What Are the Chances That Las Vegas Casinos Will Go Bankrupt?

Closed Sign With Las Vegas Casinos

It has happened before. Atlantic City, once heralded as the Las Vegas of the East Coast, has gradually accepted that it cannot sustain itself on just a gambling economy. Through the years about half of Atlantic City’s casinos have gone bankrupt or changed hands.

But Atlantic City’s problems arose from competition in nearby states like Pennsylvania and New York. Nevada’s gaming industry has had the advantage of being the only legal industry for decades, and nearby competition has been limited to Native American casinos.

Las Vegas established itself as the dominant gambling city in North America by drawing away the illegal gambling from the Gulf Coast and other parts of the country decades before the Native American and commercial casino industries began to explode.

The companies operating Las Vegas casinos own properties around the world, including in Atlantic City and other U.S. cities. Through geographical diversification such businesses – which combine gambling with hotel resorts and even theme parks – usually thrive, weathering local economic downturns.

But earlier in 2020, the Covid-19 pandemic changed the rules for everyone. The Las Vegas casino industry faces a triple threat to its economic stability.

Here is what you need to know.

The Immediate Effects of Shutdowns Were Severe

Earlier in the year when most state governors ordering their populations to stay home for weeks or months, domestic tourism in the United States all but stopped. That means Las Vegas lost out on revenue spent by an estimated 3.4 million monthly visitors.

The casinos have also had to furlough or lay off many employees. They’re no longer contributing to the metropolitan area’s local economy, except to pay for basic costs like electricity, taxes, mortgages, security, and simple building maintenance.

Tropicana and Las Vegas Boulevard

The shutdowns were the obvious threat to the casinos’ economic well-being, but they’re no longer immediate danger of going bankrupt. According to USA Today the casinos in Las Vegas have enough money to keep running for at least eight months.

But how reliable is that analysis?

Here is where threats two and three come into play.

Large Commercial Game Operators Have Multiple Locations

Whether Caesar’s or Harrah’s or MGM, the casino operators have faced shutdowns all over the world. Travel almost come to a complete halt. Tourism wasn’t just in recession, it almost ceased to exist.

Family-friendly resorts and gaming resorts alike have less customers to cater to.

So the burn-costs each company faces apply to all of their locations, not just the Las Vegas casinos.

The boards of directors for several large gaming and resort companies suspended dividends for the rest of the year. While dividend suspensions are happening in other sectors, this is a clear sign that revenues are not anywhere close to normal.

The more resorts a company must maintain without revenue the larger, faster their burn-rate becomes. At some point these companies will run out of cash and then they’ll have to issue bonds or take out loans. And investors won’t give them good terms because they’ll be considered high-risk borrowers.

That’s a major comeuppance for an industry built on games that favor the house. Real money gambling is considered one of the safest bets for investors in good times. But now that people with discretionary incomes cannot get into the casinos they have no choice but to wait out the storm.

Normal travel will come back eventually. Tourism will restart eventually. And fortunately for Las Vegas the city’s tourism tends to be evenly distributed throughout the years.

Other Key Industries Are Changing or Suffering

Although many people do visit Las Vegas to gamble, the city’s convention industry is one of the most popular in the United States. And conventions everywhere have been affected.

Unlike factories and stores, restarting a convention is no simple task. Some event management companies have not survived the crisis.

People in many industries have reported that their convention registrations may be honored at future events, but those could still be many months away. Convention facilities in high-demand cities like Las Vegas are usually booked 12 months in advance, if not farther out.

Las Vegas Convention Center

Event management companies can rarely reschedule a canceled event for the same year. The larger the convention the less likely sufficient space will be available.

Some small conventions are experimenting with online panels and workshops. If this format proves successful it may upend some segments of the convention industry because online conferencing is much less expensive than sending people to another city.

Companies that have been happy to pay for employees to travel to Vegas may suspend convention travel for 1-2 years to recoup costs.

And that means the long-term outlook for Nevada gaming industry is still uncertain. The casinos don’t just need for lockdowns to end. They need for convention and tourism travel to resume at previous rates.

The American Economy Needs Time to Recover

According to the latest estimates, about 1-in-7 American workers have lost their jobs. That estimate is based only on unemployment insurance filings. Some economists fear that millions of more workers may not have been able to complete applications, or may not be eligible to file for benefits at all.

Regardless of how fast states move to re-open their economies job losses are expected to continue. People have had to depend on their savings. According to a December 2019 survey, nearly 70% of Americans reported having $1000 or less in savings.

For millions of families, their savings are gone. They won’t be planning vacations this year and maybe not even next year. They’re more worried about staying in their homes.

The job losses didn’t affect any one sector, either. High-paying jobs were more likely to vanish than low-paying service sector jobs. Even though restaurants have closed down all over the country, many of them are still selling delivery or take-out meals.

It will take months if not years for the economy to rebuild itself to where it was at the end of 2019.

Casinos Have Had to Change How They Manage Guests

One thing the pandemic has taught the world is that everything cannot go back to the way it was. Cruise ships were already notorious for failing to manage less deadly virus outbreaks. And people are not sure whether cruise lines will resume any kind of operations after the pandemic has been declared over.

Land-based casinos have an advantage over cruise ships but their hotels and gaming halls have had to change how guests move about and how close they can stay together.

One of the effects COVID-19 has had on the casino industry is that operators around the world require their dealers to wear masks. While face masks help prevent infected people from spreading the virus they don’t offer much protection against contracting the virus.

Casinos remain among the last smoker-friendly business sectors. But smokers don’t fare well against respiratory infections and medical professionals are unsure if the Covid-19 virus causes long-term damage to the lungs.

Las Vegas Showgirl Wearing a Mask

Many casinos have restricted smoking to special lounges or designated outdoor areas. Some casinos may decide to go completely smoke-free, which is not considered a successful strategy in the industry. And yet for health reasons they may have little choice.

Just as grocery stores and other businesses have put tape down on their floors to help people maintain safe distances, the casinos have enacted similar measures. And the slot gaming industry has taken a hard. The worst-case scenario would see casinos removing at least ½ of their slot games from floors to maintain social distancing.

The social aspect of gaming is very important to the casino experience. Although some players prefer to sit alone, many enjoy the party-like ambiance of playing with several other people close by.

The social experience may change forever.

Conclusion

Casino operators must return to profitability as soon as possible. But to keep their investors happy they’ll have to build significant profits. And that may mean cutting costs for a while until they grow their revenues back.

Much will depend on one factor: how many people return to the casinos. The longer it takes for players to come back to the floors, the harder it will be for the resorts to keep doing business as before.