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Indy Gaming: Companies still finding the public markets a willing source to fund new debt

Howard Stutz
Howard Stutz

Good morning, and welcome to the Indy Gaming newsletter, a weekly look at gaming matters nationally and internationally and how they tie back to Nevada.

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Macau’s slumping gaming market didn’t stop Las Vegas Sands from floating more than $1.93 billion in new debt through its Hong Kong-based subsidiary that operates the company’s holdings in the region.

But they weren’t alone in tapping into the investment community last week.

Real estate investment trust VICI Properties (which announced plans to acquire rival MGM Growth Properties last month) issued 115 million shares of stock priced at $29.50 on the New York Stock Exchange, raising more than $3.39 billion. And Caesars Entertainment said it was raising $1.2 billion in new debt.

The three companies have different reasons for shaking up their balance sheets, such as paying down debt or funding expansion efforts.

Caesars, for example, launched Caesars Sportsbook last month through a national advertising campaign. The company plans to spend more than $1 billion to grow its sports betting and online gaming business and acquire new customers.

Ahead of the debt raise, Caesars said in a Securities and Exchange Commission filing that its revenues for the first two months of the third quarter (July and August) were between $1.8 billion and $1.85 billion. The company’s Las Vegas resorts accounted for 37 percent of that total.

“We continue to see Caesars as well-positioned for a leisure-based Strip recovery,” Truist Securities gaming analyst Barry Jonas wrote in a Sept. 9 research note. He added that Caesars’ regional gaming presence in 16 states could protect the company from any “reasonable COVID-19 resurgence.”

Caesars announced its debt raise two days after agreeing to sell the non-U.S. operations of United Kingdom gaming operator William Hill for $3.04 billion to Gibraltar-based online gaming giant 888 Holdings. The casino operator plans to use nearly $2 billion from the sale to pay down debt, resulting in net proceeds of $1.2 billion. Caesars had $14.7 billion in debt at the end of June.

Sands focusing on Asia

Las Vegas Sands is waiting on regulatory approval for the company’s previously announced $6.25 billion sale of its Las Vegas Strip holdings to a combination of VICI and Apollo Global Management.

The debt offering on behalf of Sands China is expected to close Sept. 23, and the company plans to use the proceeds and cash on hand to redeem $1.8 billion in debt that comes due in 2023. The newly acquired debt has a range of maturity dates – $700 million due in 2027, $650 million due in 2029 and $600 million due in 2031. At the end of June, Las Vegas Sands had total debt of $14.42 billion.

Similar to Caesars, Sands provided investors some insight into its Macau operations during July and August in an SEC filing. Its Macau resorts lost $108 million during the two months, which the company blamed on tighter border restrictions that slowed visitation between the Special Administrative Region and mainland China’s Guangdong Province, a key feeder market to Macau’s casinos.

Macau’s total gaming revenue is down 69 percent through the first eight months of 2021, compared to 2019. Analysts said COVID-19 outbreaks across mainland China caused the downturn. As a whole, Macau casinos produced just $554 million in gaming revenue during August, the market’s lowest single-month total since September 2020.

“Admittedly, it’s tough to be near-term bullish on the Macau sub-sector,” JP Morgan gaming analyst Joe Greff told investors in a Sept. 8 research note.

After the sale of the Venetian, Palazzo and Sands Expo and Conference Center, Las Vegas Sands won’t have any holdings in Las Vegas and will be an Asian facing company with six casinos in Macau and the Marina Bay Sands in Singapore.

“Investors who are patient should like (Las Vegas Sands’) laggard profile, both in the share price and fundamental recovery,” Greff wrote in his research note. “The key issue for both Macau and Singapore is travel mobility, which is going to be directly tied to infection and vaccination rates and ensuing travel policies changes, all of which are tough to predict.”

Las Vegas Sands has opened the first phase of The Londoner Macau, which is a $2.2 billion renovation of the Sands Cotai Central complex. The company is also spending $3.3 billion at the Marina Bay Sands to add an all-suite hotel tower, additional convention and meeting space and other non-gaming amenities.

