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By Altus Group | April 28, 2021

Wheel of Fortunes: Recovery timelines for Sports, Recreation and Entertainment Properties

It is no secret that properties in the Entertainment, Recreation and Sport facilities category have been heavily impacted by the current climate. Afterall, the success of stadiums, theatres and theme parks is fueled by crowds—a word that has become stigmatized.

 

In this article, we will review the impact of COVID-19 on the various property types making up this category, with a look ahead to the recovery horizons for each of these properties.

Background

COVID-19  has disproportionately affected many of the properties that fall under the Sports, Recreation and Entertainment category.  Due to the nature of many of these properties’ reliance on large numbers of patrons to drive revenue and profit, the economic impact of the complete shutdown of many of these properties is substantial. Statistics Canada noted in September of 2020 that the arts, entertainment, and recreation business sector was the furthest of all sectors from full recovery.

The potential for property assessment and property tax relief, due to the impact of COVID-19, varies dramatically between provinces. A review of the specific circumstances of each property in the context of the relevant legislation is required to identify opportunities to seek property assessment and property tax relief.

Who will be the first and last to recover?

Click on a card.

Slot machine. Text: Casinos
Theatre stage with audience. Text: Live Theatre, Concert Venues
Roller coaster. Text: Theme Parks
Movie reel. Text: Movie Theatres
Downhill Skiier. Text: Downhill Skiing
Dumbbell. Text: Fitness Clubs
Golf hole with flag. Text: Golf Courses

Projected time to recovery

2-3 years

There is a concern with this cohort (patrons in mid-60s) having stigma around re-engaging fully in the gaming facilities with crowds and significant touchpoints around gaming.

Casinos

In most Canadian markets, gaming casinos were heavily impacted by the first wave of complete shutdowns (Apr – Dec 2020). Where restricted openings were allowed, the number of patrons was limited to only 50 patrons per casino floor at one time and on a reservation basis only. Looking at the financial results of publicly traded gaming companies, the impact of COVID-19 on this industry has been dramatic.

Comparing Q3 2019 to Q3 2020 results, the COVID-19 impact on the casino industry is significant. Century Canada operations saw its Q3 2020 net operating revenue drop by approximately 25% compared to Q3 2019. Century Canada operates primarily in the Alberta market which arguably had the least restrictions applied to the gaming sites through this period. 

Great Canadian Gaming Corporation, with significant operations in the British Columbia and Ontario markets, suffered a much greater impact, as many of their sites were completely shuttered for most of the entire 2020 pandemic period (Apr – Dec 2020). The third quarter of 2020 results showed a net loss per share of $.066 versus net earnings per share of $0.85 in the third quarter of 2019.

Notwithstanding the vaccine rollout underway, there will be a significant lag time before full operation is restored for most markets. There is a potential issue with the full recovery of these operations, given the average age of casino patrons is in the mid-60’s. There is a concern with this cohort having stigma around re-engaging fully in the gaming facilities with crowds and significant touchpoints around gaming. Through discussions with those in the industry, the outlook for full recovery is currently two to three years out from today.

Theme Parks

In most Canadian markets, theme parks were either completely closed for the season in 2020, or open with extreme customer limitations.

Major facilities such as Canada’s Wonderland and West Galaxyland (West Edmonton Mall) were completely shuttered for the 2020 season due to restrictions.

In areas where parks could open, customer limits and continued shutdown of high velocity rides to eliminate droplet spread also negatively impacted revenues. Among parks that were open under these 15% capacity restrictions, some indicated they did not even hit their targets, while others stated it took some time.

The financial impacts of COVID-19 on Canadian properties are difficult to isolate given the international operation of theme parks by publicly traded companies such as Six Flags Entertainment (La Ronde, Montreal, P.Q.), and Cedar Fair Entertainment Company (Canada’s Wonderland, Vaughan, Ontario), however the information contained in the third quarter results are certainly instructive.

Cedar Fair reported net revenues in Q3 2020 were $87,000,000 versus $715,000,000 in Q3 2019, while Six Flags reported Q2 2020 net loss per share of $3.98 versus net earnings per share in 2019 of $2.24.

The outlook for recovery for theme parks is positive with the vaccine rollout and the outdoor nature of the operations providing for both increased tourism and local attendance increasing for 2021. Although return to full capacity may not return in 2021 (depending on the success of vaccination and second wave mitigation) the prognosis is for parks to be open and operating at near normal capacity.

The outlook for recovery for theme parks is positive with the vaccine rollout and the outdoor nature of the operations providing for both increased tourism and local attendance increasing for 2021.

Projected time to recovery

1-2 years

Projected time to recovery

1-2 years

Despite this influx of customers, additional revenue areas such as snow schools, food services, equipment rentals, and retail sales are often heavily impacted due to local restrictions.

