Pennsylvania Casino Operators Down, But Not Out After Tough First Quarter

Posted on May 26, 2020 - Last Updated on May 27, 2020

As the injured gaming industry limps toward the finish of the second fiscal quarter of the year, we look back at the Q1 damage to some key PA gaming companies.

With the mid-March closing of Pennsylvania’s casinos and gaming houses due to the coronavirus, the Pennsylvania Gaming Control Board reported that PA gaming brought in revenue of $153.5 million in March. That was down 51% from March of 2019 where revenue was $316.3 million.

Wind Creek Bethlehem saw the worst year-over-year drop of any casino in the state in March at 71%. But they weren’t alone in feeling the financial effects in Q1.

Caesars takes a hit

Harrah’s Philadelphia, owned by Caesars Entertainment, reported a 65% drop in revenue month-over-month in March. Overall for Q1, Caesars’ revenue dropped 13.6% to $1.83 billion. Loss from operations totaled $66 million.

“The public health emergency caused by COVID-19 has created extraordinary challenges and is impacting all aspects of society, including our business,” said Tony Rodio, CEO of Caesars in the first quarter report.

“Our first quarter performance reflects the significant revenue declines we experienced as a result of the closures and stable year over year labor costs in March as we continued to provide pay and benefits to our team members for the first two weeks of the closure period.”

The silver lining in the sinking gambling revenue for PA is the success of iGaming. Online casino revenue was up 24.5% month-over-month in March, bringing in $24.3 million. But that was hardly enough to completely offset the losses elsewhere.

And Caesars didn’t yet have an online casino product in PA when the pandemic struck. After a long delay, Caesars finally launched online sports betting on March 10, mere days before the great sports shutdown. They got in on iGaming the following month, launching an online casino on April 23.

Preque Isle owner Churchill Downs confident they can recover

Churchill Downs Incorporated, which owns Erie County’s Presque Isle Downs and Casino was down 52% in March year-over-year. The first quarter highlights released March 31 show revenue throughout the gaming company down 5% over Q1 last year.

Net revenue for Q1 2020 was reported at $252.9 million. But adjusted net income fell drastically quarter-over-quarter, from $25.5 million in Q1 2019 to $2 million in Q1 2020.

“During this unprecedented pandemic, we remain focused on the health and safety of our team members, customers and communities,” said Bill Carstanjen, Churchill Downs CEO. He continued:

“We appreciate the support we are receiving from our state and local government and regulatory officials as well as our community leaders who are reviewing our proposed safety protocols and working with us to determine the appropriate timing for re-opening our properties.”

The first quarter report also details how they’ve placed planned maintenance projects on hold in addition to capital project expenditures. They also borrowed $675.4 million in order to provide the company with ‘additional financial flexibility.’

Carstanjen said they are confident they can recover.

“Our strong balance sheet and the deep experience and resilience of our team will enable us to emerge from these challenging times as a stronger company ready to execute on all of the growth opportunities we have shared with our investors.”

Boyd Gaming challenged, but well-positioned

Keith Smith, president an CEO of Boyd Gaming, which owns the Valley Forge Casino said in their first quarter report they expect to bounce back.

“Prior to the closure of all of our properties in mid-March, our Company began the first quarter with a strong performance, posting two consecutive months of solid year-over-year growth across our nationwide operations,” Smith said.

“And while our first-quarter results were significantly impacted by property closures, we have taken broad-based actions to reduce expenses and preserve liquidity. As a result of these actions, and the progress we have made in recent years to strengthen our balance sheet, we believe our Company is well-positioned to sustain itself through the closure period. We intend to emerge from these challenging times as a more efficient and operationally focused Company.”

Preliminarily, Boyd Gaming said it lost $18.3 million in the first quarter, a figure that could be adjusted, it said, when it will likely file an amended report with the Securities and Exchange Commission by the end of May. The same period in 2019, Boyd reported net income of $45.5 million. First quarter revenues were $680.5 million in 2019, compared to $827.3 million in Q1 2019.

As of March 31, 2020, Boyd Gaming had cash on hand of $831.2 million, including $670 million that was drawn from the Company’s revolving credit facilities on March 16, 2020. Their debt is currently at $4.4 billion.

Penn National feels the pain, looks for cash

Penn National Gaming owns Hollywood Casino Penn National Race Course outside of Harrisburg and operates The Meadows Racetrack and Casino southwest of Pittsburgh. According to company brass, 2020 was off to a great start pre-pandemic.

“That momentum was cut short in mid-March by the COVID-19 pandemic, which required the temporary closure of all 41 of our properties,” said Jay Snowden, president and CEO. “As a result, our first quarter revenues decreased $166.5 million year-over-year, to $1.12 billion, and we incurred a net loss of $608.6 million due to $616.1 million of impairment losses.”

Penn was making big moves, including purchasing a large stake of Barstool Sports, just before the pandemic hit and their stock took a dive. Penn originally planned a Q3 launch of an online betting product focused on sports betting and table games under the Barstool Sports brand.

Barstool and its healthy following of young adult sports fans remains at the center of Penn’s online sports betting plans. In the meantime, the Wyomissing, PA company has taken various measures to increase cash flow during the downswing, including announcing a public stock offering worth $600 million.

Penn’s future plans focus on iGaming, online sports betting

In the report filed March 31, Penn National’s CEO said he’s “confident” that its long-term growth strategy will remain intact.

“Upon the reopening of our casinos, we believe Penn National is very well-positioned to resume its positive momentum. We are especially encouraged by the early results of our iCasino product in Pennsylvania. Despite the state’s excessively high tax rate, which has limited our marketing spend, 40,000 customers have registered for our iCasino product thus far, with roughly 66% of those players being new to our ecosystem.”

Penn National was the first to launch an online casino in PA with the Hollywood Casino app going live in July, 2019. In February, the site brought in $2.3 million in revenue. That rose to $2.6 million in March and jumped to $4.6 million in April, the first full month with live casinos all shuttered.

Penn also introduced another product, DraftKings Casino, under their Hollywood iGaming license. That product officially went live May 1. According to Snowden:

“Our experience in Pennsylvania has reinforced our view that our casino operating prowess and database will be a significant competitive advantage as additional states authorize iCasino over the coming years – particularly when combined with the potential for significant iCasino cross-sell from the Barstool Sportsbook.”

Penn was the first to open a retail sportsbook in PA, on Nov. 17, 2018. But they’ve lagged in the online market. There are now nine online sports gambling apps in PA, with Penn planning to join by the end of 2020.

Online betting market primed for further success

The appetite for online sports betting has proven great in the Keystone State, as evidenced by record handle numbers prior to casino and sports shutting down in mid-March. PA sportsbooks took in $329 million in wagers in February, a good indication of the industry’s potential once normalcy returns.

Unfortunately for gaming companies in PA and beyond, extended closures of live gaming establishments will continue to wreak havoc on the books for months to come.

But online casino continues to prove itself as a safe and viable revenue generator during a live casino – and live sports – shutdown.

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