In the SEC filing, Las Vegas Sands noted it had more than $2.56 billion on its balance sheet — $556 million in cash and $2 billion of borrowing availability.

“We view this liquidity position as more than ample to ride out a tough short-term travel impacted period,” Greff said.

Pedestrians walk towards the Palazzo with the under-construction MSG Sphere in the background on Sunday, May 30, 2021. (Jeff Scheid/The Nevada Independent)

VICI buying up the Strip

VICI said it plans to use the proceeds from the stock sale to help fund its part of the Las Vegas Sands purchase. The REIT also is paying $4 billion to acquire 63 acres along the Strip and the 19 acres that house the under-construction $1.8 billion MSG Sphere project. Apollo is paying $1.25 billion to acquire the Venetian Operating Company.

VICI’s $17.2 billion acquisition of MGM Growth includes ownership of the land housing nine gaming and non-gaming properties operated by MGM Resorts International.

Macquarie Securities gaming analyst Jordan Bender told investors in a Sept. 10 research note that the market is unconcerned about any additional debt VICI will have to add to its balance sheet. At the end of June, VICI had total debt of $6.9 billion.

“Management continues to prove its ability to grow the business in an accretive manner while growing revenues,” Bender said. VICI is predicting its current deals, which are expected to close in 2022, will give the company expected annual revenues of $2.8 billion. In 2019, VICI’s total revenues were $900 million.

“We expect (VICI’s) dividend to grow by roughly 30 percent over the same period,” Bender said.

Deutsche Bank gaming analyst Carlo Santarelli, in a research note Monday, said VICI is “underappreciated” relative to other REITs. However, following the acquisition of Sands and MGM Growth, Greff suggested VICI will be among the largest REITs in terms of annual cash flow in the RMZ, a market capitalization index.

“(It’s size) will put the company on additional radars and drive incremental value for existing shareholders,” Santarelli said.

Viva Las Vegas? Seminole Gaming CEO taking part in G2E keynote panel

Seminole Gaming CEO/Hard Rock International Chairman Jim Allen in front of the Guitar Hotel at the Hard Rock Hollywood in Florida. (Courtesy photo)

The appearance of Seminole Gaming CEO Jim Allen on a Global Gaming Expo keynote panel next month could touch off questions about potential Las Vegas expansion plans for the Florida tribal gaming operation.

Allen, who is also chairman of Hard Rock International, is speaking alongside Wynn Resorts CEO Matt Maddox and MGM Resorts International CEO Bill Hornbuckle during G2E on Oct. 6 at the Sands Expo and Convention Center. CNBC anchor Contessa Brewer will moderate the discussion.

The session is billed as a conversation about the ever-evolving commercial and tribal gaming landscape. In that vein, the talk could cover the recent tribal gaming push into Las Vegas.

The Seminole Tribe has owned Hard Rock International since 2007 and has grown the brand into a worldwide gaming, hospitality, dining and entertainment presence. Hard Rock currently has 14 casino properties in the U.S., Canada and Punta Cana in the Dominican Republic.

The tribe lent the Hard Rock name and brand to an off-Strip property that went through several management changes over the course of more than two decades. The property has since been rebranded as Virgin Hotels Las Vegas.

Speculation about a new Hard Rock Las Vegas arose in March 2020 when Hard Rock announced it had acquired the rights to the name Hard Rock Hotel Casino Las Vegas, along with the former property’s music memorabilia, signage and merchandise, intellectual property rights for affiliated restaurant and entertainment trademarks, and website domain names.

Allen, who has spent more than 20 years with Seminole Gaming, said in a February interview it was important to the company to control the brand but offered no hints of a Las Vegas landing site.

“We’re not involved in any transaction at this point,” he said.

After that interview, Connecticut-based Mohegan Gaming & Entertainment – the business arm of the Mohegan Indian Tribe – began operating the 60,000-square-foot casino space inside Virgin Hotels Las Vegas, becoming the first tribal gaming enterprise licensed by Nevada gaming regulators to operate a casino within the Strip corridor.

In May, Southern California’s San Manuel Band of Mission Indians said it would acquire the off-Strip Palms Casino Resort for $650 million from Red Rock Resorts. The transaction is expected to close by the end of the year pending regulatory approval.

