On March 15th, both Wynn Resorts (NASDAQ:WYNN) and MGM Resorts International (NYSE:MGM) – having already experienced the impact of coronavirus in Macau – announced plans to temporarily close their Las Vegas Strip properties. And then on Tuesday, March 17th, Nevada Governor Steve Sisolak decided for the rest of the state of Nevada, ordering Nevada residents to stay home and the closure of non-essential businesses for the next 30 days, thus shutting down the entirety of the Nevada gaming industry for the first time in its history.
It was a bold, decisive move that – frankly speaking – took a lot of guts and will have saved many lives. But in an instant, the almost entirely Strip-dependent and tourist-driven Las Vegas economy came to a screeching halt, with massive furloughs and layoffs coming across the gaming industry, and no clear end in immediate sight. As it is, MGM, Caesars Entertainment (NASDAQ:CZR), Penn National Gaming (NASDAQ:PENN), and suppliers including IGT (NYSE:IGT) have all announced significant furloughs and layoffs. Nightclub/dayclub operator Hakkasan Group – the company behind Hakkasan night club and Wet Republic dayclub at MGM Grand, Omnia at Caesars Palace, and Jewel at Aria, among others – reportedly laid off its entire 1,600-person Las Vegas workforce, while the Tao Group (Tao at the Venetian, Lavo at the Palazzo, and Marquee and Beauty & Essex at the Cosmopolitan) temporarily laid off its part time staff.
As is the case everywhere else, the question on everybody's mind here in Las Vegas is: When do things start returning to normal? When can we start returning to work, mingle with others at the restaurants and bars and casinos, hit the gym again, and get a proper hair cut?
When does the Las Vegas Strip reopen, and what will it look like when it does?
The first thing we need to do is differentiate between the Strip and the rest of Las Vegas, because when the Strip reopens and when the rest of the city starts returning to some semblance of normalcy are two completely different questions with different timelines.
Let me preface what comes next by saying that, as a Las Vegas resident, I like our chances of containment here:
- Las Vegas is isolated in the middle of the desert.
- Las Vegas is sprawling suburbia, and as such it is relatively easy to maintain social distancing here.
- Thanks to the leadership of Gov. Sisolak and the casino operators who moved to shut down first and get in front of the looming coronavirus outbreak, it's conceivable that Las Vegas may come away from this relatively unscathed in that regard.
As it stands, on April 1, Sisolak extended the statewide shutdown until at least April 30, in line with President Trump's federal social distancing guidelines extension announced March 29. That said, depending on how the next few weeks play out, I don't think it is inconceivable that Las Vegas (ex-Strip) emerges from lockdown by June, assuming adequate testing capability is in place to test our own population. This means that we could see the locals casinos operated by Red Rock Resorts (NASDAQ:RRR) and Boyd Gaming (NYSE:BYD) and others open – along with local restaurants, bars and taverns, gyms, and barber shops – with the caveat that we may be staring at additional lockdowns up until the point that a coronavirus vaccine is produced, and that there will likely still be social distancing measures in place regardless.
But what about the Strip?
Before we can talk about when the Strip should reopen, we need to talk about the why the Strip should reopen, and under what conditions.
Let's start by talking about our new reality.
Las Vegas: The New Reality
The reality is that the Las Vegas economy is largely dependent on air travel, and almost entirely dependent on tourism. The reality is that every year, Las Vegas sees 42 million of the most geographically diverse visitors on the planet, all concentrated onto a 4-mile Strip; the Strip is a Petri dish for a virus, and little different from a cruise ship.
And the reality is that the coronavirus is not going to be a short-term problem, but one with lingering effects. Where the post-9/11 recovery was almost purely a psychological problem ("Is it safe to travel?"), coronavirus is not ("No, it's not safe to travel, and it won't be for a very long time.").
And unfortunately, the Las Vegas economy is not going to simply snap back:
- People have to want to travel and have the means (income) to travel.
- People have to feel safe coming to Las Vegas.
- We have to feel safe having people come to Las Vegas.
This means that at minimum: (a) we have to have coronavirus under control here, and (b) we have to be able to vet the visitors that come here. We are a long way from these needs being met; we are not even capable of testing our own population yet. And until we know when these things will happen, it is not reasonable to project a hard opening date with any level of confidence.
