Regional Casino Margins Expand as Headcount Dwells Below Pre-Pandemic Levels

Posted on: March 4, 2023, 04:19h. 

Last updated on: March 6, 2023, 12:20h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Following the 2020 reopening of gaming venues and subsequent rally in share prices, margins became a significant part of the story for regional casino operators. One analyst says margin expansion by regional gaming companies has been accrued via lower staff counts.

In a recent note to clients, Deutsche Bank analyst Carlo Santarelli encouraged investors to examine gaming companies’ cash flow margins over earnings before interest, taxes, depreciation, amortization, restructuring or rent costs (EBITDAR). He said the former metric “is considerably more telling when comparing the operating efficiency of the regional gaming operators.”

He also noted that while casino revenues are soaring, staffing counts at regional properties are, on average, 35% below pre-coronavirus crisis levels.

While some of the reduction stems from property closures or M&A activity, operators, at a minimum, have curbed 20% of their workforce on a like-for-like basis,” noted the analyst.

Headcount among regional casino operators isn’t linear, and some are doing more with less staff following the pandemic.

Boyd, Red Rock Lower Staffing Levels

Boyd Gaming (NYSE: BYD) and Red Rock Resorts (NASDAQ: RRR) are among the gaming companies doing more with less staff than before the pandemic. But for different reasons.

On the other hand, Boyd’s all-time high in terms of headcount was 23,477 in 2018, but that figure is below 15,800 today. Since the onset of the pandemic, Boyd hasn’t opened any new venues and only shuttered Eastside Cannery.

Margin expansion served the operator’s investors well, as Boyd is one of the best-performing gaming stocks since 2020 and was one of the first casino companies to reinstate and later increase a dividend suspended due to the global health crisis.

“Operators, at a minimum, have curbed 20% of their workforce on a like-for-like basis. It is not coincidental, in our view, that the operators with the larger labor-footprint reductions have tended to experience the most significant gaming-tax adjusted-margin gains, relative to 2019,” added Santarelli.

Caesars, Penn Also Trimmed Staff

The Deutsche Bank analyst also mentioned Caesars Entertainment (NASDAQ: CZR) and Penn Entertainment (NASDAQ: PENN) as operators with noticeably lower staffing levels today than in 2019.

In the case of Caesars, much of the lower headcount is attributable to mid- to upper management redundancies incurred by way of the 2020 marriage between Eldorado Resorts and “old Caesars” and the sale of various regional casinos ahead of the completion of that transaction.

Caesars’ current staff count is 38% below pre-pandemic levels, while Penn’s is 23% lower, according to Santarelli. Penn’s lower employee roster is “somewhat understated” due to that operator acquiring or opening new properties, according to the analyst.

Golden Entertainment (NASDAQ: GDEN) had 6,400 workers last year, down from the record of 8,000 in 2018. Some of that attrition is attributable to the closure of the Colorado Belle in Laughlin, which hasn’t reopened. That figure is likely to decline further as the $260 million sale of the Rocky Gap Casino Resort in Flintstone, Md., announced last August, is wrapped up later this year.