Seminole Gaming operates six of the state’s seven tribal casino properties, including Hard Rock Tampa and Hard Rock Hollywood near Fort Lauderdale. In 2019, Hard Rock opened the $1.15 billion Guitar Hotel expansion at the Hollywood resort. The 638-room tower is shaped like the body of a guitar.

Other items of interest

Stanley Mallin, AGA Hall of Fame member. (Photo Courtesy AGA)

Stanley Mallin, the long-time business partner of Las Vegas casino personality Jay Sarno, died Saturday in Las Vegas at age 98. Mallin, who was inducted into the American Gaming Association's Gaming Hall of Fame in 2019, was an essential executive in the opening of two Strip resorts conceived by Sarno: Caesars Palace in 1966 and Circus Circus in 2008. The bombastic and larger-than-life Sarno was the face of the Strip developments while Mallin was the quiet behind-the-scenes operator who managed the properties in the 1960s and 1970s. Sarno was part of the Gaming Hall of Fame’s inaugural class in 1989, but it took 30 years to enshrine Mallin. Oliver Lovat, CEO of gaming industry advisor Denstone, said Mallin was “the last of the great Las Vegas pioneers.” On the Strip, Mallin is still memorialized. Stan Mallin Drive runs parallel to Jay Sarno Way, with both connecting from Frank Sinatra Drive into the back end of Caesars Palace.

Gaming equipment provider International Game Technology has moved its online gaming and sports betting businesses into a newly formed Digital & Betting operating segment. The two businesses were originally part of the company’s Global Gaming division. The move gives IGT three business sectors: Global Lottery, Global Gaming and Digital & Betting. IGT is headquartered in London but has significant production, sales and marketing divisions in Nevada. IGT CEO Marco Sala said Enrico Drago will serve as CEO of the Digital & Betting division. Drago, 44, previously had oversight of IGT’s online gaming, online lottery and sports betting operations. "These businesses have become strategically important to IGT as they afford us the opportunity to leverage the global reach and strong customer relationships of our Global Gaming segment,” Sala said. “The new structure gives us more flexibility in our product and solutions portfolio.”

Trey Wingo and JB Smoove. (Photo Courtesy Caesars Sportsbook)

Former ESPN anchor Trey Wingo made his first appearance last week as the chief trends officer and brand ambassador for Caesars Sportsbook. The sports betting arm of Las Vegas-based Caesars Entertainment launched operations in Arizona earlier this month. Wingo, who left ESPN in 2020 after 23 years with the network, was at Chase Field in Phoenix with Caesars officials, Arizona Diamondbacks representatives, Arizona Gov. Doug Ducey and actor J.B. Smoove, who stars as “Caesar” in the company’s nationwide advertising campaign. Wingo, who hosted NFL Live and for the NFL Draft for the network, will create original sports betting content and analysis for Caesars that will be broadcast across the company’s media channels. Wingo is among a growing roster of former athletes, media personalities, and celebrities who are now “brand ambassadors” for sportsbook operators who oversee the activity that is now legal and operating in 26 states and Washington D.C. “I want to tell the stories behind the odds,” Wingo said.

Caesars Sportsbook did have one hiccup on Sunday. According to the Las Vegas Review-Journal, an outage halted mobile sports wagering in Nevada just before kick-off for the 10 a.m. NFL games. On Sunday afternoon, once power to the apps was restored, Caesars gave two free $25 wagers to its customers and apologized for the inconvenience via email.

BetMGM has come up with a new solution for customers to fund their sports wagering accounts: gift cards. BetMGM, a 50-50 partnership between MGM Resorts International and Entain Plc, said a partnership with payments firm TAPPP will allow gift cards in $25 and $50 denominations to be sold at major convenience and grocery retail chains in states that offer legal sports betting. Currently, the cards are sold in 6,000 locations in eight states. "One of the biggest pieces of feedback we get from our customers is that they want a simple and convenient way to fund their accounts," BetMGM Head of Payments Maria Tomlinson said in a statement. The gift cards help avoid deposit failures, she said.

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