We’re in an in-between season right now.
The Las Vegas convention and events season is over. First-quarter earnings season is past. Football, basketball and soccer seasons have ended for sports betting. Legislatures, with their mix of threats and opportunities, have mostly gone home for the year having neither harmed nor helped the gaming industry. The capital markets remain somnolent so there isn’t any excitement on the mergers and acquisitions or IPO fronts. Covid and the rebound from it are now long past, and efforts to scare us into a panic on everything from avian flu to monkey flu aren’t working.
All of which means we are in a different season—one for ruminating. And the biggest question in my mind to ruminate about is whether the era of growing profitability has ended for regional brick-and-mortar casinos.
The fact is that, when you strip out digital and sports betting, legacy casino revenues are in decline almost everywhere. And while the new forms of gaming offer hope for digital companies, most still aren’t profitable.
There are lots of reasons for the regional declines. Most often cited is a softening of play by lower- and mid-economic level customers. That can be reassuring in the sense that a slowing economy and inflation are cyclical and good times will return.
But the weakness may be more structural. First, there is the digital proliferation. The choice of where to gamble is often one of convenience and there isn’t anything more convenient than the phone in your hand.
A second reason is saturation. There simply aren’t many new markets that can generate growth. That is why Texas (read Dallas, San Antonio and Houston) and Georgia (read Atlanta) draw companies to lobby for casino legislation year after year.
But the reality is most new casinos are cannibalizing their neighbors. And the new markets like Nebraska are just too small to move the investment needle for large public companies.
Even in booming Nevada, brick-and-mortar growth is stalled. Reno and Laughlin might have dreamed of population growth from their feeder markets but the continuing proliferation of top-class Indian casinos in neighboring states has diverted that growth.
Even in the Las Vegas Valley, population growth is slowing and competition is heating up as companies spend more on promotions. And there, best-of-breed Red Rock Resorts has planted its flag with an assertive growth plan that may blunt the prospects of competitors.
One offset to declining growth has been cost cutting, but that pendulum is now swinging back as labor costs, and inflation generally, rise.
Then there are the so-called skill-based machines popping up everywhere taking off the shine even in new jurisdictions like Virginia.
The problem with skill-based machines is that the gaming industry is not speaking to legislatures with one voice. While casino operators oppose legalizing slot routes, the skill-based suppliers keep filling the vacuum with unregulated games.
Eventually, the issue probably will be settled when conventional slot machine companies come in and buy out the skill-based suppliers. By then, the loss of business to the local casinos will have occurred in many markets.
None of this means there still aren’t opportunities or that the right property renovations might not generate acceptable returns.
But meaningful success may be for those that provide experiences beyond the convenience of the mobile phone or the gaming machine down the street. That may mean the brick-and-mortar future belongs to the big casino resort developers such as Wynn and MGM, or among gaming technology companies that can ride the waves of innovation.
One thing is certain: Gambling fills the essential human needs for risk-taking and entertainment. And casinos fill the needs for in-person and interpersonal experience. Those that fill those needs with rich experiences will thrive; and many of those that are primarily big boxes, won’t.
