Red Rock Resorts is heavily dependent on the health of the Las Vegas locals gaming market. In this report, we examine key gaming metrics in the Las Vegas locals market – going beyond simple measures of gaming revenue – in order to gauge the company’s potential to grow back up to the peak levels of 2007.
We challenge the myth that growth in the Las Vegas locals market will lead to recovery of the 2007 heights anytime soon. As we focus on slot handle and slot payout trends, we find there is little increase in slot handle while higher gaming revenue has come from tighter slots.
What we see is that the slot handle has been increasing at a slow pace in the Las Vegas locals market. From January 2012 to January 2017, slot handle in the locals market increased by only 1.88% with a CAGR of 0.37%. These monthly handle numbers show a relatively stagnant market with little growth.
In contrast, the monthly handle numbers leading up to the Las Vegas locals market’s historic peak in 2007 paint a very different picture. From January 2002 to January 2007, monthly handle increased by 33.8% with a CAGR of 5.99%. As of March 2017, total slot handle in the Las Vegas locals market was down 20.6% from its historic peak in March 2007.
|Las Vegas Locals Market||Handle Increase||CAGR|
|Run up to peak (Jan 2002 – Jan 2007)||33.8%||5.99%|
|Current (Jan 2012 – Jan 2017)||1.88%||0.37%|
Our analysis of historical slot handle and win percent numbers for the Las Vegas locals market shows that one reason for the increases in gaming revenue in the Las Vegas locals market (and the myth about the locals market recovery), is tighter slot machines. Investors should ask management when Red Rock will be able to grow to pre-recession levels of business in this stagnant and saturated Las Vegas locals market.
Read Part II: The Myth of the Las Vegas Locals Market Recovery
(Picture source: https://commons.wikimedia.org/wiki/File:Sandro_Botticelli_021.jpg)