Casino Owners Can Survive the Downturn in the Economy, but Some Are at Risk

January 16, 2023 World Earnings & Filings

If a recession does occur, casino owners and gaming suppliers will be well-prepared to withstand it, although some may be vulnerable.

According to Fitch Ratings, who recently indicated that casino operators can manage a potential downturn this year, this is the position. That’s because the earnings before interest, taxes, depreciation, and amortization (EBITDA) figures reported in 2022 were largely strong.

Due to EBITDA growth brought on by margin expansion and strong leisure demand, gaming operators delevered after pandemic shutdowns, according to Fitch.

The ratings agency said that gambling companies were working to increase free cash flow, and asset sales were lowering debt loads for the entire sector. That might be advantageous if the economy noticeably slows down.

Las Vegas Sands, Bally’s a Source of Concern
Only two operators are specifically mentioned in the Fitch report: Bally’s (NYSE:BALY) and Las Vegas Sands (NYSE:LVS).

Unsurprisingly, the ratings agency warned that Macau’s recovery could be difficult and should be closely watched. Sands China manages five integrated resorts in the special administrative region, which explains this (SAR). However, sell-side analysts have a positive outlook on Sands for this year. Sands is rated “BB+” by Fitch, with a dismal outlook.

Regarding Bally’s, the corporation with headquarters in Rhode Island may see competitive pressure in certain of the markets it serves. It is starting its largest new build to date, a $1.7 billion casino development project in Chicago.

“The company’s $1.7 billion plan to build a casino in the heart of Chicago helped Fitch change its outlook to negative in the middle of 2022. On the basis of the project’s high gaming tax rate and peer-comparable win-per-unit-per-day metrics in the Chicago market, our ratings case anticipates a 12% ROI and stabilized EBITDAR of $200 million, according to Fitch.

Another problem might arise if local casino patrons, who make up the majority of Bally’s clientele, cut back on their trips in order to better prepare their personal finances to deal with high inflation and the threat of a recession.

Slot Manufacturers May Win Big
Gaming suppliers are prepared for the prospect of a tumultuous macroeconomic climate in 2023 despite a continuous cycle of slot machine upgrades. As casino owners favor higher profit machines over table games, it’s feasible that slot sales may reach pre-coronavirus pandemic levels this year.

In recent years, the main suppliers accomplished a commendable job of reducing debt and increasing free cash flow, which should be favourable characteristics should the economy deteriorate.

“The large suppliers’ median debt to EBITDA ratio is about 3.0 times, down from about 5.0 times prior to the pandemic. Even though Fitch expects a decline in suppliers’ gaming operations (revenue share of premium installed base of slots), casino operators’ budgets for new slots are still strong because of performance that is still above 2019 levels, strong operator FCF generation, and relative underinvestment during the pandemic, according to Fitch Ratings.