Decisions are made every day in the corporate suites of the major casino companies. Most of those decisions are quite mundane, but they often have a huge impact on the course a company is taking.
In the gaming industry, growth is good. And it’s difficult to grow simply through operations (unless you operate in Macau these days). Growth most frequently means expansion, so the decisions a company makes on expansion have much to do with its value on the stock market.
Let’s start with the biggest decision Caesars Entertainment ever made—the decision not to buy a sub-concession to enter the Macau gaming market. Now, I don’t want to pretend to have any firsthand knowledge of how this went down, but at the time the Macau government allowed the three original concessionaires to sell one sub-concession each, Caesars was very interested. After all, the company didn’t make the cut for the concessions, so it could have bought into the market. The going price was almost $1 billion, a hefty price at that time, but in hindsight, a bargain. And we all know hindsight is 20-20.
Caesars probably isn’t happy about Massachusetts, either. Partnered with Suffolk Downs, the company had the inside track at the state’s most lucrative license until a sketchy report to the gaming commission implicated the company in many “scandals,” most of which had already been resolved. A lawsuit has been filed, so we’ll see how much Caesars regrets that decision.
But how about how hard Steve Wynn fought to get back into Atlantic City in the late 1990s? He convinced everyone that he was going to build a spectacular “La Revé” on a huge tract of land the city gave him for nothing. When Wynn sold his Mirage Resorts to MGM in 1999, Boyd Gaming built the Borgata (half owned by MGM), and the rest is history. But Atlantic City is suffering. Most of the casinos there (not Borgata) are now losing money, and Wynn has to be glad he didn’t get into that mess. Pinnacle took a beating there, and of course we all know about Revel.
And Wynn may also appreciate the day he pulled out of the competition for the second license in Philadelphia. The state wants a substantial investment—north of half a billion dollars—for the privilege of competing in an already saturated market with a high tax rate.
How about any of the companies that got into Illinois? This state is the poster child for a high tax rate—at one point up to 70 percent—and dysfunctional regulation. No casino in Illinois can make any long-term plans or reinvestment because there is no stable tax rate. And now the state is talking about adding four more casinos to destroy the markets the existing casinos have already created! This might be the best non-decision any casino company can make.
Now we may have already seen some regrets about entering the iGaming space. Revenues in all three states have been less than anticipated, but it is a young industry and we have well less than a year under our belts at this time. Nonetheless, you have to wonder what a company like Station Casinos is thinking after buying a majority of Ultimate Gaming right before its launch last April. Ultimate is barely holding its own in the small Nevada market and is in single digits in market share in New Jersey.
California is the potential gold mine for online gaming in the U.S. and so far it has resisted all efforts to legalize iPoker in the state. While there are two bills before the legislature in this session, do you really believe that tribes will have any incentive to reverse their opposition? We’ve already seen it’s not a robust business at the start. There’s no federal bill looming like there was the past two years. So why risk the land-based gaming enterprises, which drive every tribal economy in California, by stepping into the unknown?
There are lots of decisions facing many gaming companies over the next few years. Despite the disappointing iGaming numbers, should more states legalize it (especially California), it could be lucrative. There will be few U.S. expansion opportunities since most states have some kind of gaming. There is some room to grow in Latin America, but regulations and tax rates there are less than stable. Asia is always there, but always inscrutable.
So what will drive growth in the gaming industry? Thankfully, that’s a decision I don’t have to make, but I can assure you GGB magazine will be there reporting the latest trends and opportunities.