Looking ahead to what the Year of the Rat has to offer gaming, one thing is sure—more U.S. mergers and acquisitions.
Sometime in the first half of the year, Eldorado Resorts will close on its acquisition of Caesars Entertainment. The deal has been examined six ways to Sunday, so we won’t take time or space to do that here.
But we will ask this: How many more major acquisitions can we expect?
The U.S. casino industry will soon be down to several major players: Las Vegas-Macau operators Las Vegas Sands, MGM Resorts and Wynn, and regionals Penn National, Boyd, Red Rock Resorts and, of course, Eldorado.
So, what’s left?
Boyd would seem a natural to buy Planet Hollywood or Paris-Bally’s from Eldorado. That would give the company a Las Vegas Strip presence that was lost more than a decade ago, when the Stardust was demolished to make way for the ill-fated Echelon project, which now is the Resorts World Las Vegas project.
One large acquisition could be Red Rock Resorts, if the Fertitta brothers are interested in selling all or part of the company.
There are some smaller operators that still could be targets: Golden Entertainment, Full House Resorts, Churchill Downs. Then there are the multi-property, privately owned Midwest casino owners, where founders or families might at some point want to cash out: Elite in Iowa, Jack Entertainment, Jacobs Entertainment, Rush Street and others.
Of course, REITs can stay busy with sales and lease-backs, regardless. One of the biggest deals, MGM Growth Properties in some fashion acquiring MGM Grand in Las Vegas, has all but been publicly promised by MGM Resorts CEO Jim Murren.
Big tribal operators are growing more ambitious, and have increasing financial strength to expand through acquisition. Certainly, we’ve seen the Seminole Tribe of Florida’s Hard Rock International, Mohegan Gaming and Foxwoods get into the commercial world.
The Poarch Band of Alabama and Quapaw Indians of Oklahoma illustrate that other tribes can branch out, too. Who’s to say the Chickasaw, Seneca of New York, Morongo, San Manuel, Pechanga or some other tribal enterprises might not look to follow their examples?
Nor can we dismiss the chance of international acquirers. There certainly are companies with the financial heft to afford a significant acquisition, though many might not want to endure the U.S. licensing process.
If such a company did decide to enter the U.S. through acquisition, Wynn might make an attractive strategic target.
We also can expect to see some small companies growing through acquisition.
Former Red Rock CFO Marc Falcone now has two companies between Kentucky Downs and soon Gateway Casinos in Canada, which he is taking public.
Former Aruze CEO Eric Persson co-founded Maverick Gaming, and has been non-stop buying small casinos. The Farahi family that controls Monarch Casino is sure to be on the lookout for their next opportunity after they open the transformative expansion of Monarch Black Hawk in Colorado.
Some of the small companies mentioned above as possible targets could be acquirers.
Certainly, Churchill Downs and Golden Entertainment have been in expansion mode for some time. Twin River, which bought Dover Downs, is now in the process of buying three Colorado casinos from Affinity Gaming, and having gone public, is in growth mode.
Likewise, some of the private companies are growth-oriented, such as Jacobs and Peninsula Pacific.
A little further out, the Drew and Resorts World Las Vegas projects represent big bets by Las Vegas outsiders that could, like Cosmopolitan and Aladdin before them, find their ways into the hands of different owners at some point.
In brief, there’s plenty of opportunity for acquisition activity, though perhaps not on the scale of Eldorado-Caesars or Penn National-Pinnacle.
One looking for growth opportunities in the U.S. gaming industry may let out a deep breath and exclaim, “Thank goodness for sports betting.”
Sports betting has proliferated in a very short time from one to 20 states. The eager embrace of mobile wagering is generating betting beyond that historically experienced by sportsbooks inside brick-and-mortar casinos. Casino operators report more table game play thanks to sportsbooks. Even mature Las Vegas produced record betting revenues in November. Further, some states in the process of legalizing sports betting are legalizing online gaming, too, opening significant new revenues.
These new revenues come as the question of growing the market vs. cannibalization is increasingly being answered—on the cannibalization side.
Take Wynn’s Encore Boston Harbor as an example. Despite the excitement of opening an upscale destination resort and revenue projections of $1 billion when ramped up, the resort has been running at a rate of less than $600 million. And its first full quarter of EBITDA annualized to under $31 million—a long way to go to get to the $250 million goal, and a paltry return on a $2.6 billion investment.
Further, Encore is biting into revenues elsewhere. In November, other Massachusetts casino revenues fell 9.3 percent, Connecticut slot revenues dropped 2.2 percent, Rhode Island’s casinos were off more than 8 percent.
Nor is the story unique. The upstate New York casinos have been nearly infamous in falling short of projections. And the $1.2 billion Resorts World Catskills is generating revenues at just around $220 million a year, even with the closing of nearby sister property Monticello, which was devastated by Resorts World.
More casinos are yet to open, in Pennsylvania, Illinois and elsewhere. Add to that the proliferation of slot routes, the emergence of instant-racing slot machines, and the coming of new jurisdictions like Arkansas, Virginia, and maybe Georgia and Alabama. A state of stasis for regional gaming could become the future.