Casinos across the nation have temporarily closed in an attempt to help slow the spread of the coronavirus. In many cases, casinos continue to pay workers, to retain their staff, once the crisis is over.
That leaves operators facing an extended period with no revenue and operating on a limited supply of cash. In fact, a recent report from Macquarie Securities revealed that some casino operators have as little as five months of cash before they run out.
“The U.S. gaming industry has been among the hardest hit since the beginning of this crisis,” Macquarie gaming analyst Chad Beynon stated in the report. “The domestic casino shutdown coupled with high debt loads has pushed investors to wonder, how long can these balance sheets hold out the current environment?”
Burning cash
Nevada Governor Steve Sisolak ordered all casinos in the state to close for at least 30-days on March 17. While the casino closures are certainly damaging the state’s economy and job market, Nevada isn’t the only state to shut down the gaming industry.
As of this writing, every one of the country’s 465 commercial casinos was closed, according to the American Gaming Association. The closure periods vary state by state.
However, the Macquarie report discovered that certain regional operators are position to survive better than others during the shutdowns.
According to the Macquarie report, Las Vegas-based Boyd Gaming Corp. is spending around $3.2 million every day during the shutdown. At that rate, Boyd would run out of cash in about 9.4 months.
MGM Resorts International is burning through an astounding $14.4 million every day, and would run out of cash in nine months. Penn National is spending $6.4 million every day, and has 5.2 months cash on hand. Las Vegas’ Red Rock Resorts is burning through $1.7 million daily and can hold out for 13.8 months, and finally, Golden Entertainment is burning through $1 million per day and can last 10.4 months.
Beynon also anticipates operational changes, such as reducing costs to mitigate losses. But he also pointed out that some operators, including Golden and Red Rock, are better prepared to hold out than others, such as Penn National. Penn National operates the Tropicana and the M Resort in Las Vegas.
David Katz, a Jefferies gaming analyst, said he’s positive that banks will work closely with casino operators, amending credit lines when needed, as they did during the last recession.
“Gaming is a little different than many other businesses,” he said. “It’s more difficult for a bank … to take over the building, and take over the operations if they run out of cash.”
Katz also pointed out that the states want casinos to succeed, especially a state like Nevada; almost 25% of Nevada’s total labor force works in the leisure and hospitality industry. That’s according to data from the Nevada Department of Employment, Training, and Rehabilitation.
Spokespersons for Red Rock and Boyd declined to comment. Likewise, representatives from Penn National did not respond. Representatives for MGM referred inquiries to a March 12 statement, in which outgoing chairman and CEO Jim Murren said the company’s recent real estate transactions helped it “achieve the strongest balance sheet in the last decade.”
Employees impacted
Casino operators are working to reduce fixed costs in the face of the nationwide shutdowns.
“All fixed costs are variable,” Katz pointed out. “Unfortunately, in this industry, fixed costs are mostly people.”
Some operators, such as MGM, have laid-off workers in recent weeks. On the other hand, some operators have been able to promise employees one to two weeks of pay.
Employees of Boyd Gaming Corp. have revealed that the company will pay one week’s pay to hourly employees, and managers will receive two weeks’ pay. Plans to compensate Boyd employees during the shutdown beyond two weeks are not known.
Caesars Entertainment Corp. is continuing to pay part-time, full-time, and regularly scheduled team members for up to two weeks during the temporary closures. Workers enrolled in Caesar’s benefits plans will continue to receive benefits through June 30. Anyone impacted by furloughs or unpaid leave will receive a biweekly payroll contribution through the end of June or until they return to work.
Furloughed full-time and part-time MGM employees will get two weeks of pay plus benefits. Also, all eligible employees will remain on the company’s health plans through June 30. MGM representatives did not respond to requests to clear up what will happen after the two weeks.
A letter sent to Golden employees said that all full-time salaried and hourly staff would receive one week’s pay dated from their last day worked. After that, employees could use paid time off hours or vacation time until those are exhausted. Workers on Golden’s health insurance plan will maintain benefits throughout the temporary layoff.
“The longer the shutdown lasts, the greater the impact it has on our company and our employees,” stated Charles Protell, Golden’s president and chief financial officer. “In addition to the health and safety of our team members, now our focus is on being ready to resume operations when we can and to get our people back to work.”
Katz also pointed out that the standing of many employees depends on how long the shutdowns last.
“It really depends how long the closures go on, and what it looks like on the other side,” he said. “The shorter it lasts, the easier it will be to bring back people who are furloughed. However, once it goes past 60 days, people really have to find some other work to do. At that point, re-onboarding is not so smooth.”
