As 2019 rolled to a close last winter, the gaming industry was in a mood to celebrate—after all, it was a banner year in terms of revenue and company valuations were high, which was leading to deals such as Eldorado Resort’s purchase of Caesars Entertainment and Penn National Gaming’s share acquisition of Barstool Sports.
Then, seemingly overnight, the world and the gaming industry changed. COVID-19 struck, and panic ensued in the public markets. Gaming was hit particularly hard, with casino company valuations plummeting to record lows (Penn National went from a share price of $49 pre-COVID to $4 by the end of March). Since that low point, the markets have rebounded, and casinos are slowly reopening and getting used to a new business reality. How gaming companies handle executive pay issues at the end of 2020 should be very interesting indeed.
As for 2019, gaming compensation committees were obligated to pay 2019 chief executive officer (CEO) bonuses just as COVID was devastating their businesses, which was a tough look to say the least. In such circumstances, evaluating which gaming industry lead executives truly earned their 2019 pay takes on added importance.
In this, our 14th annual study of gaming industry CEO pay, we reviewed proxy statements to evaluate the performance of 31 public gaming companies in determining whether a CEO deserved his or her pay. The AETHOS pay-for-performance model compares significant financial metrics such as company size (market cap), stock appreciation (rise in stock price over three years), EBITDA growth (over three years), and total direct compensation (combination of salary, bonus, LTIP and other). Our findings are illustrated in the chart on the next page.
BREAKING DOWN CEO PAY
Market capitalization tends to dictate company complexity and, likewise, CEO pay. Generally, the bigger the company, the bigger the paycheck. Sheldon Adelson at Las Vegas Sands was the highest paid CEO in the industry at $24.7 million in total compensation. LVS also dwarfs their competitors in market cap.
Rounding out the list of top five gaming CEO in terms of total compensation were Barry Cottle of Scientific Games ($18.6 million), Matt Maddox of Wynn Resorts ($13.9 million), James Murren of MGM Resorts ($13.1 million) and Peter Carlino of Gaming & Leisure Properties (11.4 million). Overall, the top 10 highest paid gaming CEO all made over $10 million in total compensation and 24 of the 31 CEOs made more than $1 million a year. The average CEO paycheck decreased over $1 million to $6.1 million compared to the previous year.
When it came to our pay-for-performance (PFP) rating, Mike Rumbolz at Everi Holding led the group with a 168 AVI (AETHOS value index). In other words, Rumbolz gave Everi shareholders the best value relative to his paycheck. By our calculations, Rumbolz could have been paid an additional $3 million and still been appropriately compensated. Other top PFP performers included Todd Cravens of Galaxy Gaming (157.5 AVI), Blake Sartini of Golden Entertainment (144.8), Ken Alexander of GVC Holdings (144.2) and Tom Reeg of Eldorado Resorts (135.4).
The wealthiest CEOs continue to be Che Woo Lui of Galaxy Entertainment Group ($13.1 billion) and Adelson ($5.5 billion)—both own company stock worth billions. Carlino ($482 million), John Farahi of Monarch Casino & Resort ($158 million) and Sartini ($135 million) round out the wealthiest CEOs list (Lawrence Ho was not on this year’s list as Melco’s filings were not out in time but we suspect he is still a billionaire this year). Interestingly, all five of these CEOs had an AVI over 100—the mean of the group.
Fourteen CEOs in the gaming industry received a base salary of greater than $1 million. Adelson had the largest salary at $5 million, followed by Murren and Maddox at $2 million. The average salary of the group of 31 CEOs came in at just over $1.1 million, a slight decrease over last year.
In the bonus category, Adelson led the group with a bonus of $12.5 million followed by Carlino at $3.5 million. The average CEO bonus for the group was $1.5 million, with five CEOs getting no bonus at all.
The largest component of CEO compensation continues to be long-term incentives (LTIPs). The average LTIP value for the group was $3 million. Cottle topped this list with his $18.5 million stock grant. Rod Baker of Great Canadian Gaming and Maddox followed with stock grants valued at nearly $8 million. Seventeen CEOs received an equity grant worth over $1 million, while five received nothing at all.
Pay Mix has become a hot topic as ISS and institutional investors are demanding more CEO pay be in the form of “at-risk” compensation (short- and long-term incentives). Experts are also demanding more performance-based metrics as part of equity grants. In the Fortune 500, at-risk compensation averages 58 percent and has risen steadily over the last decade. In gaming that number is 51 percent. More scrutiny in this area can be expected as “say on pay” and other SEC requirements are implemented.
As previously mentioned, 2020 has been a tumultuous year and it will be curious to see how CEO pay is affected by COVID and government watchdogs.