We know what the endgame is: Either we have to have a vaccine (12-18 months+), or everybody needs to be exposed to the virus (the less desirable approach). Until that time, it's a strong possibility that we could be staring at intermittent lockdowns.
And if that is the case, you have to start to ask the question: Until we have a vaccine, why open the Strip at all?
Why Open At All? The Customer, Macau, and Travel Restrictions
For those expecting the Strip to open May 1, the next question you need to ask is this: Even if the Strip were to open on May 1, who would come here and where do you expect these visitors to come from? China? Italy? Spain? The UK? New York City? New Orleans? Florida spring breakers? Other cities which may yet see outbreaks or will be dealing with containment for the foreseeable future?
The reality is that our visitors have to come from some place, and at the moment, the rest of the world is on lockdown, and will continue to have their own problems and be on different timelines.
In February, Macau reopened after closing for two weeks due to coronavirus. In March, Macau effectively operated at 20% of pre-coronavirus levels, showing an 80% drop in year-over-year gaming revenues. And if 20% doesn't seem bad enough, consider that Macau has the benefit of a large daytrip market from Hong Kong, whereas the Las Vegas Strip does not cater effectively to locals, and does not have such a daytrip market; the short-term outlook for Las Vegas is bleaker.
Meanwhile, Macau implemented increased border restrictions after seeing a rash of new coronavirus cases in March. On March 18th, Macau banned all visitors from outside China, Taiwan, and Hong Kong, before announcing March 24th that it would close its borders to all non-residents who had recently traveled abroad effective March 25; that announcement came a day after Hong Kong said that it would close its borders to visitors and ban the sale of alcohol at bars in an attempt to curb new infections.
In order to protect our own population and ensure the safety of the visitor in order to encourage visitation, we are likely to see similar travel restrictions erected before Las Vegas is ready to accept visitors en masse. There will be other restrictions in place: Macau reopened with the qualification that all staff and gamblers wear masks at the table; only half of the gaming tables were allowed to be open; each baccarat table was only allowed four players, instead of seven seats and a crowd of onlookers and back-bettors; and casinos would require temperature checks of the guests.
All of these things present barriers to visitation, and barriers to revenue generation.
That said, for what level of demand would the Strip be opening for? Enough to justify opening part or all of the Strip for a month or two at a time, if intermittent or extended lockdowns proves to be the strategy and/or the reality in parts or all of the United States, and much of the rest of the world?
Las Vegas Strip: Regarding that Re-opening Timeline
I think the general expectation is that we will see a phased approach to the reopening of the Strip. For example, we could see some properties open first, and in most any case likely without certain amenities in place (for example night clubs, large events, etc.). The real question is when do these phased openings begin?
I know that many of you reading this are anxious to have the Strip open at the soonest possible date, and some prominent onlookers insist that May 1st is going to be that date. I encourage you to read these headlines, actions, and statements to get a feel for how this situation is being approached from both inside and outside the gaming industry, and push your expectations for an opening date back.
- 4/2: Caesars Entertainment furloughs 90% of its American workforce
- 4/2: Disney to furlough non-essential employees April 19, "with no clear indication of when we can restart out businesses."
- 4/2: Miami mayor Francis Suarez sent President Trump a letter requesting the immediate suspension of flights from international and domestic COVID-19 hotspots to Miami International Airport
- 4/1: Tokyo 2020 president Yoshiro Mori believes it will be a risk holding the Olympics next summer due to fears coronavirus may still be around. "Postponing the Olympics by only a year has been described as a 'gamble' by the head of the Tokyo organizing committee."
- 4/1: "Airline traffic has plunged and it probably won't recover any time soon."
- 4/1: City of Henderson (NV) cancels all events, sports leagues, and recreation programs through the end of May.
- 3/31: City of Toronto bans all public events until June 30.
- 3/30: Virginia Governor Ralph Northam issues stay at home order until June 10.
- 3/30: "The lockdown in the U.K. to stop the coronavirus outbreak could last for up to six months."
At this stage, even the idea that the NFL season will start on time in September is doubtful. With that in mind, why are we so anxious to crowd the Strip before we are ready?
