Gaming execs forecast gloomy times ahead

By Amanda Finnegan

Published Wednesday, Nov. 19, 2008 | 3:26 p.m.

Updated Wednesday, Nov. 19, 2008 | 6:26 p.m.

Casino and gaming executives from domestic and international companies weighed in on the current economic crisis at this morning’s Global Gaming Conference in Las Vegas.

American Gaming Association president Frank Fahrenkopf led a “State of the Industry” discussion with Harrah’s chief executive officer Gary Loveman, International Gaming Technology CEO TJ Matthews, Olympic Entertainment Group chairman Armin Karu and National Indian Gaming Association president Ernie Stevens.

The panel of executives said that the current economic downturn will significantly impact the way gaming companies do business, affecting domestic and international expansion, investment in new technology and product diversification.

When asked what impacts the industry most significantly, Loveman told attendees the tightening credit market is a much more important challenge in casino growth than the short-term drop in consumer spending.

The Harrah’s CEO said casino developers “spend capital like drunken sailors,” building lavish facilities while seeing little return on their investment during the downturn.

However, Loveman believes the industry will bounce back — but not without tough choices.

“The business is remarkably resilient; it’s very profitable. It’s a fundamentally a strong enterprise when you think about other consumer franchises,” Loveman said. “We will have to do a lot of unpleasant things during the downturn…but there will be a significant sea change in the way in which the balance sheets are structured.”

Earlier this week Harrah’s announced it wouldn’t build a planned $500 million resort in Kansas due to “circumstances beyond our control.”

“I think industry is going to have to get accustomed to the notion that not every project is a good project and $1 billion really is a lot of capital after all,” Loveman said.

While tribal gaming has not been as hit hard as commercial, NIGA president Stevens said that harsh economic times have reinforced the need for the Indian country to pursue other sources of economic development.

On the international side, Karu, who operates casinos in Eastern Europe, said his market is feeling a pause as well. Karu said Olympic is looking into developing more destination resorts and locals’ resorts, much like Station Casino’s newest venture, Aliante Station.

Matthews said today that on the manufacturing side, IGT has to reevaluate its business plans, especially when casino developers are ceasing projects.

IGT, the world’s largest gaming manufacturer, has spent the recent years developing server-based technology, a change expected to transform casino floors. With casinos cutting cost, the company has had to refocus, Matthews said.

Loveman commented that if the cash was available to purchase games from IGT or a competitor, or to pay off current debt, the decision would be an easy one in a time when casinos are facing immense debt.

“We can impact revenues positively but also help to cut costs,” Matthews said of the benefits to casinos. Matthews cited the example of IGT’s new “cocktails on demand” feature, a service Harrah’s has invested in.

In an earlier session at the gaming conference, MGM Mirage executive vice president and chief financial officer Dan D’Arrigo said, “I don’t see any new developments coming to this market for five to seven,” years, speaking of new resort development in Las Vegas.