Stock market decline hits gaming hard
Maybe it was the perceived reputation for being “recession-proof,” but the impact of the current economic troubles has hit the gaming industry almost as hard as banks and insurance companies.
The decline of gaming stocks has been dramatic and troubling. Some of the industry’s “blue-chip” stocks have been hard-hit. Las Vegas Sands has seen its price decline in the past year from a high of $140 per share to less than $14 late last month. Slot supplier IGT has seen its post-split price of $45 drop to less than $15. Even companies that are no longer public companies have seen their fortunes get very complicated. Speculation last month centered upon whether Harrah’s Entertainment and Station Casinos could service the short-term debt they accumulated last year when they were taken private.
Most casinos have shelved or canceled expansion plans, concentrating instead on operating efficiently and effectively with the least capital outlay as possible. Layoffs have become a big part of the current scene. Thousands of casino employees from California to Connecticut are being issued pink slips. Cash flow has become king, as companies strive to balance their budgets and create shareholder value.
Even without layoffs, cutting restaurant hours and closing non-performing hotel rooms have an impact, says Bill Lerner, an analyst with Deutsche Bank.
“All of those carry employment,” Lerner said. “Over the last two to three weeks, the behavior of visitors to Las Vegas has changed noticeably. They’re spending very differently, and less, than they were prior to that. It’s 100 percent related to the things people are watching on CNN and CNBC with the economy and the credit environment.”
The “recession-proof” myth dates back to the 1990s, when a mild recession was shrugged off by most casino destinations. In fact, at that time commercial gaming was legal in only two states, with Indian casinos in a couple more. Today there are 12 states with commercial casinos, 11 states with racetrack casinos and 29 states with tribal gaming halls. The increased capacity has not been matched by an equally growing market, so casinos are not immune to smaller amounts of disposable income, higher gas prices, cutting the entertainment budgets and other financial changes made by their customers.
On the other hand, many casino destinations consider themselves well positioned for a quick rebound once the economy starts to turn around. Both Atlantic City and Las Vegas offer inexpensive holidays to people who may once have vacationed in Europe or Asia. Midwest riverboats and Indian casinos expect to regain customers quickly once the economy begins to improve.