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September 2, 2014

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Analysts expect gaming revenue at pre-recession levels in 2014

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Steve Marcus

A view of the entrance to CityCenter is shown on the Las Vegas Strip on Wednesday, November 23, 2010.

After tumbling during the recession, Nevada gaming revenue should return to 2007 levels by 2014.

That’s according to a report to be released Tuesday by national accounting firm PwC (PricewaterhouseCoopers LLP).

As opposed to the frequent negative comments focusing on the oversupply of Las Vegas hotel rooms, PwC had some positive comments in the report about the competitiveness of the state’s gaming industry.

In its "Playing to win" gaming industry outlook report, PwC acknowledged "Las Vegas is currently hunkered down for a relatively gradual recovery, since experience shows that an upturn in vacations to casino gaming centers tends to lag about 12-18 months behind a rebound in the economy."

But PwC also said: "As the global economy recovers, and international visitors return alongside domestic visitors, Nevada continues to be better placed to capitalize on the upturn than Atlantic City, since Nevada is less affected by competition from regional casinos."

"This means Nevada should be able to absorb the new capacity and start to rebound, once the economies and disposable income improves," PwC said.

Nevada gaming revenue has been rising during the second half of 2010, with casinos winning nearly $918 million in September. The win was up 0.73 percent from September 2009 -- and from July through September it was up 2.33 percent vs. the same time period of 2009.

Still, PwC forecast Nevada revenue for 2010 will end up down 2.9 percent and then begin to recover in late 2011, with mid-single-digit gains projected for 2012-2014.

The Nevada market is expected to grow at a 4.1 percent compound annual rate, from $10.2 billion in 2009 to $12.5 billion in 2014.

The short-term forecast is in line with the prediction of analysts for Fitch Ratings, who expect a return of convention business to Las Vegas will help boost business overall in the city in late 2011 and 2012.

The PwC report projects total U.S. gaming revenue will increase to $68.3 billion in 2014 from $57.2 billion in 2009, a 3.6 percent compound annual increase.

PwC also projected that through 2014, investment in the gaming industry will increasingly flow to the Asia Pacific market -- but that the United States will remain the largest gaming market.

Asia Pacific gaming revenue is expected to grow at a rate of 23.6 percent compounded annually -- to $62.9 billion in 2014 from $21.8 billion in 2009.

As for the growth of Internet gambling, PwC noted intrastate online horse racing betting is legal in 16 states and other states continue to look at various online wagering proposals on an intrastate basis as a way to generate revenue.

"And federal legislation to legalize and regulate online poker is expected to reach the statute book within the next two to three years," said the report, which didn’t mention the current efforts by Sen. Harry Reid to have such a bill passed.

"The potential federal legalization of interstate online poker games in 2012-2013 will serve to legitimize the online gaming market in general, boost usage and act as a catalyst for developments in other online gaming disciplines," the report said.

Consultants at PwC also said the casino gambling industry faces competitive challenges from the fast-growing non-gambling entertainment industry.

"In markets across the world, the proliferation of digital challenges and services is driving an explosion in the entertainment choices available to consumers, ranging from 3D movies to mobile TV to massively multiplayer online games," the report said. "The single biggest challenge facing the (casino) industry will be staying close to its consumers -- at all levels of spending -- and ensuring the experience remains sufficiently compelling to override other potential choices."

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  1. Perhaps Las Vegas will survive "regional competition" (why don't they just say "Indian Gaming Venues") in Southern California, but the nails are definitely in the coffin for Reno and and Stateline. The Indian Casinos on all the Northern california highways to Northern Nevada are packed full of gamblers seven days a week.
    A recent report shows Stateline at Tahoe was down about 25% over last year. And yet the slots at Harvey's and Harrahs there seem tighter than ever.

  2. Don't bet on it.

  3. And, just where are people going to get the disposable income we used to have from? Certainly not from what the Obama administration has been doing! He is taking wealth away from us, not providing for our return to prosperity.

  4. PricewaterhouseCooper assessement is right on target. Las Vegas is a special place, unique, without equal in value and selection, convenience or access, products, or services! Las Vegas is currently developing and entertaining a new wave of gaming patrons. This new wave of patrons are seeking quality and value in products and service. Mainly quality and value. This is a great time for Las Vegas. The gaming operators are responding well to the new demands. Las Vegas will be fine, now, and well beyond 2014.

  5. The doom-sayers always come out "Vegas will be a ghost town" every decade. Been hearing it for 50+ years now.

    Vegas always comes back bigger and better then before. They adapt and so do the tourists.

    2014 sounds about right. Looking forward to it.

    If you don't want to wait for the good times again there is a Uhaul with your name on it. ;-)

  6. Dennis, I am with you on this one. It is true that in the past Las Vegas has come back bigger and better as Vegaslee says, but I think it's different this time, it's going to take a lot longer, I could be wrong but so could PwC. I lived through the recession of the late 70's, early 80's, was just coming out of college then, it was bad, but not this bad. Right now too much debt, private and public. Totally inadequate job creation, record corporate profits and cash balances----due to cost cutting, making do with less labor, productivity up sharply, but NO HIRING to speak of. Until that turns around, I see a slow recovery in gaming and elsewhere.

