Deutsche Bank analyst Carlo Santarelli’s blunt assessment of 2024 paints a challenging picture for regional casino operators. With flat revenues, rising expenses, and a lack of compelling investment opportunities, the sector is struggling to keep pace. While 2025 holds some promise, significant hurdles remain.
Flat Revenues and Mounting Expenses Define 2024
For many regional casino operators, 2024 was a year of stagnation. According to Santarelli, gaming revenue in regional markets barely moved the needle, with Illinois and Michigan’s performance offsetting declines elsewhere. Illinois benefitted from new casinos, while Michigan saw easier comparisons due to 2023’s labour strikes. Still, the overall picture was grim.
Operators consistently reported stable conditions in regional markets but also acknowledged low- to mid-single-digit revenue declines and higher expenses. The disconnect between these statements and the hard data caused confusion among investors. Monthly state-by-state reports only added to the scepticism, showing lacklustre performance across the board.
One of the year’s recurring issues was a steady rise in operating expenses. Coupled with competitive pressures and limited merger-and-acquisition activity, this created an environment where investors largely avoided the sector. Declining EBITDAR (earnings before interest, taxes, depreciation, amortisation, and restructuring/rent costs) was another sore spot, compounding the challenges for casino operators.
Stability Emerging Amidst the Struggles?
Despite the bleak headlines, there are glimmers of hope. Santarelli noted that gaming revenue has shown modest growth on a calendar-adjusted basis in four of the past five months. While far from a turnaround, these numbers suggest some underlying stability in the market.
Santarelli tempered his optimism, cautioning that these signs do not guarantee a fundamental shift in 2025. However, he acknowledged that they provide a sliver of hope after years of difficulty for regional gaming markets.
Competitive Challenges Loom in 2025
Looking ahead, the competitive landscape remains a concern for 2025. Deutsche Bank identified several markets, including Bossier-Shreveport, Council Bluffs, and East Chicago, as particularly challenging. Penn Entertainment and Caesars Entertainment are expected to face more obstacles than Boyd Gaming, which Santarelli described as relatively well-positioned.
Operators’ ability to invest in new facilities or upgrades could play a decisive role in offsetting competitive pressures. For example:
- Caesars Entertainment could see an additional $70 million in EBITDAR from projects in New Orleans, Danville (Virginia), and Columbus (Nebraska). However, these gains may be undercut by intensified competition.
- Boyd Gaming appears less vulnerable, with modest benefits expected from its Norfolk (Virginia) facility later in the year.
- Penn Entertainment faces tougher odds, as only one of its four projects, Hollywood Joliet, is slated for completion in 2025.
Margins Under Pressure
Margins have been a sore point for regional casino operators, and 2024 marked the third consecutive year of declines. Rising expenses, while moderating, continued to erode profitability. Santarelli predicts that maintaining flat margins in 2025 will require at least 2% growth in same-store net revenue—a tall order given current conditions.
The dynamics are straightforward: slower expense growth may offer some relief, but new competition and development projects will play a critical role in shaping profitability. While margin contraction is expected to continue in 2025, it may be less severe than in 2024.
Investments Could Shift the Narrative
Despite the challenges, some operators are making strategic bets to improve their fortunes. The permanent facilities opening in Danville and Columbus, as well as the completion of Red Rock’s Durango Casino & Resort project, represent opportunities for incremental growth.
In the Las Vegas locals’ market, Red Rock enjoys a relatively stable competitive environment. However, the same cannot be said for operators in other regions, where competitive pressures could dampen returns.
The Road Ahead
As 2025 approaches, regional casino operators must navigate a complex mix of challenges and opportunities. The path to recovery will likely be uneven, with some markets faring better than others. While the sector’s long-term prospects remain uncertain, cautious optimism may yet prevail, provided operators can adapt to shifting dynamics and reinvest strategically.
