Majestic Research

Associated Press

Market Spotlight: Casino Operators

By Michelle Chapman
Published: March 12, 2008

NEW YORK — While consumers rolled the dice during past economic difficulties, a different set of concerns this time is starting to hurt gaming operators.

Once considered resilient to economic changes because consumers still want entertainment regardless of their situation, casino companies have recently reported a slowdown in U.S. markets.

The difference now, according to Sterne, Agee & Leach senior gaming analyst Nicholas A. Danna IV, is the ongoing housing downturn and increased gaming supply.

Perhaps most troubling is softness that has started to creep into Las Vegas. Last month Las Vegas Sands Corp. said fourth-quarter revenue at The Venetian and Palazzo in Las Vegas slipped 10.9 percent from the prior-year period. While fourth-quarter revenue held up at Wynn Resorts Ltd.’s Wynn Las Vegas, Chief Executive Steven Wynn cautioned in a February conference call that the market is likely to see general weakness ahead.

“Clearly economic conditions are impacting the industry,” said Dennis Forst, a managing director with KeyBanc Capital Markets.

Forst and Matthew Jacob, a director at Majestic Research, note that Las Vegas is experiencing weakness in casinos that cater to Las Vegas locals, as the segment has been hurt by the weak housing market and an increase in supply.

To help combat such weakness, gaming companies will look to focus their marketing efforts on repeat customers, Danna said. The casino operators may also try cross-marketing Las Vegas and other U.S. properties, according to Jacob.

Forst said gaming operators have also implemented some layoffs “to help bring costs down more in line with demand.”

For some companies, like privately held Harrah’s Entertainment, Las Vegas gaming has held up but hotel bookings have slipped. Jacob said part of the difficulty is that room rates and non-gaming items such as food and beverage cost more than in previous economic downturns.

Forst anticipates revenue per available room to be flat to down this year for all U.S. gaming markets, which he said is normal for the current economic climate. Revenue per available room, also known as revpar, is a key gauge of hotel business performance.

Similar to the retail sector, gaming operators first experienced a slowdown at low-end properties and are now starting to see it at high-end facilities. Jacob said high-end properties may be feeling the pinch because consumers are growing uneasy with spending more money on their rooms and food, and that high-end properties may have to start lowering rates to fill rooms.

While the economy is putting a strain on gaming operators, all three analysts note that other factors are impacting the U.S. markets as well, including increased competition, unfavorable weather and smoking bans.