Report: Fall in gaming revenue slows, too early to call bottom

Justin M. Bowen

A view of the Las Vegas Valley from Henderson.

Friday, Nov. 13, 2009 | 10:52 a.m.

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High unemployment nationwide continues to hinder the gaming industry's recovery from the recession, analysts at Moody's Investors Service say.

While recent statistics suggest the drop in U.S. gaming revenue caused by the recession continues to ease, it's still too early to say gaming revenue has hit bottom, Moody's said in a report Friday.

"On a weighted average basis, the percentage change in gaming revenues decelerated materially across the major U.S. markets in September," Moody's Vice President and Senior Credit Officer Peggy Holloway said in the report. "However, October results so far are less encouraging considering easy comparisons to October 2008."

Moody's said October gaming figures are important because it was the first full month with a comparison to the sharp drop in U.S. consumer spending prompted by the failure of several Wall Street financial institutions in September 2008.

Moody's said it expected more deceleration of negative trends in October, though it's analysis doesn't include Nevada's October numbers since they have not been released yet.

Nevada casinos won $911 million in September, down 8.99 percent from September 2008. For the July-September period, Nevada gaming win was down 10.28 percent.

Moody's noted Las Vegas Strip results in September indicated a significant deceleration of negative trends and that with visitor volume to the city increasing 4.3 percent in September, "The September results may be a harbinger that a bottom is near for the Las Vegas Strip."

Around the country in October, Illinois, Iowa and Michigan showed continued deceleration of negative trends -- though Moody's found the results in Iowa and Illinois were not as robust as suggested by the numbers on a same-store basis.

Louisiana's positive year-to-year increase likely reflected in part the 2008 hurricanes that disrupted casino operations there, Moody's said.

New Jersey reported a second month of single-digit declines after seven consecutive months of double-digit drops, as Indiana and Missouri reported consecutive monthly gains in gaming revenue.

"It appears that state gaming revenues are headed towards a bottom and so stabilization in the gaming industry may be near. However, true stabilization in gaming revenues will require a few more consecutive months of moderating declines. Although U.S. GDP has started to grow, unemployment remains stubbornly high (10.2 percent nationwide) and we believe this will keep pressure on gaming budgets and the nascent recovery in gaming revenues that appears to be emerging," Moody's report said.

"When we believe that gaming revenues will not materially erode during the next 12-18 months, we will be more confident in calling the bottom. The moderation of monthly gaming revenue declines across many states through the remainder of 2009 is needed before we are comfortable saying industry conditions have stabilized," Moody's said.

Even as conditions improve in Las Vegas and around the country, analysts remain concerned that gaming companies exposed to the Las Vegas Strip and the Las Vegas locals market will be challenged by increased supply and the slow economy in Las Vegas.

Las Vegas Strip leader MGM Mirage predicts visitation to Las Vegas next year will grow 7 percent to 38.1 million people, outpacing the projected capacity increase of 5 percent.

But analysts at CreditSights said in a report last week: "We agree that the overall Las Vegas market is likely to improve next year, but we are more cautious on the ability of operators to grow demand faster than capacity."

Even before CityCenter opens next month, MGM Mirage and competitors have had to lower room rates.

This in part was how MGM Mirage maintained its 95 percent occupancy rate on the Las Vegas Strip in the third quarter.

MGM Mirage said that for the third quarter, daily revenue per available room on the Strip fell from $129 in the 2008 quarter to $100 in the 2009 quarter.

And even as visitation to Las Vegas fell 4.7 percent this year through September, the city's room count grew 2.5 percent from a year ago to 141,190.

That number is projected to grow to 149,156 by the end of the year and to 153,149 by the end of 2010.

Recent and planned expansions and openings included in the numbers involve CityCenter, with 4,004 rooms at its Aria hotel-casino alone; along with Planet Hollywood Towers by Westgate, the Cosmopolitan, the Hard Rock and the Golden Nugget.

And in part reflecting the Las Vegas economy with its 13.9 percent unemployment rate, Moody's on Thursday downgraded Cannery Casino Resorts LLC's "corporate family" and "probability of default" debt ratings to Caa1 from B2.

This change moves the Cannery debt from "speculative" and "subject to high default risk" to "of poor standing" and "subject to very high default risk."

Moody's assigned a negative outlook to the debt in "anticipation of continued weak operating performance and near-term loan covenant compliance concerns."

Moody's said the downgrade reflects the slower than expected ramp up at Cannery's two new casinos: the Meadows near Pittsburgh, which opened in April; and Eastside Cannery on Boulder Highway in Las Vegas, which opened in August 2008.

"The East Side Cannery and two other Las Vegas casinos are ... performing well below original expectations and will continue to struggle in the foreseeable future along with the entire Las Vegas locals market," Moody's said.

Cannery Casino Resorts also owns the Cannery hotel-casino in North Las Vegas and runs the casino at the JW Marriott resort in Summerlin.

Moody's said its primary concern with Cannery is that the Las Vegas company will need to seek loan covenant relief, which could significantly boost its interest costs at a time when operating conditions remain challenged.

Discussion: 11 comments so far…

By manfromuncle1

11/13/09 at 12:27 p.m.

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There isn't going to be a recovery. Half of the people are still paying off their credit cards and the other half are getting into massive new debt in the form of student loans. We're experiencing deflation--that's when stores keep lowering prices but people still can't afford to buy anything (and that's a REALLY bad sign). The DVD of "Star Trek" is only $10 with a pre-order at Amazon or Wal-Mart, but don't know if I can afford it. Check out this recent video of one person's student loan nightmare:
http://www.bostonherald.com/business/gen...
By info4you2see

11/13/09 at 1:02 p.m.

