Casino operators in the US are facing hard times ahead, especially if the temporary closure period is extended, as they continue to spend their cash reserves with practically almost no revenue, a recent report by Macquarie Research suggests.
Casinos Went Dark
The commercial land-based casinos in the US are virtually at a standstill, after the ones in South Dakota also shut down Tuesday, to join the coordinated effort towards containing the coronavirus /Covid-19/ spread. The tribal casinos, around 460 across the states, are also in the process of closing down, and the Native American gaming industry, as much as the American Gaming Association /AGA/, joining the chorus for federal aid for the business.
Under these circumstances, most of the casino-operating companies continue to pay wages and benefits for their employees, running out their cash reserves, and some of them doing that at a high speed.
“U.S. gaming has been one of the hardest hit sectors in the consumer space since the beginning of the crisis. 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?”
Chad Beynon, Gaming Analyst, Macquarie Securities
Some Are Better Positioned Than Others
The report by Macquaire Research estimates that casino companies will be able to survive between 5.2 and 14.3 months before having to file for bankruptcy protection, and if the closure period extends, some of the operators would eventually start looking for ways to trim their costs.
MGM Resorts International is among the highest spenders, having $14.4 million cash depletion per day and according to its last reported reserves, the company would survive for 9 months at that rate of cash burn. MGM was one of the first operators to start downsizing or putting on furlough its workers, even before Nevada Gov. Sisolak ordered the closures of non-essential businesses, the category in which casinos fall.
Just a little above that, 9.4 months, will survive Las Vegas-based Boyd Gaming Corp, as it is spending $3.2 million per day.
Penn National Gaming is using $6.4 million of its cash daily and at that rate will survive just 5.2 months before running out of cash and filing for bankruptcy.
Red Rock Resorts is burning $1.7 million daily and will last 13.8 months, while Golden Entertainment, even with less cash depletion per day, $1 million, has cash reserves for 10.4 months.
Other casino operators, Century Casinos, Monarch Casino & Resort, and Full House Resorts, will need much less cash than their bigger competitors, between $200,000 and $300,000 per day, and will last between 5.8 and 14.3 months with no revenue.
Downsizing And Eventually Filing For Protection
Burning cash rates could be easily brought down by the companies when they start laying off people, as their fixed costs are mainly related to employees and can be trimmed, if necessary. Everything is up in the air, but as Jeferies gaming analyst David Katz suggests, the red line in the sand is the 60-day mark, as people would have to look for work alternatives, from one side, and companies would face difficulties with re-onboarding, from the other.