My opinion is that we are looking at a minimum of 2-3 months from the original March 18 lockdown date, and that we should be prepared for the Strip to be closed up to 6-12 months, if not longer. And moving forward, the best proxies for the Strip are theme parks (chiefly Disney World and Disneyland), cruise ships, and the return of the sports leagues.
Silver Linings: The Reset Button, A Return to Value, and The Resort Fee
There are silver linings here. Over the past five years, I've written extensively about the increasing value problem on the Las Vegas Strip, as a function of the impact of the rising house advantage (the price of gambling, all else being equal), which has been on the rise for over two decades now; as a function of the impact of the rising price of everything on the Las Vegas Strip in general; and as a function of the impact of the use of hidden fees – including resorts fees – and the general nickel-and-dime approach to the customer on the Las Vegas Strip. I've also written about the increasingly disproportionate lack of low-end hotel supply on the Strip as a function of imploding the old hotels and replacing them strictly with 4- and 5-star hotel casinos, and its probable impact in stunting the growth in Las Vegas visitor volumes.
As it turned out, visitation to Las Vegas did in fact hit the wall, peaking at 42.9 million visitors in 2016, and otherwise showing a visitor count of 42 million for the last five years in a row, despite a booming U.S. economy.
The hotel part of the value equation will in part naturally be solved by lower demand over the next several years; room rates will be more attractive by default.
That said, I think this is an excellent opportunity – while the whole planet is closed – to hit the reset button. This means ditching the nickel-and-dime approach to the customer, and taking the opportunity to do away with hidden fees– including resort fees – entirely.
While the general consensus is that the method for eliminating hidden fees would likely rest on federal legislation making such hidden fees illegal, this may not need to be the case. It could be that the state of Nevada takes the initiative of transparency and makes hidden fees illegal, and lets the other states that do not follow be the jerks. Alternatively, it could be that the casino operators themselves take the initiative and eliminate hidden fees as a group, and let the non-gaming resorts who don't follow be the jerks for a change.
The Las Vegas Value Proposition: The Great Equalizer
At 6:15 pm on Tuesday, March 10th, I was at Las Vegas City Hall as the city planning commission approved my plan to open a restaurant, coffee shop, and rooftop bar in an integrated multi-use project (not dissimilar in concept from the modern integrated casino resort) in the burgeoning Las Vegas Arts District. At that moment, the plan was to break ground in the next week or two in anticipation of a summer opening date. But the next day, Rudy Gobert of the Utah Jazz tested positive for the coronavirus; and by that evening the NBA had suspended the season, and all of a sudden there was no room to be picky about your brand of toilet paper.
In the blink of an eye, my whole outlook on how I thought the next 3-5 years of my life were going to go had changed.
Life, I suppose, has a way of testing you in such a way that you can never be quite sure that you're not playing a single-player game, and that nobody else actually exists ("Is this real?"). At the moment, I find it best to proceed as if this is real; as if you all do exist, and we are all facing a broader challenge together, if in the context of our own individual human experiences.
I'll close with two messages. First, to those of you who in live in Las Vegas, I promise that there is a path forward, and that this is the kind of thing that the Las Vegas Strip comes back from.
The first article I wrote about the gaming industry was here on Fool.com back in September 2003 on the purchase of Horseshoe Gaming by Harrah's Entertainment; that purchase itself came in the midst of the broader industry recovery from the aftermath of 9/11. In May 2007, I was at the Southern Gaming Summit in Biloxi, Miss., when the hot topic was redevelopment of the casinos on the Mississippi Gulf Coast in the aftermath of Hurricane Katrina; this was followed shortly by the 2008 financial crisis which again gutted the Las Vegas Strip market, from which Las Vegas reemerged as a value proposition and enjoyed a boom in visitation that lasted through the mid-2010s.
The point is, we are back in the part of the value cycle where Las Vegas will once again be an attractive value proposition, if once again not by choice. The value proposition is the Strip's Great Equalizer, that thing which will allow the Strip to course correct when things fall too far. There is an opportunity here to reset and reinvent Las Vegas and fix the mistakes of the past decade, and change our approach to the customer. We do this right – and this starts by not screwing up the coronavirus containment effort locally, and by not forcing the Strip open before we are ready for visitors – and the customer will come back in due time.
And the second message is this: For those of you who don't live here, I promise that when this is over, the Las Vegas you come back to will be better than the one you last visited.