Snake eyes for Dover Downs in Q2, but casino may be on Q3 roll
DOVER – When you invest in a company that’s open for only one month of a fiscal quarter, you’re not looking forward to great numbers in the earnings report.
Such was the case for Dover Downs, which reopened June 1 after closing March 12 and lost nearly $2.4 million and saw a 70% drop in revenues, compared with the second quarter of 2019, according to the casino’s parent company’s Aug. 11 earnings report.
Gaming revenues fell from just under $25.8 million in the second quarter of 2019 to $6.5 million this year. However, total revenues for the first half of 2020 saw a slight increase compared to 2019 – $27.6 million versus $27.3 million – despite being closed for nearly a third of the six-month period and operating with capacity restrictions since reopening.
That said, officials with Providence, Rhode Island-based Twin River Worldwide Holdings, which closed on the purchase of Dover Downs and its then-parent company in March 2019, spent some time focusing on the Delaware casino’s June results during its Aug. 11 earnings call with investors and analysts.
“Gaming volumes were down approximately 15% and overall net revenues down 30% for June compared to the same month in 2019 as we navigated capacity restraints,” said Twin River President and CEO George Papanier, whose expanding company owns nine casinos nationwide and has three more acquisitions on the immediate horizon, including Bally’s in Atlantic City, N.J. “Adjusted EBITDA results for the month were strong, coming in at $2.1 million, which was essentially flat year-over-year, and represented an increase in adjusted EBITDA margin of approximately 1,150 basis points.”
EBITDA is essentially net income (or earnings) with interest, taxes, depreciation, and amortization added back. EBITDA can be used to analyze and compare profitability among companies and industries, as it eliminates the effects of financing and capital expenditures.
Twin River said it spent the COVID shutdown reviewing and optimizing its operations in the areas of marketing and decreased operating expenses.
Frank Fantini, a Dover-based gaming industry analyst, said he’s seeing local markets like Delaware doing much better than destination markets such as Las Vegas, an observation that aligns with Twin River’s strategic plan.
“Nobody wants to get on an airplane but they’re OK with driving, and the trade show and convention market has dried up,” said Fantini, president and editor of Fantini Research. “Dover Downs and Harrington never had that business.”
Papanier said, “There’s certainly been a rationalization around marketing spend. Some of that may be driven by the fact that the states are concerned about large gatherings. So, I think everyone is being cautious about that from a promotional perspective. We think that’s an opportunity for everyone to kind of take a step back and understand that you could operate at better margins, particularly from a marketing perspective, as you’re more targeted toward specific customers.”
Dover Downs Vice President and General Manager Nick Polcino Jr. told the Delaware Business Times: “Over the past few months, we have observed strong regional pent-up demand that has allowed us to reduce operating expenses by being more particular with marketing, including things like promotional giveaways and other incentives, in order to attract players. Due to this strong volume, and safety protocols in place, we have also been selective with lower-margin amenities, such as food and beverage outlets, which has helped with short-term profitability.”
Even with capacity limitations, casinos are doing as well or better than they did last year, Fantini said.
“There’s pent-up demand and there are no alternatives,” he noted. “The guys who run casinos aren’t dumb. They may have to operate at 50% capacity, but they can focus on marketing to their best customers, the ones who come back and over again. So, the number of visitors may have declined but spend per visitor has increased. In addition, many casinos have eliminated [money-losing] all-you-can-eat buffets as one of the ways to reduce expenses.”
Papanier previewed this approach during his first-quarter earnings call this past May, saying that the casino group was targeting its top 20% of players, who are responsible for about 80% of business in some markets, with marketing efforts.
In terms of current customer demographics, Papanier said Aug. 11 that each market has different nuances.
“Some people are less concerned about COVID than others,” he told investors and analysts. “And we’re seeing the demographic that we typically would see. In some cases, with the older demographic, there’s less visitation. However, their spend seems to be up. We are drawing some, but not really noticeable younger crowd. So again, it really does depend on the market, and it depends on the amenities that you’re providing.”
One future bright spot for Dover Downs could be Twin River’s upcoming purchase and renovation of the Bally’s Atlantic City in New Jersey, which observers say will offer Dover Downs some cross-marketing opportunities. Another was a first-quarter earnings call comment by Papanier that Dover Downs hotel rooms will also be getting a facelift.
But the best news for Twin River appears to be what it has seen the end of the second quarter.
“These positive margin trends are continuing into July, giving us confidence that we can sustain a level of the increased operational efficiencies,” Papanier said. “While we continue to be willing to spend money to retain and capture market share and drive revenue, we do not expect to simply return to the old way of doing business. We believe many of the efficiencies we have realized are sustainable over the long term and will result in proved profitability for our properties, even though increased sanitation and safety costs are likely to become the norm.”
By Peter Osborne