Nevada casinos expected to see increased demand

Friday, Aug. 15, 2003 | 10:41 a.m.

For the past two years, the casino industry has been buffeted by the effects of an economic recession, terrorist attacks, a war in Iraq and the outbreak of the SARS virus.

But the troubled skies will clear somewhat through the end of the year and into 2004, with Nevada casino revenue and Strip casino revenue expected to climb 3.5 percent and 4 percent, respectively, a major credit rating agency says.

Improved customer demand is anticipated to raise Nevada casino revenue to $9.8 billion, while Strip revenue is expected to increase to roughly half that, or $4.8 billion, according to a semi-annual industry report released by the Standard & Poor's debt rating agency this week.

While growth is anticipated in most casino markets nationwide, the industry will receive its largest boost from tribal casinos, where revenue is expected to grow 10 percent this year compared to last, the report said. That compares to 5.1 percent projected growth at casinos nationwide.

About 33 percent of the $40.2 million in projected revenue generated by the nation's casinos in 2003 is expected to come from tribal casinos, or roughly $13.3 million, S&P said. That's up from 32 percent of nationwide casino revenue in 2002.

All of the Midwest's riverboat markets are expected to grow except for Illinois, where significant casino tax hikes in 2002 and 2003 -- and a top graduated tax rate of 70 percent on the state's most profitable casinos -- is cutting into profits. Revenue at Illinois casinos is expected to fall 1.2 percent this year, to $1.8 billion. Colorado and Detroit markets also are expected to drop, though each less than 1 percent. Detroit's three casinos are expected to add at least 400 hotel rooms each within the next four years, becoming more of an overnight destination for gamblers, the report said.

Tribal casinos are a bright spot for growth, it continued.

More tribal casinos are on the horizon, especially in California and New York, where as many as six additional casinos have been approved by the state.

Gambling winnings at southern Connecticut's two high-volume casinos, Foxwoods and Mohegan Sun, are expected to top $2 billion this year -- more than 40 percent higher than winnings at Atlantic City's dozen or so casinos, the report said.

Fewer than 50 high-volume tribal casinos nationwide generate much of tribal gaming revenue, according to S&P.

That's supported by the latest data available from the National Indian Gaming Commission, the federal agency that regulates tribal casinos. In 2001, the 39 highest-grossing tribal gaming operations had revenue of $8.4 billion, or 66 percent of the $12.7 billion generated by the 290 casinos tracked that year, the commission reports.

In Las Vegas, construction slowed to less than $2 billion in 2001-2002 and little new industry capacity is expected to open over the next couple of years after a flurry of new projects in 1999 and 2000, S&P said.

Acquisition activity also has been slow, though consolidation will play a role in the industry's future, it said.

Few deals on the horizon "likely reflects companies' concern with beefing up their balance sheets as opposed to buying out other firms, as well as caution on the part of lenders," S&P analyst Tom Graves said.

Offsetting bullish revenue projections are risks of casino proliferation and increased gaming taxes.

"With state budget deficits looming, the gaming industry is a candidate for higher taxes that could threaten its profitability," Graves said.

Other highlights from the report include: