Moody’s Investors Service says it believes casinos’ customers “will be slow to return” once gaming properties resume operations following mandatory suspension as efforts to contain the Covid-19 pandemic. “It will likely take some time before companies will be able to ramp back up to normal business levels,” said the ratings agency in a Thursday report focused on the U.S. markets.
“The highly discretionary and non-essential nature of consumer spending on casino gaming makes the sector extremely vulnerable to changes in regional, local and nationwide economic conditions as well as travel, which will all be hurt by coronavirus containment efforts,” stated Moody’s in its research announcement.
The ratings agency said it had further revised its outlook for the U.S. gaming industry by slashing its 12-month forecast. The institution said the revision reflected a “lack of clarity regarding when casinos will reopen, and the likely limitations on casino utilisation that will occur once these facilities reopen”. It said it assumed a reopening of facilities “around the beginning of the third quarter”.
The report quoted Keith Foley, a Moody’s senior vice president, as saying: “As the coronavirus pandemic cuts an ever-deeper path of loss through the U.S. economy, we expect [the gaming industry’s] EBITDA [earnings before interest, taxation, depreciation and amortisation] to plunge 60 percent to 70 percent for the 12 months through March 2021.”
Mr Foley added: “We expect the EBITDA decline to be even more severe in calendar 2020, led by a severe drop in the second quarter when industry EBITDA will likely be negative.”
Moody’s said it expected it would take 12 months for the U.S. gaming sector EBITDA to recover to about 30 percent of what was generated on an annual basis before the coronavirus pandemic struck; and “a little more than 18 months” for the industry to get back to generating just 60 percent, roughly, of 2019 levels.
Venues within casino resorts “will likely operate at a more limited capacity once mandatory casino closures and stay at-home orders are lifted because of continued social distancing practices to prevent a renewed outbreak,” said the ratings agency.
It added: “Protracted travel concerns also suggest that regional operators will likely rebound before the Las Vegas strip [in Nevada]. When casino doors eventually reopen, customers will likely take time before they have the confidence to travel far, especially by air for leisure purposes.”
In Nevada, the governor initially ordered all casinos and other non-essential businesses in the state to close for 30 days with effect from March 18. He extended that instruction to run until April 30, and last week said he had no specific date for when non-essential businesses might be allowed to reopen.
In Macau, for instance, casinos are currently operating – following a 15-day suspension in February – but a succession of travel restrictions by the Macau authorities and other jurisdictions has narrowed market-wide the potential customer base for gaming operations, say a number of investment analysts.
Since the reopening of the market on February 20, the city’s casinos have also been running with limited capacity due to social distancing policies on gaming floors.
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"The travel impediments [in mainland China] will lead to reduced visitation into Macau for the next few weeks at least, with Chinese New Year visitation being impacted"
Vitaly Umansky, Tianjiao Yu and Kelsey Zhu
Analysts at Sanford C. Bernstein Ltd