Economy Hits Casinos

The pressures of a weak economy — concerns about job security and rising prices for gas, food, home heating oil and other goods and services — are causing many gamblers to cancel or reduce the number of casino trips. Those who go are gambling less money than in the past.

It’s quite a jolt for a gaming industry that has experienced unprecedented growth. Only one state had casinos in 1970 with revenues of $540 million. Now there are casinos in 37 states, with revenues reaching nearly $58 billion in 2006.

“People have been saying for years that the gaming industry is recession-proof, but that’s not a valid statement,” says Frank Fahrenkopf , CEO of the American Gaming Association, which represents casinos and manufacturers. “Anything that hurts consumer spending will have an impact on us.”

“Everybody is in at least a little bit of pain,” says Robert LaFleur , a gaming/lodging analyst for Susquehanna Financial Group.

At Mohegan Sun, the Native American casino in Connecticut that brings in more revenue than any other casino in the U.S., slots revenue during this year’s first three months was down compared with the same months last year.

Faring Worse

In Las Vegas, several gaming companies report that first-quarter revenue declined. Occupancy at hotels and motels dropped slightly, and room rates have fallen.

In Atlantic City, casino revenue last year fell for the first time since the first casino opened in 1978. Revenue dropped 5.7 percent last year and is down 6.4 percent in the first quarter this year, says Linda Kassekert, chair of the New Jersey Casino Control Commission.

Bill Lerner, senior gaming and lodging analyst at Deutsche Bank Securities, says the weak economy has affected gaming industry revenue and profits more than anticipated. Las Vegas gaming and hotel revenues “are seemingly worsening,” and regional casino markets “are faring a bit worse,” he says.

No casino “has been immune,” but upscale ones such as Wynn, Bellagio and the Venetian in Las Vegas have been less affected, Lerner says.

“Budget-strapped states have looked to gambling for incremental revenue and an alternative to raising taxes,” said LaFleur, the gaming/lodging analyst. If the economy remains weak, he says, there might be more pressure for states to establish or expand existing operations.

That’s already happening in Rhode Island, where lawmakers are considering measures to reduce a $568 million budget deficit by increasing weekday hours at its two slot parlors and operating around the clock on weekends and holidays. Slot machines provide about 8 percent of the state’s income.