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Mar. 22, 2008
Copyright © Las Vegas Review-Journal

Report predicts tougher times for casino industry

By ARNOLD M. KNIGHTLY
REVIEW-JOURNAL

A report suggests the economic woes could mean fewer buttons will be punched on casino slots.
Review-Journal File Photo

The economic slowdown has the casino industry facing its toughest challenge since the months following the Sept. 11, 2001, terrorist attacks, according to a report released Friday by a leading Wall Street bond rating house.

New York-based Moody's Investors Service's report said several factors are combining with the "economic slowdown and possibility of a long-term, consumer-based recession" to negatively affect the industry.

"Declining disposable income of potential customers and increasing travel costs are lowering overall visitation and spending per visit in many gaming markets," said the report's author, Keith Foley, Moody's vice president and senior credit officer.

However, the report concludes that longer-term fundamentals of the casino industry remain favorable: an increase in the industry's key demographic base of 45- to 65-year-old customers, major challenges to competitors trying to enter the industry, and rapid advances in gaming technology.

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    • The report's release came on Good Friday, a day when the New York Stock Exchange and other financial markets are closed for Easter weekend.

    Many analyst and gaming finance executives were not available for comment.

    Boyd Gaming Corp. spokesman Rob Stillwell said the report is in line with what the company has been telling investors the past few months.

    "We acknowledged these are tough economic conditions," he said. "In spite of that, our operating units have been doing pretty well. That said, we have also maintained the fact that this is a short-term challenge and that the longer-term fundamentals remain favorable."

    Stillwell points to Boyd's ongoing construction projects as a sign that the company is in a strong position for continued growth.

    Boyd Gaming is working on a $130 million hotel expansion of the Blue Chip riverboat in Indiana and the Water Club and a $400 million expansion to the company's Borgata resort in Atlantic City.

    It is also working on the $4.8 billion Echelon, a mixed-use development on the Strip scheduled to open in late 2010.

    The worldwide tourism industry experienced a dramatic decline in travel after the terrorist attacks in 2001. Las Vegas casinos laid off an estimated 15,000 workers, with thousands more being put on reduced work hour schedules.

    In February, MGM Mirage, Harrah's Entertainment and Station Casinos and some smaller local gaming companies acknowledged that the current economic downturn has forced staff reductions and loss of hours at some properties. However, none of the companies has given hard numbers on the number of employees effected.

    "As in other consumer-based leisure industries like lodging and cruises, a decline in disposable income ... combined with an increase in the cost of travel results in lower overall visitation and spending per visit," Foley wrote in the report.

    The slowing economy comes while gaming companies throughout the country are dealing with various challenges, such as increasing competition and smoking bans.

    Several states reported gaming revenue declines in January, including 4.7 percent in Nevada, 10 percent in New Jersey, 17 percent in Illinois, 8 percent in Indiana and less than 2 percent in Louisiana, Missouri and Iowa.

    "The amount and type of competition, along with the amount of capital investment needed to compete effectively, have increased substantially since 2001," Foley wrote.

    The various challenges may have a benefit for consumers as the economic slowdown leads "to further increases in promotional activity across most major markets as gaming operators compete more aggressively to maintain visitation and market share."

    Lenders have been tightening their standards over the past several months and that could hurt the industry in the coming years.

    The drop in access to capital has already caused a handful of projects in Las Vegas to be delayed or face financing uncertainties, including the Cosmopolitan, Tropicana, Hooters Hotel, Southern Highlands Resort, Lady Luck and, possibly, The Plaza on the site of the old New Frontier.

    Analysts this week said that if banks are lending money at all, it is at a rate three to four percentage points higher than last year.

    A slowdown in new projects could hurt longer-term revenue and cash flow rates.

    The report also said the recent leveraged buyout activity in the casino industry, including the purchases of Harrah's Entertainment and Station Casinos by private equity groups, has added to the industry's vulnerability.

    "These two companies ... will compete more aggressively than they have in the past in order to generate the cash flow needed to service their substantial debt loads," Foley wrote.

    The corporate offices of Station Casinos, which was taken private by a $5.4 billion management-led buyout in November, were closed Friday for the holiday.

    Harrah's Entertainment did not return a call seeking comment.

    The company was bought for $17.7 billion by a joint-venture partnership between private equity firms Apollo Management and TPG Capital in December.

    Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or (702) 477-3893.



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    libertine wrote on April 12, 2008 03:00 PM: despite the ecnomic downturn and layoofs. the use of harrah' data mining and dat warehousing should be a flagship of how to focus on the demographics from pushing the hipsters into Jet nightclub of the cemtetary crowd who want to see wayne newton. The use of data mining is a viable means to keep the vice in operation with a more streamlined approach to Sin city, with in the ecnomy of a recession . The industry elite should use the vice as an ecnomic means to an ends, with the middle class in need of an escape from the economic plight. Vegas should use proper demographics to cohesively market towards the couples' who want to steam up thier lifestyle and also win comps and a fistful of money. The importance is that casinos could help cause an interest in the economy is buy frvilious items but, generate interest in the economy ;allowing for middle class and upper middle class to spend sith limited disposbale incomes, and to use it to release from thier stress, and buy items based on pleasure rather than need. It may be off the track in the necessity; but could allow for a possibility to counter this impending enconomic downturn.


