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Red Rock Resorts Silent on Sports Betting

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Red Rock Resorts has not made any significant moves to bolster its position in sports betting following the overturn of the Professional and Amateur Sports Protection Act (PASPA) in May 2018. Public investors in Red Rock Resorts should ask: Does management at Red Rock Resorts have plans to pursue sports betting or other gaming opportunities outside of Nevada? If not, why not?

Read our new report, “Red Rock Resorts Silent on Sports Betting“. 

Estimates about the potential size of a mature, national U.S. sports betting market vary from $67 billion to $287 billion in annual wagers.[1],[2] Legal sports betting in the U.S. has amounted to $763 million of gaming win over the last twelve months.[3] Over half of the gaming win in the last twelve months ($430 million) was generated outside of Nevada.

Other gaming companies acted quickly by partnering with sports leagues and teams, betting and data firms, and even with competitors in order to build strong foundations for emergent sports betting markets.

Frank and Lorenzo Fertitta reportedly led a $17.5 million investment round in The Action Network via their family office, Fertitta Capital, in February 2019.[4] Fertitta’s investment in The Action Network not only presents a potential conflict of interest to Red Rock Resorts public shareholders, but also a potential risk.

Read our new report here.

Notes

[1] $67 billion estimate. Jay L. Zagorsky, “Opinion: The U.S. market for sports betting is far smaller than the $150 billion proponents claim,” MarketWatch, May 15, 2018, https://www.marketwatch.com/story/the-us-market-for-sports-betting-is-nowhere-close-to-150-billion-no-matter-what-proponents-say-2018-05-15.

[2] $287 billion estimate. Oxford Economics, “Economic Impact of Legalized Sports Betting,” American Gaming Association, May 2017, p. 5, https://www.americangaming.org/wp-content/uploads/2018/12/AGA-Oxford-Sports-Betting-Economic-Impact-Report1-1.pdf.

[3] Last twelve months refers to November 2018 through October 2019. Gaming win data come from state government gaming agencies or lotteries.

[4] Action Network Staff, “The Action Network Completes $17.5 Million Series B Financing Round Led by Fertitta Capital,” The Action Network, press release, February 21, 2019, https://www.actionnetwork.com/press/action-network-funding-series-b-fertitta-capital.

Selling Growth While Cashing Out

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Read our updated report, “Selling Growth While Cashing Out”.

Is the Las Vegas locals market in decline? Data from the Nevada State Gaming Control Board show a continuing decline in the number of slot machines in the Las Vegas locals market since 2009. This is accompanied by a similar decline in the total amount wagered by customers in the locals market. Both total slot units and amounts wagered have declined to 2003 levels. Station Casinos derives “approximately 80% to 85%” of its gaming revenue coming from slot play.

Why is Red Rock Resorts selling hard-to-come-by casino sites? Historically, Station Casinos built its leading position in the Las Vegas locals gaming market by acquiring a portfolio of competing locals casinos and undeveloped land shielded from competition thanks to Nevada’s SB 208 legislation. The company touts its gaming-entitled land holdings in its IPO prospectus, but it has not disclosed that some of its casino sites are now on the market or explained why it is ceding some of its “highly desirable” and “strategically located” gaming-entitled locations in Las Vegas.

When will Red Rock Resorts grow again? Station Casinos has seen little growth in its core Las Vegas business over the last several years. Casino revenues from its properties in Las Vegas barely increased from 2009 to 2014, with a compound annual growth rate of only 0.07%. A significant portion of the company’s EBITDA growth over the past three years has come from its tribal casino management agreements, but the company has not signed a new tribal casino development agreement in over a decade.

Investors deserve better analysis of Las Vegas economic conditions. We reviewed how the company in its IPO filings describes certain of its own key metrics for understanding the Las Vegas economy and the potential for growth in the Las Vegas locals gaming market (e.g. average weekly wages and home value appreciation). When Station Casinos says that it believes the Las Vegas locals gaming market is one of the most attractive in the U.S. because of, among other things, “its strong economic and demographic fundamentals,” what is the company talking about? How confident is the company in its claims?