Downhill Ski Operations

Ski resorts across the country faced varied restrictions on their operations. At the same time, more people were looking to hit the slopes this season to escape their homes.

Resorts were experiencing long lift lines with the increased demand and lift capacity reduced by half. Managing these queues required extra staff and signage expenses. Many resorts implemented online reservation systems to accommodate higher demand and fulfil social distancing requirements.

Despite this influx of customers, additional revenue areas such as snow schools, food services, equipment rentals, and retail sales were often heavily impacted due to local restrictions. These sources can reflect 50 per cent of a resort’s income, leading many operators hoping to break even in the 2020-21 season despite higher demand than seasons past. 

Quebec resorts were operating based on orange or red zone restrictions. Those in the orange zones could provide food services but bars were closed and red zones could not provide food services. Additionally, red zones had to limit snow schools to four students per instructor. Visitors in either zone had their day cut short with requirements to meet curfews. 

Ontario Snow Resorts Association (OSRA) reported that due to the December lockdown its members lost about $88 million to $90 million and shed about 9,000 jobs as of Dec. 30. Ontario was the only jurisdiction in North America to close its ski hills. Operators with snowshoe or Nordic skiing areas could host visitors, however downhill skiing activities remained closed. This segment remained one of the few outdoor recreational activities forced to remain closed in the province. 

Large ski resorts in Western Canada experienced a drop in winter vacation traffic from last year. Previously many customers traveled for multi-day visits from Ontario, the United States, the United Kingdom and Australia. But with imposed travel restrictions, most customers were just day traffic. Local outbreaks of COVID-19 and variants continued to cause issues for Operators. Big White Mountain Resort recently was able to contain a community cluster affecting the resort for three months. While Whistler Blackcomb received a shutdown notice from the BC government due in increasing infection rates, cutting short it’s winter operations by two months.

Golf Courses

One industry that has seen a boom from the pandemic is golf courses. As a sport that provides a natural social distancing venue many people have flocked to golf as an outdoor activity. Even so, there have been negative impacts on courses and clubs. Restrictions on cart ridership, varying food and beverage limits, and cancellations of events like tournaments and weddings have created several challenges and disruptions to other revenue streams. This loss in revenue for hospitality and event rentals are likely to experience a longer road to recovery.

Despite challenges, courses are busier than ever with bookings at an all-time high. The National Golf Course Owners Association (NGCOA) reported a 17.6% increase in rounds played in August 2020 compared to last year. The first 6 months of 2020 saw the year-to-date national revenue of NGCOA member golf courses increase 22.9%. However, courses in Atlantic Provinces are reporting a decrease of 11.9% in YTD revenue compared to 2019. This drop has been attributed to the bans on inter-provincial and international travel affecting Atlantic courses more than others.

Many golf courses are reporting an increase in membership and junior membership. The latter is hoped to help bring growth to the industry post-pandemic. Many courses and clubs were struggling prior to the pandemic. The NGCOA had reported a gradual decline in rounds played in the previous 6 years. It is yet to be seen how much of the new surge in popularity the industry will be able to retain as other entertainment venues begin to open.

Many golf courses are reporting an increase in membership and junior membership. The latter is hoped to help bring growth to the industry post-pandemic.

Projected time to recovery

<1 year

Live Theatre/Concert Venues

Concert Venues and Live Theatres were heavily impacted and faced the reality of COVID-19 with complete shutdowns.

Public health measures implemented at the beginning of the pandemic restricted large gatherings, which included performances with a live audience in theatres, auditoriums, and other concert venues. Most COVID-19 outbreaks have been linked to interactions in indoor environments, poor ventilation, and particularly large group gatherings with close interactions over long durations. 

Cancellations of the 2020/2021 season occurred, major concert tours and festivals cancelled or postponed indefinitely. The delivery of these shows was impossible while adhering to public health restrictions. Given the health guidelines by the government regarding mass gatherings, these gatherings are considered high-risk events and not recommended allowed for the foreseeable future. The health and wellbeing of fans, artists, vendors, staff and partners remain top priority.  

Concert Venues and Live Theatres have paused on announcing too far into the future as they continue to monitor the situation. Spring and summer 2021 events planned have already been cancelled in most major cities following guidelines from provincial authorities. Some event organizers have issued up-to-date terms for cancelled, rescheduled, postponed, or moved events. As well, concert promoters are becoming more creative, producing drive-in events or virtual concerts while adhering to smaller gatherings and outdoor events. 

The financial impact on this industry has been dramatic, many with little revenue for the majority of 2020 and huge job loss. This industry created a tremendous amount of economic activity across the Country. The impact on this industry remains significant, with the outlook for recovery dependent on the vaccine rollout and health restrictions around large gatherings. 

Until audiences can safely attend performances in sufficient numbers to be financially sustainable, some events may not return until it is entirely safe to do so.

