In May 2018 the Supreme Court overturned PASPA, which gave each state the right to legalize sports betting. Today 18 states have legalized sports betting, and it’s currently operational in 13 of them. In this note we examine the initial impact, project the incremental near-term impact with the start of the NFL season, and project the long-term opportunity for the industry.
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The U.S. ISM manufacturing PMI has been in a downtrend for the last year, and this week it fell below the key 50 level for the first time since August 2016. In this week’s piece we examine the implications for our coverage by looking at industry stock returns over the last 25 years in relation to when PMI drops below 50 as well as when PMI eventually bottoms.
Current reports indicate Hurricane Dorian is strengthening and could make landfall in Florida as a Category 3 storm on Sunday.
Resort fees are additional charges outside of advertised room rates (for access to the gym, pool, internet, etc.), which have been gaining more attention following criticism from consumers, OTAs, and some regulators. In this note we discuss the key issues and the financial impact to our coverage.
July Vegas Strip GGR reported this morning (08/28/19) showed an increase of 1.6% y/y versus our guess of up mid-to-high-single digits y/y growth, but the data is volatile month to month, like last month when June was significantly better than expected. Normalizing for slightly better hold the result was roughly flattish y/y. We will refrain from judging the month until the RevPAR data is released later today at around 2 PM ET. We are looking for Strip RevPAR growth of about mid-single digits y/y. We feel good about 3Q CZR and MGM estimates, as we heard from both companies at 2Q reports when July should have been mostly known.
Las Vegas Strip revenue and EBITDA expectations still seem modest, and expectations seem particularly low for 2020, even though this earnings season seemed to indicate solid trends with both CZR and MGM beating consensus Vegas estimates and speaking positively on demand. We have a positive outlook for the Las Vegas Strip from now through year end 2020 due to a favorable event calendar, still limited rooms growth, easy comparisons, and we think expectations that seem low. We’ll discuss with charts. Please click the link above for the full report.
ERI reported 2Q this AM (8/6/19), which followed CZR last night. EBITDAR was $179M versus the Consensus Metrix average of $180M and our $185M. 2Q results more meaningfully missed initial expectations coming into the quarter as ERI faced one-time headwinds including renovations and weather. Excluding the $8M-$10M of one-time impacts, 2Q EBITDAR would have grown ~8% y/y. We think 2H could be able to do at least that rate, but for now we assume ~8% growth into 2H19 and our 2H standalone estimates come down slightly. ERI is down 4% today even though our pro forma estimates don’t move much, we think because a second straight quarterly miss doesn’t encourage investors on the long-term thesis, and the overall tape is tough for deep cyclical value right now. Still, the targeted pro forma FCF yield is 24%, which is a lot of cushion.
June Vegas Strip GGR was released this morning which showed a surprising increase of +17.7% y/y versus our expectation of -2.0% y/y driven by very high hold. Had the month played in line with normal hold then the result would still have been up around 5% y/y, ahead of our expectations. June Vegas Strip RevPAR was then released this afternoon which showed an increase of 4.8% y/y, which was below our expectation of around 10%. Overall, it was a good month for the Strip, and it appears 2H is shaping up well per MGM, and we believe 2020 is setting up to be a strong year, too, with many tailwinds.
Vegas Strip fundamentals have been mixed YTD, though we still think better than the sentiment. We see potential for revenue reacceleration in 2020 due to several tailwinds, which we’ll discuss and quantify, and we’ll also discuss some potential risks.
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