Hard Rock CEO Allen Sees Inflation Crimping Casino Demand

Posted on: May 15, 2022, 04:22h. 

Last updated on: May 15, 2022, 05:31h.

The April reading of the Consumer Price Index (CPI) was 8.3%, representing a meager decline from the 8.5% increase in March, but enough to keep consumer prices at the highest levels since 1982.

casinos inflation
Hard Rock International CEO Jim Allen in a recent interview with Fox Business. He says inflationary pressures are starting to show in the casino business. (Image: Fox Business)

At least one casino executive says signs are mounting that inflation is weighing on the gaming industry. In a recent interview with CNBC, Hard Rock International CEO Jim Allen notes inflation is affecting operators in a variety of ways.

Specific to Hard Rock, which is one of the largest tribal gaming entities in the US, Allen points out building materials prices “have just exploded.” That’s relevant to the operator’s Las Vegas Strip ambitions.

Last December, Florida-based Hard Rock said it’s paying $1.075 billion for the operating rights to the Mirage. But the operator’s spend isn’t ending there. It’s planning to gut the venue’s famous volcano and redesign the property in the shape of the ubiquitous Hard Rock guitar. Amid high inflation, supply chain issues, and labor shortages, Mirage enhancements could cost more than expected, though Allen didn’t say as much in the interview.

Gas Problems for Regional Operators

Regional casinos are among the contributors to the industry’s rebound from the coronavirus pandemic. But that strength could be tested, as gas prices remain high across the country, with no signs of near-term relief.

We look at gasoline anywhere from $5 to $6 a gallon,” Allen told CNCB. “There’s no doubt that in most regional gaming markets that customer is a day-tripper, utilizing gasoline to get to the facility. And when that’s up 30% to 40%, that’s going to be problematic.”

The Hard Rock chief executive’s comments on gas prices affecting regional casinos carry weight, because the company’s portfolio of US casinos is largely regional properties. That includes venues in Illinois, Indiana, Iowa, Mississippi, and Ohio.

Additionally, tribal operators in Oklahoma, of which Hard Rock is one, could be affected by consumers dialing back on driving simply in the name of visiting a casino. Oklahoma casinos are heavily dependent on visitors from neighboring Texas, and the same applies to commercial regional casinos in Louisiana.

Likewise, casinos in the Reno/Lake Tahoe market could be crimped by California gas prices — the highest in the lower 48 states.

Allen said Las Vegas is proving resilient against the backdrop of higher inflation, and that Hard Rock’s Florida casinos are sturdy, “For now.”

Other Casino Companies Mentioning Inflation

With gaming industry earnings season drawing to a close, it’s accurate to say there’s been plenty of inflation talk on conference calls. One of the obvious takeaways is that Strip-heavy operators, namely Caesars Entertainment (NASDAQ:CZR) and MGM Resorts International (NYSE:MGM), are noting soaring consumer prices aren’t yet sapping demand for travel to Las Vegas.

However, some operators are seeing signs of reduced spending among cost-conscious patrons, including in the Las Vegas locals demographic.

“There is no doubt that inflation with food and groceries and even gasoline has an impact on the lowest segments in the database for sure,” said Red Rock Resorts (NASDAQ:RRR) CEO Frank Fertitta on the company first-quarter earnings conference call earlier this month.