Projected time to recovery

Unknown

The COVID-19 impact on this industry remains significant, with the outlook for recovery dependent on the vaccine rollout and health restrictions around large gatherings. 

Projected time to recovery

Unknown

The pre-pandemic 90-day exclusivity window for major releases that had been in place for theatre operators has been eroded during the pandemic, with an increasing trend to quicker leaps to streaming platforms or even releases directly to those platforms in many cases.

Movie Theatres

Movie theatres have, predictably, been profoundly affected by the pandemic over the past year. The short-term impacts on operations are obvious, with massive reductions in revenue driving stock prices down over 80 per cent for one of the largest operators in Canada. However, the long-term implications of changes in both industry practice and consumer behavior that have been precipitated by the pandemic may represent the most significant threats of all to the long term viability of these operations in the post-pandemic environment.

Lights out for operators

Provincial governments across Canada mandated complete shutdowns of movie theatres at various times throughout the pandemic, with devastating consequences for the industry. Cineplex, the largest operator in Canada, announced on March 16, 2020 that it would be closing all of its 165 theatres in Canada voluntarily until “at least April 2” in response to the COVID-19 outbreak. That early voluntary closure marked the beginning of a series of closures subsequent to that time in the various provinces, all of which were mandated by the provincial governments under a variety of public health orders. While there had been initial optimism early in the year that the theatres may be able to reopen at least in time for the critical holiday movie season late in 2020, this did not happen for the most part. The very few movie theatres that were open operated at a fraction of their usual capacity.

Streaming steps in

The structural changes within the industry that were spurred on by the pandemic are of even greater concern. Unable to attend theatres, many consumers flocked to a variety of video streaming services as an alternative. Netflix added 15.8 million subscribers globally very early in the pandemic, double what had been forecasted by investment analysts. One commentator put it bluntly in July of 2020: “The emergence of the COVID-19 pandemic has created lucrative growth opportunities for industry behemoths (in the video streaming industry). Strict lockdown imposed by various governments across the globe in a bid to contain the spread of the virus has skyrocketed the demand for video streaming services in the last few months.” Most analysts believe that video streaming service demand will only continue to increase in the post-pandemic world.

The strain of this online competition on theatre operators has been further exacerbated by a push from Hollywood executives for more flexibility with streaming and rental platforms. The pre-pandemic 90-day exclusivity window for major releases that had been in place for theatre operators has been eroded during the pandemic, with an increasing trend to quicker leaps to streaming platforms or even releases directly to those platforms in many cases.

Post-pandemic cliffhanger

What remains to be seen is whether consumers will feel comfortable returning to the traditional movie theatre venue in the post-pandemic world. There is certainly some degree of optimism on the part of industry operators and observers, who believe that the social aspect and the attraction of seeing major releases on the “big screen” will continue to provide an experience that streaming services simply cannot offer.

Time will tell if this optimism is well-founded or if the structural changes within the industry will result in a permanent reduction in the bricks-and-mortar footprint of movie theatres in Canada and globally.

Fitness Clubs/Gyms

It is obvious that this asset type has been negatively affected by COVID-19 as these facilities closed in March and are slowly re-opening under very limited capacity. But, this industry was well on its way to being “disrupted” by platforms such as Peloton, Mirror Home Fitness, FiiT, and Sweat, not to mention more competition from group or boutique studios such as Orange Theory and CrossFit. However, the scales seem to be tipping towards home training for obvious reasons. Online platform memberships and subscriptions have increased from 20 per cent to 60 per cent in recent years.

The shift from conventional brick and mortar gyms paying retail rents in prime locations are under immense pressure and several large chains in the United States such as 24-Hour Fitness and Gold’s Gym have declared bankruptcy. The shift from annual memberships to lower pay as you go online or virtual platforms is due to demographics, the millennials and generation Z do not want to commit to annual contracts and prefer a more flexible alternative, the pandemic has simply accelerated a trend that was well underway.

The covenant strength of typical gyms will therefore be negatively impacted, however, landlords do not have much of an option now to find alternative tenancies for this type of space that usually commands large and very specialized space. Even as vaccines are deployed and gyms can accommodate normalized capacity the outlook is not promising. RunRepeat, a website that reviews shoes, recently conducted a survey of over 5,000 gym members in early August.

  • Only 30.98% of gym members have returned to their gyms since the lockdowns.
  • 60% have cancelled or are considering cancelling.
  • 21.15% of members have already cancelled their gym memberships near similar numbers as in the US and the world average.

This is not encouraging news for retail landlords that hold these types of tenancies.

Ultimately, the winners of the fitness industry that is healthy and growing in revenue overall will be the digital platforms and brick and mortar boutique gyms offering hybrid or more specialized services.

The shift from conventional brick and mortar gyms paying retail rents in prime locations are under immense pressure and several large chains in the United States such as 24-Hour Fitness and Gold’s Gym have declared bankruptcy. 

Projected time to recovery

Unknown

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