US casinos are becoming more 'recession resilient': Analyst
US commercial gaming revenue hit a new record last year, reaching $66.5 billion in 2023, up 10% year-over-year. Despite numerous economic headwinds and inflation, Americans placed large volumes of wagers and spent on experiences at casinos in 2023.
John DeCree, CBRE Capital Advisors Head of Research and Director — Global Gaming, joins Yahoo Finance to discuss how commercial gaming companies and casinos will capitalize on this new record.
DeCree elaborates on how the industry is changing and will have to solve mounting problems to continue the growth its seen: "It feels like probably the largest annual increase in operating expenses for casino companies we have seen in a long time. Wages are certainly a big piece of that and after a couple record years of profits, things are catching up, like employees wages. There's pretty significant renegotiating of union contracts that came this year, particularly in Las Vegas. So it is a headwind, I think we're looking at mid single-digit OpEx growth... I think they'll continue to find ways to mitigate costs in other places, and keep driving revenue..."
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Editor's note: This article was written by Nicholas Jacobino
Video Transcript
BRAD SMITH: US casinos experienced a wave of wagers in 2023. Commercial gaming revenue for the year reached a record $66.5 billion, surpassing the prior record set in 2022 by 10%. So how can casinos translate what was a record year for revenue into shareholder returns?
For more on this, we turn to John Decree who is the CBRE Capital Advisors Head of Research and Director of Global Gaming. Great to have you here with us on this topic. Let's start right there, after a year that we did see, with the amount of wagers that were handled for casinos, how can they make sure that investors reap the benefits as well?
JOHN DECREE: Yeah, I think that's the million dollar question in the boardroom, with the results that we've seen this past year, and the trajectory of wagers, and earnings of all these casino companies, we're generally surprised at how the stocks have performed. I think people have been anticipating a recession for the past 18 months, and it hasn't really come yet. So, you know, we've seen companies starting to buy back stock in droves, MGM and Boyd Gaming are two that have been buying back a lot of stock and have seen strong share price performance on a relative basis.
But the year ahead. I think, companies just need to execute. The demand is there, they're managing some wage inflation, cost inflation. But these are free cash flow stories, they're value equities largely across the board in a market that's looking for growth. So I think casino companies will have to look for growth on top of what's been a record year, and, in the interim, maintaining discipline and use that free cash flow, and buying back stock seems to be one of the preferred methods for companies to create some value right now.
SEANA SMITH: John, you mentioned one of the headwinds facing the industry, is wage inflation, cost inflation right now. In terms of what that means, or how you see that impacting, we know how it has impacted the bottom line over the last couple of quarters. But what that means here, looking out for the rest of 2024, how big of a challenge is that for the industry at large?
JOHN DECREE: Yeah, it feels like probably the largest annual increase in operating expenses for casino companies that we've seen in a long time. Wages is certainly a big piece of that. And after a couple record years of profits, things are catching up, like employee wages. There's pretty significant renegotiated union contracts that came this year, particularly in Las Vegas.
And so it is a headwind, I think we're looking at mid-single digit op-ex growth for casino companies broadly this year. And maintaining mid-single digit revenue growth of the high base that you've mentioned Brad, is going to be pretty challenging. So I think they'll continue to find ways to mitigate costs in other places and keep driving revenue, so they'll have to find new ways.
They do have digital forms of gaming now. Sports betting has been a big boom for the industry, gaming as well. And that's a key area of growth that a lot of casino companies are participating in, like Caesars and MGM. And that's a growth source that'll help offset some of the stagnation they might have in core earnings from all of that operating expense growth.