  7. "...CwP had some positive comments in the report about the competitiveness of the state's gaming industry."

    THIS IS AMAZING. Leave it to accountants (not people in the gambling/gaming/hotel business) to come up with a positive financial forecast - 4 years down the road, when Las Vegas (and the rest of the country) has NOT EVEN HIT BOTTOM yet!

    Let me remind CwP that Jim Murren (also formerly from Wall Street) - President/CEO of MGM/Mirage - built CITYCENTER - and opened it - in the middle of this HIGHLY UNUSUAL FINANCIAL DEBACLE (which I call a DEPRESSION). And he couldn't even PAY for the 21 planned buildings - which wound up costing $8.5 Billion dollars without going to the ARABS for half of the money. In the recent news article, I read CityCenter now has a TOTAL DEBT of $13 BILLION dollars. And the complex is NOT finished, yet. Well CwP, pick a year, any year - and try to balance the EBDITA (income vs. outgo) for CityCenter, alone - by 2014!

    To make matters worse, every hotel/casino (collectively) has fired tens of thousands of people, cut back services, increased gambling odds (aka reduced customer chances to "win"), and raised the prices on everything - including food, hotel rates, and entertainment. Then, they added the ubiquitous RESORT FEE - at a rate of $20.00, $40.00 or more - JUST FOR USE OF THE TELEHONE IN YOUR ROOM, and other minor stuff (like the Gym) - all of which used to be FREE.

    So with this business model - called SURVIVAL - how, CwP, is Las Vegas going to return to ANY model of its former self if they will have to reverse their current modus operandi to do so? AND THEN, convince customers to come back to a town where everything is upscale - in price - and is seeking to skin them alive - for needed profits. All this in an environment with empty CONDO's and unfinished HOTELS.

    I don't know myself, but to survive a financial meltdown like we have now, will take some doing. And I will bet that it won't occur, at least not completely, by 2014. One reason I believe this is because economists in Washington, and in EVERY STATE, are searching for money by reducing budgets, to recover from lost revenues - in the billions of dollars.

    Then there are UNFUNDED Federal mandates from Washington, and new kinds of taxes and fees that are coming (Health Care cost-increases is one). Add to that, more foreclosures predicted, unemployment rising (again), and 15 million people STILL out of work - and you I don't see how anyone could predict a flush economy in 4 years for any State, let alone Las Vegas - as a tourist dependent economy. It took 3 1/2 years for President Reagan to lower inflation from 18% - and the economy wasn't this bad.

    My commentary is not a dooms-day rebuttal; but it is accurate. And it states some things that appear to not have been considered in the CwP analysis. Did they have some other agenda?

  8. Woodman - Thanks for your comment. It is nice to know that there are some people interested in the health of Las Vegas, and can see the validity of such thinking, as I presented. I agree with your analysis of a needed catalyst.

    If Las Vegas hotels, casinos, and restaurants exhibit THE WILL to revise their business model and policies - they will attract new customers, and the old ones will return. But Las Vegas will need that CATALYST you spoke of.

    I suggest such a catalyst - revised and customer-focused policies and business models - MUST INCLUDE, the help of individual investors who are willing to provide financial security in the form of an OPERATING CASH-FLOW CUSHION.

    It seems obvious to me that such actions are needed today to halt the loss of profits, and reduced cash-flow, that Las Vegas is experiencing - which negatively affects their ability to "keep the doors open." But the usefulness of such cash-flow injections will also require corporate willingness to reduce expectations of higher, near-term profits - and investors to accept smaller, perhaps delayed, return-on-investments (ROI).

    Such lowered expectations occur in any "start-up" business where they must be prepared to cover losses until profits, and loyal customers, emerge. But the profits Las Vegas investors want WILL COME FROM the FUTURE success of each business operation.

    So, the "crucial catalyst" will be a true and revised, customer-centric business model. A plan to make sure that people see Vegas as the "draw" they experienced in previous yeas - before the recession. Where gamblers can WIN AGAIN - as a result of the return of better ODDS for the customer. And they can depend on "Lady Luck" for their "action" - just like it used to be in the not-to-distant past. I think this will add to, and foster, the excitement and allure of Las Vegas.

    But the 2nd part of a "crucial catalyst" will be the added cushion of CASH provided invested partners, and/or reduced profit margins. Las Vegas cannot wait for the economy to improve; we have to DO SOMETHING about it now. The added cash-flow from investors will help businesses stay open and survive the "off-times" - even if it means closing some floors in the hotel for a while.

    I believe these two ideas - customer-centric policies, and injeciton of "stay-alive CASH-FLOW (which will also protect investor interests) - will eventually raise profit margins (as the economy improves) as will be shown by better earnings from increases in customer-traffic volumes.

    I know of NO OTHER viable plan that would allow for Las Vegas to WAIT for the recovery of the U.S. economy - and stay in business. And failure is not an option.

    Some have said: "build it, and they will come.
    Now, I say: "Manage it properly, and they will return."

    GOOD LUCK!