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Numbers don't lie and gaming could be back

Back On Top

While we are well into 2016, it is still instructive to look back on 2015.

It was the year when the long and often uneven recovery of the American casino industry was finally achieved without question, and with strong December comparisons adding an exclamation point.

The evidence appears in Fantini’s National Revenue Report, a monthly compilation of gaming revenues in every jurisdiction that reports them, including several Indian gaming enterprises.

Revenues reached a record $40.6 billion, up 2.2 percent over 2014.

That in itself was encouraging, but also encouraging was that absorption of the new capacity that had come into markets such as Ohio and Louisiana in recent years.

Indeed, factor out new casinos and same-store revenues grew nearly a full percentage point to $30.8 billion.

Further, the improvement accelerated throughout the year, ending in a December when revenues rose 2.3 percent to $3.4 billion, and 2.8 percent same-store to $2.7 billion.

That absorption was evident throughout the country.

Ohio is a good example. The state, which added several racinos in 2014, grew revenues 12.8 percent and kept same-store losses to 4 percent. But by December, all casinos had been open for more than a year and revenues grew a healthy 6.6 percent to $144 million.

Perhaps the best example of gaming’s recovery is in the much-discussed northeastern corner of the country where talk of cannibalization and hand-wringing about over-capacity have been near obsessions since the first Pennsylvania casino opened a decade ago.

In this super region of overlapping markets, we count all the casinos of Massachusetts, Connecticut, New Jersey, Delaware, Maryland, those in eastern Pennsylvania to include Hollywood near Harrisburg, those in southeastern New York west to include Monticello, and Hollywood in Charles Town, West Virginia.

This region produced $10.2 billion in gaming revenue last year, 1.7 percent growth over 2014. Note, this does not yet include Connecticut table game revenue, as only slot revenue is released monthly.

Results were not uniform. Atlantic City, Connecticut slots and Delaware continued to lose business to ever-greater competition.

But Maryland, New York, eastern Pennsylvania and Rhode Island continued to grow and carry the region higher.

Yet another example of gaming growth was in areas where there was no nearby new competition.

Here are the revenue change comparisons in such states or markets compared to 2014:

Arkansas+26.5 percent
Colorado+  5.9
Detroit+  3.3
Florida+  5.0
Illinois-   1.7
Kansas+  4.0
Mississippi+  1.5
Missouri+  2.5
South Dakota+  0.3

In those areas, only Illinois declined.

Some portion of 2015’s improvement was weather-related, as the winter months were far milder than in the previous year.

But industry growth was consistent throughout the year with revenues rising in every month but March and August.

So, what will 2016 bring?

The big drop in gasoline prices is over. It would not be surprising if prices rise this year and begin to take some fun money out of consumers’ pockets.

The economy is always a factor, though politicians are accommodative in election years. They don’t want to do anything to upset the apple cart.

There will be few new casino openings for markets to absorb, though MGM Resorts’ $1.3 billion National Harbor casino outside Washington, D.C., will not be welcomed by its Maryland and Delaware neighbors and might even have some effect on Atlantic City when it opens mid-year.

If early January revenue reports are harbingers, 2016 will be another year of steady, if not spectacular, growth. In Pennsylvania, for example, January slot revenues rose 2.1 percent to $184 million even against last year’s ultra-mild weather and with a blizzard this year.

In addition, executives on fourth-quarter earnings investor calls have reported the positive trends continuing in the first quarter.

Combine that with the sustained surge in Las Vegas business volumes and conditions are looking good for casino operators.

Of course, it is still possible to see the glass as half empty. Hotel rates and gaming spend per customer are still largely below the records set in 2007.

But slow and steady progress is probably more sustainable, and with more operator cost and debt discipline than in that halcyon era, profit margins can grow higher, and profitability, after all, is the name of the game.

Steady Growth Ahead

If there is a casino operator that optimizes prudence and the effectiveness of perfecting its blocking and tackling, it is Boyd Gaming.

Within the past year, CEO Keith Smith has talked about adding more non-gaming amenities, and recently has reported that early additions to entertainment and dining offerings have been paying off.

Thus it was with some interest that we read the announcement that Boyd will add five dining concepts in a $30 million investment at its Orleans casino in Las Vegas as part of a $100 million system-wide upgrade of non-gaming amenities.

Boyd’s announcement comes as Caesars has completed dining, entertainment and shopping additions along the Strip and MGM Resorts has added similarly along the south Strip where it too will soon open a 20,000-seat arena.

These investments are not the multibillion-dollar bets the industry was making before the Great Recession. They are the targeted investments that should pay off in sustaining the recovery cited above.

Casinos are in the experiential entertainment business, and these investments show that their operators know it. If they remain prudent and keep to this strategy, they will be profitably investable for years to come. After all, having fun never goes out of style.

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