Storms Rattle Industry
Lots of gaming jurisdictions are vulnerable to coastal storms. From Katrina on the Gulf Coast to Super Storm Sandy in New Jersey, hurricanes in Caribbean destinations and typhoons in Asia, the gaming business can be severely impacted by these natural disasters.
As if to demonstrate that point, in the last two weeks major storms hit Macau and threatened the Louisiana casino industry. Typhoon Hato shut all gaming down for days in Macau, causing problems in the government and feeder markets. Hurricane Harvey came ashore on the Texas coast and lingered for days, pounding the Houston area with as much as 50 inches of rain. Nearby Lake Charles was also impacted, but casinos remained open, if not earning their normal profits.
Hato Hits Macau
Macau casinos pummeled by Typhoon Hato last week are battered but back in business. At its peak, the tropical cyclone packed 124-mile-per-hour winds. Hato was followed days later by Tropical Storm Pakhar, which hit Macau and Hong Kong with peak winds of 80 miles per hour.
Expect the storms to take a toll on gross gaming revenues in Macau, said Union Gaming analyst Grant Govertsen. Nature’s one-two punch “took a large bite out of what would have been a spectacular GGR growth rate for the month of August,” Govertsen wrote.
“On the heels of July’s +29 percent, it had appeared that August could have approached or even eclipsed this rate, although now we would expect the number to be in the low 20 percent range.” He added that September should be “in the high teens,” and overall, the third-quarter growth rate “could shake out to be broadly in line with the 2Q growth rate, in the low 20 percent range.”
Tourism fell off in the aftermath of the storm, and many resorts were forced to briefly suspend operations due to power and water shortages and structural damage including broken windows. Resorts on the Cotai Strip were not as hard-hit as those on the peninsula, with its aging infrastructure, but all the properties were expected to have resumed normal operations by the first weekend of September, said Chan Chi Kit, president of the Macau Hoteliers and Innkeepers Association.
“The hotels here sustained some quite serious damage,” Chan told GGRAsia. “With fewer travelers coming, it helps to relieve the pressure on the hotels.” He estimated that up to 12,000 tourists may have stayed away because of the storm. “But the city’s attractions are still here, so visitors will come.”
Govertsen also weighed in on the effects of the storm, and the striking difference between the experience on the Cotai Strip versus the peninsula. “Many of the flagship casinos on the peninsula were either closed or barely operating, while it was more or less business as usual on Cotai, with mass foot traffic broadly in line with a normal midweek afternoon—although some were without air conditioning, which didn’t seem to faze guests,” he said. “With this in mind, we would expect a temporary dramatic share shift toward Cotai, as it could take a few days for the Macau peninsula to get back on its feet.”
Casino operators pitched in with donations to help in the relief and recovery efforts. Galaxy founder Lui Che-woo donated 60 million patacas (US$7.4 million). Pansy and Lawrence Ho made a similar donation on behalf of MGM, MGM China and Melco Resorts & Entertainment. Junket operator Suncity Group donated 5 million patacas to families affected by Hato.
Sands China Ltd. launched “a series of relief efforts aimed at team members and the wider community,” the company announced; Sands properties distributed 10,000 bottles of water, and the company opened a Venetian Macao expo hall and Sands theater as shelters. More than 100 volunteers from Sands China “helped clean up debris in the streets Saturday, then headed to Fai Chi Kei public housing to distribute bottled water, meal boxes and cleaning kits to families in need,” the company stated. Five hundred Melco Resorts staffers also participated in the cleanup, and employees from other resorts made themselves available to help.
The storms were followed by a storm of criticism from the public. Macau’s Commission against Corruption confirmed that it received a “large volume of complaints” saying the city’s Meteorological and Geophysical Bureau did not adequately prepare residents for the typhoon because it didn’t want to disrupt the casino industry. At one point, Hong Kong posted a signal 8 storm warning—10 is the highest—while Macau’s government rated Hato only a signal 3 typhoon. Bureau Director Fong Soi-kun resigned amid the criticism.
“There can be no doubt the casino factor plays into the thinking of those charged with making storm signal decisions,” a source told the South China Morning Post.
Fallout from the storm may also delay the completion of the $3.1 billion MGM Cotai resort, which was scheduled to open before the end of the year.
As the city continues to clean up, the resorts are planning big promotions and discounts to bring back the tourist trade, said Lei Kuok-keong, of the labor group Forefront of Macau Gaming and director of the New Macau Association.
As of late last week, the death toll from Hato had risen to 12. Though things are getting back to normal, with tour groups invited to resume their visits as of September 2, one civil servant told Reuters, “The city looks like it was just in a war.”
