With casinos across the country temporarily shutting down to help mitigate the spread of COVID-19, operators are facing a period with zero income and a limited supply of cash.
In many cases, workers are still receiving some pay and benefits.
And a recent report from Macquarie Securities found that some operators have as little as five months before they run out of cash.
“U.S. gaming has been one of the hardest hit sectors in the consumer space since the beginning of the crisis,” Macquarie gaming analyst Chad Beynon said in the report. “The casino shutdown domestically coupled with high debt loads is pushing investors to ask, how long can these balance sheets last in this current environment?”
All of the country’s 465 commercial casinos were closed as of Wednesday, according to the American Gaming Association, with the closure periods varying by state.
The Macquarie report found certain regional operators are poised to fare better than others during these shutdowns.
Las Vegas-based Boyd Gaming Corp. is burning about $3.2 million daily during the shutdown and would run out of cash in about 9.4 months at that rate, according to the report. MGM Resorts International is burning $14.4 million daily and would run out in nine months. Penn National is burning $6.4 million daily and has 5.2 months before it runs out. Red Rock Resorts is burning $1.7 million daily and has 13.8 months; Golden Entertainment is burning $1 million daily and has 10.4 months.
Beynon expects operational changes like cost reductions to mitigate losses, but he said some operators, including Red Rock and Golden, are better prepared to weather the storm than others like Penn National, which operates the M Resort and Tropicana in Las Vegas.
Jefferies gaming analyst David Katz said he’s optimistic that banks will work with casino companies and amend credit lines when necessary, as they did during the last economic downturn.
“Gaming is a little bit different than a lot of other businesses,” he said. “It’s harder for a bank … to take over the building, take over the operations (if they run out of cash).”
Katz added that states want these businesses to succeed, especially states like Nevada, in which almost 25 percent of the total labor market works in leisure and hospitality, according to seasonally adjusted January data from the Nevada Department of Employment, Training and Rehabilitation.
Spokesmen for Boyd and Red Rock declined to comment. Representatives from Penn National did not respond to a request for comment. MGM representatives referred to a March 12 statement from the company, in which outgoing CEO and chairman Jim Murren said recent real estate transactions helped it “achieve (its) strongest balance sheet in the last decade.”
Impact on employees
Casino operators have been working to cut fixed costs amid the nationwide shutdowns.
“All fixed costs are variable,” Katz said. “In this industry, (those fixed costs are) largely people.”
Boyd Gaming Corp. employees reported the company will pay one week’s worth of pay to hourly employees, while managers will receive two weeks’ worth of pay. Plans have not been communicated beyond a two-week period.
Caesars Entertainment Corp. will continue to pay full-time, part-time and regularly scheduled team members for up to two weeks following the temporary closure of properties. Those enrolled in the company’s benefits plans will see no loss or interruption through June 30. Those impacted by unpaid leave or furloughs will be paid a biweekly payroll contribution until they return to work or through the end of June, according to company representatives.
Furloughed part-time and full-time MGM employees will receive two weeks of pay and benefits, and all eligible employees will be enrolled in the company’s health plans through June 30. Representatives did not respond to requests to clarify what will happen after the two-week period expires.
A letter sent to Golden employees obtained by the Review-Journal said all full-time hourly and salaried staff would be paid for one week from their last day worked, after which the team members could use vacation days or paid time off until the balances are exhausted. Those on the company’s health insurance plan will maintain benefits during the temporary layoff period.
“The longer this shutdown lasts, the greater the impact it will have on our company and our employees,” said Charles Protell, Golden’s president and chief financial officer. “In addition to the health and safety of our team members, our focus now is on being prepared to resume operations when allowed and to get people back to work.”
Katz said many employees’ standing depends on how long the shutdowns last.
“It really depends how long the closures last and what we come out like on the other side,” he said. “The shorter it is, the easier it is to bring back people who are furloughed. Once it’s past 60 days, people really have to find something else to do, and the re-onboarding is not so smooth.”