The coronavirus pandemic has had a thunderous impact on entertainment venues. Theatres, concert venues, museums, amusement parks, and other entertainment or cultural venues have remained closed for the majority of the year despite most schools or universities, retail shops, and restaurants opening their doors in late summer/early fall. But after a seven-month hiatus, several entertainment venues are reopening their doors. Here's how it could impact investors.
Green light for reopening -- sort of
Many entertainment venues were waiting for the formal green light for national or state guidance determining reopening protocol, which several states hadn't issued until recently. Disney (NYSE: DIS), which has suffered a $3.5 billion loss from the closures of the parks relating to COVID-19, has officially received the greenlight to reopen Disneyland California at 25% capacity in addition to following other safety protocols.
Ryman Hospitality Trust (NYSE: RHP) recently announced they would reopen the Grand Ole Opry operating at 25% capacity for live audiences based on Nashville Metro Health Department guidance. The state of New Jersey also announced a similar 25% operating protocol and requirement for all employees and audience members attending a live event, such as a music venue or movie theatre.
AMC Entertainment Holdings (NYSE: AMC) had reopened roughly 78% of domestic theatres and 90% of their international theatres after a five-month closure operating at a 25% to 40% capacity.
While many states are issuing new guidance to help suffering businesses reopen operations, they are doing so with tough protocol to follow, particularly as coronavirus cases increase rapidly.
Reopening is anything but business as usual
The outcomes of reopening entertainment venues are still unknown. Lack of demand, risk of potential lawsuits, or a second round of closures are all valid concerns for business owners and investors. AMC for example, had to close their doors in several European countries just a few weeks after reopening in response to country mandates. Certain businesses that require volume in order to operate profitably, like concert venues, aquariums, or sports arenas, may struggle being confined to 25% operating capacity. Certain fixed expenses relating to the opening of the business might not be compensated for with so few customers, meaning opening with current constraints may not be the best option.
Opening venues, even following current state or local guidelines, may be also opening business owners to the risk of litigation. Enforcing the current protocol is crucial to reducing risk, but with so little regulation around the global pandemic, lawsuits in result to the spread of the virus or lack of adherence by other customers could be a reality in the near future.
Hope is on the horizon, but caution should be taken
The reopening of entertainment venues is a positive step forward for many businesses, but investors should be prepared for more volatility in the near future. There are still a lot of factors to consider, and entertainment companies, businesses, and real estate owners aren't out of the red yet. Right now, there are several real estate investment trusts (REITs) specializing in the entertainment sector that are value buys. While hopes look high, investors should be comfortable with the risks and uncertainty surrounding the entertainment market and be prepared for any outcome at this point.