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just to add to manfromuncle1 comment - "Half of the people are still paying off their credit cards"

As of March 2009, U.S. revolving consumer debt, made up almost entirely of credit card debt, was about $950 Billion. 13.9 percent of consumer disposable income went to service this debt.

Top 15 U.S. general purpose credit card issuers based on outstanding debt as of June 30, 2009

1. Chase - $165.87 bil.
2. Bank of America - $150.82 bil.
3. Citi - $102.54 bil.
4. American Express - $78.16 bil.
5. Capital One - $55.46 bil.
6. Discover - $48.90 bil.
7. Wells Fargo - $30.89 bil.
8. HSBC - $26.09 bil.
9. U.S. Bank - $20.17 bil.
10. USAA Savings - $12.96 bil.
11. Barclays - $10.67 bil.
12. Target - $7.78 bil.
13. GE Money - $7.17 bil.
14. PNC Bank - $5.08 bil.
15. First Nat'l Nebraska - $4.32 bil.

SOURCE: http://www.creditcards.com/credit-card-n...
By info4you2see

11/13/09 at 1:13 p.m.

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just to add to manfromuncle1 comment - "and the other half are getting into massive new debt in the form of student loans."

Statistics on student loan debt:

http://www.amsa.com/policy/resources/sta...
http://www.studentloanfacts.org/loanfact...
By EFCANOW

11/13/09 at 4:50 p.m.

Comment removed by staff.
By wizardofOz

11/13/09 at 5:43 p.m.

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Exactly.

Wages competing with China and India, and

PEOPLE ENCOURAGED TO BORROW PAST THE GRAVE.

WE OWE MORE NATIONALLY THAN THE WHOLE ENTIRE COUNTRY IS WORTH IF IT WAS SOLD TOMORROW.

And EVERY Politico (Republican or Democrat) has increased the spending, debt, and borrowing, and voted to ship jobs OVERSEAS, NAFTA, GATT, WTO.

They lie like rugs to get voted in. But once they get there:

CHA-CHING.
By In2wishin

11/13/09 at 11:15 p.m.

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I remember back in the '70's or so there was a big sugar shortage--I believe it was due to a strike against C & H. The shortage lasted for several months. What sugar there was became very expensive.
In the meantime, my family and all our friends responded by cutting sugar in recipes by 50% or more. We discovered we didn't really miss all that sugar after all. When the strike ended and supply returned to normal, sales were way down, and stayed that way.
We learned that a non-essential in our lives can be substitued by healthier alternatives. Perhaps this will be the way of gambling. When we can't afford it, we will find a substitute. Acutally, my little hand-held video poker game keeps me happy or even better, a visit to my two new grandsons. The sweetist kids I know.
I sure don't need to play away money that costs me so dearly to earn these days.
By sidpers

11/14/09 at 11:19 a.m.

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Good point wishin: We used to go to vegas twice a year and spend about $3,000 per vist but won't get their this year, no expendable income available as my house has lost about 30% and was laid off. Someone needs to tell harry things are really bad out here and the last thing we need is a trillion dollar health care bill, get some damn jobs created first. We miss vegas and hopefully see you sometime in 2010.
By dipstick

11/15/09 at 3:41 a.m.

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things wont improve for the next few years. make an effort to cut overhead, sell assests you no longer need and hunker down. visiting vegas is no longer an option on many peoples travel plans.
By BorisR

11/15/09 at 5:31 a.m.

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All the big casinos on the Strip built on debt will remain in trouble for several years now. It's because their break-even point as high as heaven and only possible if occupancy rate is at 85 per cent or more on average with a daily spending budget of all hotel guest of at least 100 dollars or so, these corporations will have it difficult to survive. The interest payments are simply eating them alive.
The lower the debt, the greater the chance that a company will actually be able to survive. MGM Mirage with the CityCemetary and Las Vegas Sands with the phantastico-but-empty Palazzo will make up for it by grinding out the funds in the Far East (Macau), as otherwise I see the lights go off sooner or later.

From Switzerland
By BorisR

11/15/09 at 2:23 p.m.

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manfromuncle1, I like your comments. You are hitting it to the point. People are busy paying back their bills and credit card debt. Which is actually a way to recocery. The people who manage to dig themselves out of the mysery will learn their lesson from it and probably not do the same mistake in the future anymore.
However, it takes a job to make money to pay back these bills. And here comes the difficult part of the task. If unemployment is going up and people cut on spending, there's no chance for new jobs being created.
You mention the StarTrek DVD for 10 bucks , preorder. Well, it's not that you have to complain that you probably can't afford buying it, but isn't it a much better idea to question yourself whether you really need to own this dvd?
There is no chance to cut spending without buying less. And not owning a dvd is definetely not something to become depressed about. After all, you would see this movie perhaps 2x, or perhaps 3x, but definetely not mroe than 10x before you have it sit in your shelf. So what's the point? I recommend to start double-checking on all consumer related ideas and perhaps focus on the real things that make life so precious.

Greetings from Switzerland
By environprotector

11/16/09 at 1:59 p.m.

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I believe we are going to witness massive changes here in the valley over the next couple of years, foreclosures, hotel/casino failings, and high unemployment which will drive the unwanted masses OUT of here. Only then will some kind of balance and new order emerge in the gaming business here. I think Boyd will come out on top, as long as they don't do anything foolish like purchase and assume Station's debt., or try to build that foolish Echelon Resort.