\nBy Howard Stutz, Las Vegas Business Press<\/p>\n
\tWith six months on the books, the investment community have a clear picture of the casino industry in 2014.<\/p>\n
\tLas Vegas is on an upswing.<\/p>\n
\tGaming revenues have jumped more than 5 percent over the last three months and the Strip is poised to record its fifth straight annual gaming revenue increase since 2009, when the market reverted back to 2004 numbers.<\/p>\n
\tAs for the regional gaming markets? Not so much.<\/p>\n
\tMoody\u2019s Investors Service recently downgraded its view of the U.S. gaming market from \u201cstable\u201d to \u201cnegative,\u201d putting all the blame on regional gaming destinations where weak results have investors sweating.<\/p>\n
\tAtlantic City is not alone in recent rash of planned and possible casino shutdowns. Regional operators are also considering market contractions.<\/p>\n
\tIn Mississippi, Harrah\u2019s Tunica closed in June and the 2-year-old Margaritaville Casino in Biloxi announced last week it will close in mid-September.<\/p>\n
\tUnion Gaming Group analyst Robert Shore said Margaritaville\u2019s closing was \u201cindicative of ongoing weakness in regional revenue trends as we have continued to observe.\u201d<\/p>\n
\tLas Vegas is another story.<\/p>\n
\tClosed casinos are coming back to life. The Cromwell, a $185 million renovation of Bill\u2019s Gamblin\u2019 Hall, opened in April. The $415 million SLS Las Vegas \u2014 formerly the Sahara \u2014 has an Aug. 23 opening date.<\/p>\n
\tOther nongaming ventures on the Strip, such as The Linq retail, dining and entertainment center, and MGM Resorts International\u2019s The Park, a similar nongaming addition between New York-New York and Monte Carlo, illustrate the market\u2019s health.<\/p>\n
\tMoody\u2019s senior gaming analyst Keith Foley said the Strip\u2019s gaming revenue is healthy compared with regional markets.<\/p>\n
\tIn the last three months, Connecticut casinos have reported staggering revenue declines. Other states had gaming revenue declines for at least two of the three months, including Colorado, Delaware, Illinois, Indiana, Iowa, Kansas, Louisiana, Michigan, New Jersey, New York, Missouri and Pennsylvania.<\/p>\n
\t\u201cCompared to the U.S. regional and local gaming markets, the Las Vegas Strip has a much broader, deeper and diversified pool of visitors,\u201d Foley said. \u201cIt attracts people on a nationwide and global basis, along with a very large revenue and earnings component related to the midweek convention business.<\/p>\n
\tFoley added that Strip resorts collect a larger revenue total from nongaming sources, including rooms, entertainment, restaurants and retail.<\/p>\n
\tIn the past 12 months, Strip casinos have collected roughly $6.4 billion in gaming revenue, according to Moody\u2019s. The Strip is the nation\u2019s largest U.S. gaming revenue market. But it accounts for less than 20 percent of all American-produced gaming revenue.<\/p>\n
\t\u201cThis means that it does not tend to be a primary driver of our industry outlook,\u201d Foley said.<\/p>\n
\tMoody\u2019s analysts believe gaming revenue nationwide will decline between 3 percent and 5 percent over the next 12 to 18 months. That drop would decrease overall gaming industry cash flow between 4.5 percent and 7.5 percent.<\/p>\n
\tFoley said the majority of the declines are coming from maturer regional markets.<\/p>\n
\t\u201cThe fixed-cost nature of the industry will make it difficult to fully mitigate these revenue declines through expense reduction, causing earnings to decline more rapidly than revenue,\u201d Foley said. \u201cIn addition, the proliferation of recent casino openings, along with future supply additions, will have a further cannibalizing effect on overall industry earnings, despite their contribution to industry-wide gaming revenue.\u201d<\/p>\n
\tOthers shared Foley\u2019s opinion.<\/p>\n
\tFitch Ratings Service analyst Michael Paladino said the weakness in regional gaming markets will persist.<\/p>\n
\t\u201cWe attribute this pessimism to longer-term structural macroeconomic and secular factors,\u201d Paladino said.<\/p>\n
\tThe many reasons Paladino cited include saturation across regional markets, stagnant wages among lower- tier players, and a potentially lower propensity to gamble among younger generations.<\/p>\n
\tThere are 23 states with commercial casinos while 28 states have Indian casinos (there is some overlap). Over the next several years, only a handful of states \u2014 Kentucky, New Hampshire and maybe Texas \u2014 might legalize casinos.<\/p>\n
\t\u201cResults could be lackluster, even if more states allow casinos, as is the case in Ohio, which we estimate cannibalized roughly one-third of its revenues from surrounding states,\u201d Paladino said.<\/p>\n
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