    Posse Comitatis wrote on March 22, 2008 01:57 PM: RIGHT ON CITIZEN! THERE ARE THOUSANDS WHO ARE FED UP WITH WHAT HAS BEEN GOING ON...WE ARE READY TO STAND UP AND TAKE BACK THIS COUNTRY FROM THE WEAK, THE FOREIGN AND THE CORRUPT! MIGHT WILL MAKE RIGHT! STAND BY...YOU AINT SEEN NOTHING YET BABY!


    Citizen wrote on March 22, 2008 01:54 PM: Edgar and all the Corporate Bigshots who are corupting, stealing and wrongfully taking the hard earn gains from the people. Attention: Your day is coming. The people will take matters into their own hands and line you all up and put a bullet thru your collective heads for the wrongs inflicted upon the citizens of this State! That goes for corrupt Politicans, Medical Drs., Public Administrators, Government lacky dogs who fail to protect the public. YOUR DAY IS COMING! GET READY FOR THE NEXT REVOLUTION!


    edgar wrote on March 22, 2008 12:31 PM: why the hell would you accuse the casino bosses of anything moron? Their making money and your not cuz your a failure in life david. Casinos are not gonna keep employees if their loosing money, its like every other business, if business is slow you lay off people, thats how this country works. What happen to all this stupid us car makers, they laid off 50,000 workers cuz their cars suck. Its about the bmw and mercedes. Im sorry your a failure in life, but im successful, If i need to lay off employees cuz im loosing money out of my pocket well guess what, I am going to lay them off.


    David wrote on March 22, 2008 11:36 AM: However, none of the companies has given hard numbers on the number of employees effected.

    Of course they will not admit to the ruthless cutbacks of veteran employees to eliminate benefits. Of course they will not talk about additional marketing ploys to attract players, because there are none! Stations has bought out most of the competition and in turn has cut back on its comps. The best slot club? What a joke.
    Ticket in ticket out? Another joke. They should call it suck it in and get the heck out.
    Casinos used to be a place to come and gamble, eat and hang out for a good price. Now everything you do requires a fistfull of dollars. Casinos eliminated keno because they couldn't win money fast enough from the players. Casinos don't want you to lounge around. Lounge shows have been eliminated for the same reasons. Casinos want you to dump your money and make way for new suckers. The Fertitas, Gary Loveman. Kirk Kerkorian and the likes are laughing all the way to the bank, worth more money than they could ever need and yet they still rip off employees of benefits, wage increases and the many perks that were industry standards when Corporate America didn't rule Vegas.

    Shame on you Corporate Vegas. You rid yourselves of higher priced veteran employees and hire lower paid immigrants in their stead. You love immigrants and even brought back a term that was used in Colonial America...Indentured servants.


    GeorgieFront wrote on March 22, 2008 11:14 AM: Last night, although I rarely go down to the Strip, I went over to the Mirage to see a friend. What is going on with these damn casinos! You couldn't even get into the hotel, since the escalator from the parking structure deposited you directly into a packed extremely uncomfortable crowd of milling scenesters, desperate to get into the Jet nightclub. All attractive young people, which is all very nice (where do so many 20-somethings get the money?! is this really the demographic we should be attracting to blow their $ in Vegas) but do the casinos REALLY want to alienate everybody else, in their rush to be "with it"


    the oc wrote on March 22, 2008 10:34 AM: My wife and I have been coming to Vegas 5 to 8 times a year from CA for the past 20 years or so. We both enjoy gambling and have always gotten our room comped at mid-level hotels. In the last year or so, especially at Harrahs, they have been turning their back on mid-level gamblers and it is hard to find a room comped on weekends at the strip.

    I also like to at least get a reasonable shot at getting my money back, so we have started staying at locals casinos where there are much better odds and they treat their customers like they want them to return.

    Vegas, wake up. You are killing your mass market by catering to everything at the high end and ignoring the middle class of America.


    DT wrote on March 22, 2008 09:51 AM: Gambling, alchohol, and tobacco will soar just like it always does in hard times.


    charles wrote on March 22, 2008 08:52 AM: Wake up Clark County !!! We are not immune to the fate of the economy. Merging, expanding, buying up every piece of available land to have more slot machines standing on..We all knew the bubble had to burst some time. What a shame this city has nothing else to rely on except gambling. No real industry of any sort, and with $3.50 gasoline, rooms that are overpriced, machines that are in suck up mode most of the time, what do the idiots running these places think is going to happen ???


    lv wrote on March 22, 2008 08:51 AM: Bev...u know smoking is NOT banned in las vegas casinos???


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