With fourth quarter earnings season now in the books and the first quarter yet to begin, now is a time to do some tea-leaf reading.
One trend to track is the economy, as always. Until recently, US casinos basked in an ever-improving economy in which concerns about interest rates and trade wars seemed remote and perhaps not pertinent.
But all good things come to an end. And, even though the economy continues to hum at full employment and glitches are related more to labor shortages than demand, a slowing down might be in the early stages.
The housing market is one measure. The February Case-Shiller Home Price Index of 20 major markets showed the slowest growth in prices since 2012 and booming Las Vegas actually declined 0.3 percent in January. Of course, Las Vegas prices are up 10.5 percent over last year and unit sales of new homes rebounded nicely in February from a down January.
Still a slowdown is a slowdown and some other economic indicators have at least flattened out.
One of the lessons of the 2008 Great Recession is that casinos are not recession-proof. And, the more they rely on non-gaming revenues and the more expensive non-gaming revenues become, the more vulnerable they will be.
Much has been made recently of the decline in visitation to Las Vegas in 2017 and 2018, with questions raised as to whether the town is becoming too expensive thanks to things like parking and resort fees.
Small changes in visitor statistics can be misleading, such as major trade shows rotating out of Las Vegas last year but due to come back again.
By the time this column is distributed February visitation figures will be out, but just using January was encouraging with Las Vegas visitation up 2.52 percent.
One indication of the city’s attraction is air traffic, and it continues to rise every year. So far this year traffic is up 2.6 percent. International passenger counts were up 6.9 percent through February for those worried about the expensive dollar or any anti-American political feeling.
However, parking and resort fees might be taking their toll. Fee advocates note that Las Vegas remains cheaper than alternatives. But they miss the point. Las Vegas is an absolute fun destination. Start slapping parking and resort fees on visitors and you take some of that fun away. Ultimately, it’s about the brand and the no-fun fees tarnish that brand, in my estimation.
Yet another question is the change in the gaming industry nationally. When the first riverboats sailed (or more often docked) and Indian casinos morphed from sprung tents to resorts, optimists said the new casinos would serve like minor leagues feeding customers to Big League Las Vegas.
And that might have been true. But, eventually, there is such a thing as so much product that there’s no need to fly 1,000 or 2,000 miles to Las Vegas for a slot machine, table-cloth quality dinner and a show.
Meanwhile, we are at the start of other phenomena such as the growth of online gaming and the proliferation of slot routes that can keep people in or closer to home.
Illinois has been the poster child for what slot routes can mean for casinos. Last year casino revenue fell 2.35 percent to $1.375 billion while slot route revenues jumped 15.44 percent to $1.5 billion.
Visitation statistics are emphatic. Admissions to Illinois casinos dropped 6.7 percent last year.
Of course, investors can be neutral. Their question is “How can I make money out of this?”
With companies like Penn National, Boyd Gaming and Golden Entertainment increasingly in the slot route business, we’ll soon see if growth there can offset issues elsewhere. One thing we know is that casinos are the core business, and slot routes operate at lower margins.
So, in summary, the American commercial casino industry looks healthy though increasingly mature. And, when the next recession comes, we’ll see if the now leaner operations can manage through – better than in 2008 – if their more vulnerable, thanks to the changed environment.