As Hurricane Harvey was downgraded to a tropical storm, heavy rains fell in western Louisiana in the same region that was hit by Hurricane Katrina 12 years ago to the day. The National Oceanic and Atmospheric Administration reported some areas of southwest Louisiana had up to 22 inches of rain causing some floods in Lake Charles and other towns after Harvey made its second landfall in Louisiana at 4:00 a.m. ET on Wednesday, August 30. By then, it was a tropical storm with maximum wind speeds around 45 mph. Harvey’s highest rainfall total in Louisiana was recorded at the Conway Bayou, with 22.25 inches of rain. New Orleans got 5.88 inches.
Most of the casinos in Louisiana, including Lake Charles and Shreveport, remained opened. Reno-based Eldorado Resorts closed its Isle of Capri Lake Charles at midnight. On its Facebook page, the casino said it would reopen once the storm passed. State police would also need to approve the casino’s reopening.
Las Vegas-based Boyd Gaming, operator of five Louisiana casinos including two in the New Orleans area, halted simulcast racing Tuesday at its Delta Downs Racetrack, Hotel & Casino. Nomura Securities Gaming Analyst Harry Curtis said Tropical Storm Harvey would have a “limited” impact on Boyd. He said the “worst-case, near-term negative impact” to Boyd’s casinos would be a decline of less than 3 percent in third quarter property-level cash flow. Boyd’s Louisiana casinos account for about 20 percent of the cash flow for the company’s 24 resorts.
Pinnacle Entertainment’s L’Auberge and Tilman Fertitta’s Golden Nugget are located in Lake Charles, a two-hour drive from storm-battered Houston, the largest feeder market. Scholes said Louisiana Gaming Control Board statistics show 84 percent of L’Auberge Lake Charles customer base comes from within 150 miles of the area. “We would expect casino spend to decline as the Houston area recovers. We see the near-term impact as worse than it otherwise would be due to the upcoming holiday weekend.”
Gaming analyst Patrick Scholes at SunTrust Robinson Humphrey
told investors in a research note the storm would cause Louisiana’s casino market “to feel ongoing weakness due to poor visitation.” Scholes added Vinton, home of Delta Downs, and Lake Charles “figure to source more from Houston and East Texas than other Louisiana markets.”
Police in New Orleans say some city streets have flooded. New Orleans Mayor Mitch Landrieu said the city is hoping for the best, but prepared for the worst. He said the uncertainty of what was to come over the Labor Day weekend could not be overstated, and he recommended “Everyone stay home Saturday because of uncertainty about storm and diminished capacity of drainage system.”
Scholes noted the “silver lining” for Louisiana’s gaming markets is “In the medium term, we believe there can be a whiplash effect. Construction jobs and FEMA money can benefit local casinos,” he said.
Forecasting the storm’s movement is difficult, said Louisiana State Climatologist Barry Keim. “The margin of error on a forecast like this is pretty high because essentially there’s no steering, and there’s just no telling really which direction it’s going to go,” he said.
Some models have the storm lingering until Friday and others see it moving north toward Kentucky. Another possibility, noted by Louisiana Governor John Bel Edwards, is that the storm will move back out over the Gulf of Mexico. But, he said, Harvey “does remain a named tropical storm and it’s going to drop an awful lot of rain. We do have a long way to go with this particular storm.” Edwards said after the storm has passed Louisiana, the state will shift resources to help Texas.
The hurricane did not create much of an impact in Las Vegas, however. Richard Broome, executive vice president of public affairs and communications at Caesars Entertainment Corporation said, “At this time our Vegas properties are seeing minimal impact from Hurricane Harvey but understand that our guests may need to cancel or extend their stays. We will work with each guest who needs to make changes to their reservation and we encourage them to contact the hotel front desk for further information.”
Texans accounted for just 1.7 million or 10 percent of visitors who flew to Las Vegas last year, according the city tourism office, which said 42.9 million people visited last year.
However, more than a dozen flights between Las Vegas and two Houston-area airports were cancelled on Monday, August 28 at the height of heavy rains resulting from the remnants of Hurricane Harvey.
According to McCarran International Airport’s website, Southwest Airlines canceled four arrivals and four departures between Las Vegas and William P. Hobby Airport near downtown Houston. United Airlines canceled two flights scheduled to arrive in Las Vegas from George Bush Intercontinental Airport, and one departure to Houston. Spirit Airlines canceled two arrivals and two departures between Las Vegas and George Bush Intercontinental Airport; Spirit previously canceled two flights scheduled to arrive in Las Vegas from Houston last Tuesday, plus two departing flights.