New York Casinos to Have Varying Credit Effects on Operators, Says Fitch

Posted on: April 13, 2022, 10:20h. 

Last updated on: April 13, 2022, 11:51h.

New York’s 2023 budget features a process to award three downstate casino licenses. The potential for added competition from the largest US city is expected to have a mixed impact on the credit profiles of established operators in the Northeast, according to Fitch Ratings.

New York casino
The busy streets of Times Square in New York City, seen above. Fitch says casinos in the city could affect rivals in the region. (Image: Newsweek)

Currently, the two New York City-area casinos — Resorts World New York City in Queens and MGM’s Empire City Casino in Yonkers — are slots-only venues. The state’s 2023 budget likely paves the way for those venues to become full-service casinos with table games and retail sportsbooks, as well as providing for a third license for a yet-to-be-determined operator.

The Northeast is already a highly competitive gaming region, and with traditional casinos in New York, the competition is going to be amplified. Fitch points to Atlantic City as an area that could be vulnerable.

Full-scale casinos in New York City will negatively affect casinos in a number of jurisdictions in the Northeast, particularly Atlantic City, NJ, which generated $2.7 billion in land-based GGR in 2019,” said the research firm. “However, this risk is not unforeseen, as New York legalized full-scale casinos in 2013 with the option to issue downstate licenses beginning 2023.”

Atlantic City’s nine casinos combined for more profit in 2021 than they did in 2019 – the last year prior to the coronavirus pandemic.  Still, some market observers believe that market remains oversaturated, and it’s long depended on tourism from New Yorkers.

Bally’s (NYSE:BALY), Caesars Entertainment (NASDAQ:CZR), Hard Rock International, and MGM Resorts International (NYSE:MGM) are among the Atlantic City operators. Bally’s and Hard Rock, among others, are expressing interest in the third license in New York.

Geographic Diversity Matters

Amid the specter of Empire City and Resorts World New York City getting table games and potentially a third operator joining that group, gaming companies with Northeast footprints can offset some of that risk with geographic diversity.

“For the most part, exposed operators are sufficiently diversified by geography, such that the ratings can withstand the eventual negative cash flow impact, and the lead time between bidding and opening is long enough to allow at-risk operators to alter their balance sheets to maintain their financial policy, should they choose to do so,” adds Fitch.

Bally’s, Caesars, and Hard Rock have diversified portfolios in terms of casino locations. Likewise, Connecticut’s tribal casinos and Wynn’s (NASDASQ:WYNN) Encore Boston Harbor are likely far enough removed from New York that new gaming venues there aren’t a significant threat.

Las Vegas-based Wynn is also rumored to be interested in the third New York license. The same goes for Las Vegas Sands (NYSE:LVS).

MGM Seen as NYC Winner

While it remains unclear how New York’s $500 million minimum upfront license fee will affect operators’ liquidity and to what company the third license will be awarded, consensus is building that MGM is a clear winner in the city.

As we look across the company, we see several attractive growth areas, including BetMGM, NY tables/expansion, Japan, the new rewards program, and repositioning on the Strip,” said Macquarie analyst Chad Beynon in a recent note.

CBRE analyst John DeCree highlights the area’s obvious though compelling demographic benefits.

“The NYC metro area is home to over 19mm residents, with an average income per capita of nearly $80,000, making it one of the largest and most lucrative markets in the world,” he said in a report out Monday.