Looking at the most recent jurisdictional gaming revenue reports, the conclusion is that it might be time to officially go on recession watch.
For a long time now, American consumers have defied predictions that continually higher interest rates and inflation would torpedo the economy. Their resilience has been especially heartening to casino operators as, despite signs of slower spending elsewhere in the economy, people continue to travel and buy “experiences,” including gambling and visiting Las Vegas.
Further, even if there have been signs of low-value customers spending less, casino operators have significantly cut costs marketing to them and overall revenues have been goosed by the spread of sports betting and iGaming.
But the signs of a slowdown in gaming are now evident. Brick-and-mortar revenues in regional gaming markets have begun to decline. Sports betting and iGaming growth have slowed as fewer new jurisdictions are opening and operators have finally begun to slash promotional spending that artificially boosted revenues.
In Macau, the post-COVID boom is starting to slow and there is concern that the Chinese economy is not rebounding as expected. Casino operators, beneath their exterior bullishness, actually have been tempering their outlooks as, like their American counterparts, they more loudly talk about margin growth than revenue growth. And, regardless of headlines crowing about rising gaming revenues, the fact remains that revenues are well below the peak levels of a decade ago, and the national government continues to emphasize that the future is non-gaming tourism.
Even the vaunted Las Vegas Strip is showing some fatigue.
The recently released April revenue report can be seen as a glass half-full. Statewide Nevada revenues rose 2.77 percent and the Strip jumped 5.27 percent, but both represent slowing growth. Further, Strip hotel rates and RevPAR actually declined in post-Covid firsts.
In all, of the 23 states that so far have reported April results, land-based gaming revenues are down 0.99 percent. April visitation to Las Vegas rose a scintilla – 0.1 percent – compared to year-to-date growth of 13.5 percent.
With the economy expected to further slow and very possibly decline, the era of so-called consumer resilience appears over.
In the past, the most likely precaution to guard against softening revenues would have been to cut costs. But, realistically, how much can be cut given the belt-tightening that the brick-and-mortar industry has undergone as it fought Covid restrictions and made a religion out of margin improvement?
Plus, the effort to control costs is coming in the face of inflation and labor unions that need to protect their members who have been buffeted by the same economic dynamics as their employers. In other words, profit-saving cost cutting might not be so easy in the coming months.
So where do we go from here? There are rays of sunlight. Las Vegas has its strong upcoming special events calendar. More casino companies are paying dividends to give their shareholders some cash in hand while waiting for resumed growth. A number of regional casino operators have steady growth baked in because of new and expanded properties – Churchill Downs and Boyd Gaming come to mind.
Perhaps the biggest ray of light is yet to show – a parting of the economic clouds after the current uncertainty clears away allowing investors to buy at lower valuations.
If that is correct, it means something fundamental has occurred – that gaming is no longer a pure growth industry. It has become more cyclical.
