch has a negative outlook toward a large swath of the casino industry’s billions of dollars in long term debt that was taken on over the past six months. Gaming companies sought out willing credit markets to boost balance sheets in the wake of casino closures as the pandemic flared.
“Destination market gaming operators will have a longer path to positive free cash flow given slower recovery assumptions, while regional operators and suppliers will see their delevering capacity return quicker,” Bumazhny said.
The regional gaming markets, due to the reliance on local drive-in visitation, have rebounded quicker despite properties operating at 50% or less capacity and under strict COVID-19 health and safety guidelines.
Bumazhny said limited alternative entertainment options remain in many cities and government stimulus money helped to support consumer discretionary income.
“The pandemic has impacted the global gaming segments differently, with (igaming and sports betting) and lottery displaying resiliency while destination markets take longer to recover,” Bumazhny said. “Recent vaccine developments are encouraging.”
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
