Casino Operators Win at Ballot Box, But Fitch Sees Minimal Cash Flow Boost

Posted on: November 7, 2020, 01:47h. 

Last updated on: November 7, 2020, 03:29h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Election Day 2020 goes down as a victory for casino companies, as gaming-related ballot initiatives in several states went undefeated. But some analysts see little tangible benefit to operator cash flows vis-a-vis those electoral wins.

Virginia Voters
Voters in Virginia head to the polls on Election Day. The state was among several that delivered wins for the gaming industry. (Image: Associated Press)

The gaming industry’s big wins on Nov. 3 came by way of Virginia voters paving the way for the commonwealth to become the 26th commercial gaming state. They signed off on four new casinos, and Louisiana and Maryland joined the roster of legal sports betting states. Colorado gaming venues will be able to raise the $100 per hand limit on table games. Smaller victories were scored in Nebraska, where voters signed off on casinos at racetracks, and South Dakota adding sports wagering in Deadwood.

That’s the good news. But investors shouldn’t expect much in the way of material impact to operator cash flows, according to Fitch Ratings.

Gaming initiatives on multiple US state ballots have been overwhelmingly approved by voters. But the affect on cash flow for US gaming operators will be marginal, given their large size and geographic diversification,” said the research firm.

Nebraska and Virginia are the first states to authorize commercial casinos since New York did so in 2013.

Operator Outlook

Among companies that are positioned to benefit from Election Day results, Caesars Entertainment (NASDAQ:CZR) stands out.

The operator will move ahead with building a $400 million gaming venue in Virginia, and legal sports betting in Louisiana and Maryland is a win for the company, because it already has gaming properties in those states. The Amendment 77 outcome in Colorado is a win for Caesars because it runs two casinos in the gaming town of Black Hawk.

“Maryland and Louisiana could generate approximately $250 million and $185 million in annual GGR, respectively, assuming $40 in GGR per capita within an accommodative regulatory environment,” according to Fitch.

The ratings agency also mentioned MGM Resorts International (NYSE:MGM) and Penn National Gaming (NASDAQ:PENN) as beneficiaries of the Election Day wins. MGM National Harbor in Maryland should derive some benefit from sports wagering, and likely won’t be affected by gaming expansion in nearby Virginia, said Fitch.

As for Penn, Louisiana is one of its largest markets, and eliminating the bet cap in Colorado is meaningful for the operator due to its Black Hawk footprint.

Wins for Smaller Companies

There’s some electoral bliss for smaller gaming companies, which was reflected in financial markets earlier this week. Century Casinos (NASDAQ:CNTY) and Full House Resorts (NASDAQ:FLL) are two examples of that trend because of Colorado exposure.

Not only did voters in the Centennial State vote to scrap the $100 per hand bet limit, they also approved the addition of new table games, including baccarat, which could lead to more traffic and a higher-end clientele at casinos there.

The Election Day outcome “will result in incremental revenue growth without meaningful capital investment. The roughly $1,000 average daily win for tables statewide currently lags that of other regional markets,” said Fitch.