Analysts at Fitch Ratings Service are forecasting a stable environment in 2016 for casino operators in the United States.
One factor in this stability is that few new casinos are expected to open this year, and thus the market will not be any nearer saturation. At the same time consumers are directing more money to discretionary spending. Most gaming companies that have large long-term debt have refinanced them.
But don’t expect things to dramatically get better in the near future. Alex Bumazhny, Fitch’s director of gaming, lodging and leisure, writes: “We maintain that the long-term growth prospects for the industry remain lackluster.”
There are generational problems at work. The aging Baby Boomers’ interest in casino gaming isn’t shared as enthusiastically by younger generations. They are more interested in online gaming, social casinos and instant lottery tickets.
The gaming industry is aware of this trend and is developing new games such as skill-based slot machines that are hybrids of slots and arcade games. These games are expected to begin appearing in casinos later this year.
At the same time that major manufacturers aren’t providing any “game-changing slot innovations that will motivate wholesale slot floor replacements,” Bumazhny points out that mobile gaming technology is increasing in importance.
Three major casinos WILL open this year, the $1.2 billion National Harbor casino in Maryland and Penn National Gaming’s $390 million Hollywood Casino Jamul in Southern California. The $300 million Scarlet Pearl will open in D’Iberville, Mississippi in December. All three are expected to increase saturation in their markets.
The Jamul casino, 25 miles from downtown San Diego, will make inroads into the customer base of casinos that are less each to reach. San Diego’s casinos are often accessible by winding, “treacherous” drives, according to Credit Suisse gaming analyst Joel Simkins.
Simkins writes: “In our view, Jamul should benefit from its convenience, appeal as the newest generation casino in the market, and (offer) strong California-centric food outlets that have considerable appeal.”
Pinnacle Entertainment and Gaming and Leisure Properties will finish their $4.75 billion merger in the next few months, with Gaming and Leisure taking over 14 casinos from Pinnacle and leasing them back.
MGM Resorts is moving to create a real estate investment trust (REIT) that will include ten of its casinos. Bumazhny is not convinced this is a wise idea. “Many proposed operating companies will have little margin for error after all of their fixed costs are accounted for,” he writes.
Caesars Entertainment Operating Co., which is entering its second year of bankruptcy, seeks court approval to put all its casinos into a REIT. This would wipe out $10 billion in debt.
Bumazhny concluded: “We would also be more positive should the pending REIT plans be canceled or if the REIT leases are underwritten more favorably with respect to the operating companies.”
