Economist forecasts consumer demand rebound in March
Gaming Industry Ramblings
After a rough February, Macquarie Securities analyst Chad Beynon reported that consumer behavior in March seemed stabilized or even thriving. This comes after Macquarie's 10th Annual Consumer Bright Ideas Conference, where a bunch of companies turned up.
Beynon described himself as "cautiously optimistic" about the American consumer, basing his findings on a bunch of factors: declining savings rates, increasing credit card delinquencies, and stubborn high-interest rates. But fear not, he added, "We didn't walk away with any alarming takeaways."
The gambling sector typically booms during times of declining interest rates, Beynon argued, which could give casinos a much-needed second-half boost in 2025. Vegas Strip casinos were reportedly generally optimistic about growing their cash flow this year. January's casino grosses were a cool $840 million, with above-average hold rates for slot machines and baccarat, and a six percent increase in revenue per available room.
The online gambling, or "igaming," sector also looks promising, with a projected 23 percent increase in the first quarter of this year. Hold percentages have risen from a measly eight percent in the lean fourth quarter of 2024 to a more substantial 9.9 percent. Igaming handle is up 10 percent so far.
Beynon expects BetMGM and Caesars Digital to reap the biggest benefits of this igaming boom. He implied that there could be positive igaming legislation within the next 12 months, although this isn't part of his estimates.
In terms of suppliers, Beynon noted that tariff fears don't seem to be a significant concern. The focus, he thinks, will be on premium-priced/recurring-revenue machines this year, given the lack of excitement for regular sales.
He went into detail about eight companies, particularly Light & Wonder. LNW is currently on track to achieve $1.4 billion in cash flow, "with tailwinds across all verticals." Even with roughly 10,000 Dragon Train units already deployed in Australia, Beynon isn't expecting a complete silence on United States litigation in the first quarter of 2025.
Having changed development studios, Light & Wonder will be releasing a second iteration of Dragon Train in August. Beynon also looks forward to the launch of Huff 'n Puff and to Light & Wonder's exit from live-dealer igaming, which he believes will improve margins.
Illinois-centric Accel Entertainment caught Beynon's eye, too. Its "asset-light cash flows are more stable and recurring in nature than bricks-and-mortar casinos," he said. Accel is, however, dipping its toes into the bricks-and-mortar world with its Fairmount racetrack acquisition. The temporary Fairmount casino is expected to open in the second quarter of this year, with the permanent one featuring 600 slots, 24 table games, and a FanDuel sports book.
The Louisiana route market, according to Beynon, is highly fragmented with limited additional licenses up for grabs. He predicts 2025 revenues of $25 million for Accel, plus $6 million in cash flow.
Citing lotteries' historically recession-resistant nature, Beynon reported that the core business of IGT remains healthy and growing in line with expectations. IGT expects $40 million to $50 million less jackpot activity in 2025, alongside the retirement of $2 billion in debt, using the proceeds from the sale of its gaming and digital businesses.
IGT also plans to dish out $850 million in upfront fees for its lottery business in Italy. The company believes it will shell out as much as $450 million to secure further lottery contracts in Italy, as well as in Texas and Nevada.
One pure igaming operator, Rush Street Interactive, was present. Beynon reported that it "continues to see strong momentum following an impressive 2024 that saw the company post records for revenue, profitability, cash flows, and users."
Beynon picked up on RSI's effective defense of its U.S. market share. "They continue to acquire players more efficiently as marketing spend moderates," he noted. RSI executives forecast almost $1.1 billion in 2025 revenue and cash flow of as much as $135 million, despite a double-digit value-added tax in Colombia, a key RSI market.
With a significant focus on digital performance, MGM Resorts International might be one of the largest brick-and-mortar operators in attendance, but its 2025 focus will be on the digital sphere. Management expects as much as $2.5 billion in revenue, along with reducing marketing costs and driving higher margins through initiatives like single-game parlays and omni-channel capabilities.
In Las Vegas, MGM said it's experiencing less seasonality of casino play and "strong demand," particularly during the first quarter of 2025. The company aims to achieve at least $150 million, perhaps $200, million in cost savings, through job cuts or fee increases.
Overseas, "MGM is maintaining its mid-teens market share, benefiting from its focus on premium mass customers and technological advantages," Beynon reported. The company is also concentrating on adding museums and additional entertainment to diversify visitation.
Penn Entertainment's executives predicted a "more frictionless experience" for ESPN Bet and higher market share for the controversial betting provider. It will continue to take losses in 2025, as management expects as much as $200 million in the red, assuming a nine percent hold on wagers. Beynon forecasts a $500 million positive return on investment in 2026.
Penn's new Joliet casino is scheduled for a fourth-quarter debut, with new projects in Aurora (Illinois), Columbus (Ohio), and M Resort (Las Vegas) to be rolled out during the first half of 2026. Executives noted that casino consumers remain stable, but acknowledged some weakness in the first quarter from weather, calendar shifts, and new competition in Nebraska and Louisiana, which should even out later in the year.
Full House Entertainment's top brass seems optimistic about the potential from its two new flagship properties, American Place and Chamonix. Part of this optimism stems from Chamonix's new management team, as well as market share growth, despite the lack of targeted marketing for the resort.
As for its Waukegan casino, Full House executives foresee a doubling of the temporary American Place's revenue. They plan to begin construction later this year, with a budget of $300 million.
Beynon's meetings with another small operator, Century Casinos, were "mostly constructive, with its two major capex projects in Missouri now complete, performing well, and attracting many more customers from further distances." He expects improvement in cash flow this year, despite softness at the low end of Century's customer base, a significant woe for its Colorado and West Virginia casinos.
Finally, "With one of the strongest balance sheets in gaming and full ownership of its properties, we continue to recommend Golden Entertainment as inexpensive exposure to the healthy and growing southern Nevada gaming region," Beynon glowed. He allowed that Golden has been negatively impacted by the election and Formula One, but December and January were better.
Seven newly added taverns to the Golden portfolio were reportedly experiencing a bit of adversity, as Golden redid management and investment strategy. However, those same taverns were reported to be experiencing cash-flow growth, and Golden highlighted expected sequential revenue growth from that division.
"Positively, management also highlighted better trends in the customer database particularly in the locals market, as well as a rational promo environment," Beynon concluded. "Management remains highly focused on exploring strategic alternatives to maximize shareholder value."
Consumer behavior in Macau, influenced by the optimism of analyst Chad Beynon, appeared stable or thriving after a rough February, indicating potential growth for businesses and investing in the region. Despite rising credit card delinquencies and high-interest rates, Beynon remains cautiously optimistic about the American consumer. The gambling sector, including casinos in Macau and Vegas Strip, may experience a boost due to declining interest rates. In the online gambling or "igaming" sector, there is a projected 23% increase in the first quarter of the year, with positive legislative possibilities for operators like BetMGM and Caesars Digital. Companies like Light & Wonder, Accel Entertainment, and Rush Street Interactive are also experiencing growth in their respective businesses, with promising forecasts for revenue and cash flow. Despite challenges in certain sectors, such as declining savings rates and weather-related weakness, the overall business environment for the consumer, casino-and-gambling industry appears optimistic.
