This is starting to look like we are heading into a period where big issues of economic policies and trends might have a greater influence on the health of gaming companies, thus their stocks.
The Fed is raising interest rates, President Trump is imposing tariffs, and the U.S. appears headed towards huge federal deficits for the foreseeable future.
We won’t get into playing economist in this space, but will say that gaming investors might have to look as much, or more, at Washington as Las Vegas or the riverboats of America’s heartland for direction.
Here are a few examples of how things can become worrisome.
Gaming companies have been comfortable with debt at four to five times EBITDA. And many companies have been happily refinancing their debt to lower interest rates. However, lower variable rates are not a guarantee of interest cost savings if overall interest rates rise significantly.
Arguments can be made about tariffs and the U.S. can put itself in opposition to countries like China by playing hardball trying to negotiate trade concessions. But the gaming industry is an easy target for being used as a political football. It isn’t out of the realm of possibility that if the US and China get contentious enough that American gaming companies prospering from Chinese gamblers might be affected by Chinese government policies.
Finally, casinos today are much more dependent on non-gaming revenue, thus more vulnerable to the overall economy. If the U.S. slips into recession, casinos are likely to slip with it.
Of more immediate concern are current and near-term trends, and there the picture isn’t clear, at least not so far in 2018.
Gaming revenues outside of Nevada declined in February and followed a January decline to combine for a slow start to the year and maybe some concern about whether a negative trend is being established.
However, add in Nevada and a strong Chinese New Year on the Las Vegas Strip and February revenues rose 1.29 percent to $3.392 billion, though year-to-date is still negative by 0.36 percent.
Severe weather played its part in muddying February’s picture.
In Indiana, for example, revenues fell 8.71 percent. But three Ohio River casinos were struck by flooding waters and northern casinos faced new competition from the just-opened Pokagon Indian casino near South Bend. Factor out those effects, and Tropicana, which is benefitting from replacing a riverboat with a land-based casino and revenues at the other Indiana casinos fell just 1.37 percent. However, that is still a decline.
Nevada might be the best case of the big picture not presenting the true picture.
On the surface, Nevada had a bang-up month. Gaming revenues rose 7.68 percent thanks to a Chinese New Year-driven 11.37 percent increase on the Strip. Baccarat win soared 82.53 percent to $176.258 million on 58.95 percent jump in table drop.
However, combine January and February to account for the shift of Chinese New Year to being entirely in February this year, and Strip revenues edged up just 0.65 percent.
On the negative side, the booming Las Vegas locals market broke its winning streak, down 0.79 percent in January, though still up 3.99 percent for the year.
On the positive side, Reno continued to grow, up 6.74 percent for the month and 10.04 percent year-to-date.
This positive here, negative there could be played out throughout the country.
The bottom line: No clear gaming revenue trends so far in 2018.
