Moody’s: U.S. Gaming Stabilizing

Moody’s Investment Service has raised its rating of the gaming industry from negative to stable, citing rising revenue, cost-cutting and fewer new casinos.

As the casino industry slowly recovers from the economic recession and increasingly crowded markets, Moody’s Investors Services has taken notice. Last week, Moody’s raised the industry’s rating from negative to “stable.”

The investor service cited rising revenue, cost-cutting and less cannibalization of existing revenues by new casinos as reasons for the change. “We’re not saying they’re getting better,” cautioned analyst Keith Foley wrote in an industry outlook noted by the Associated Press. “At least, it’s some breathing room. It’s better than if it went the other way.”

Foley predicts that revenue will increase as much as 2 percent year-over-year for each month over the next year and a half, lading to profit increases of 3-4 percent before taxes. “While not a stellar performance, we consider this broader improvement a tangible sign of sector revenue stability,” he wrote, while maintaining that the improvement is tenuous at best.

“Our revenue and cash flow forecast incorporates our view that consumers, who remain under pressure from weak growth in disposable personal income, will continue to limit their spending to items that are more essential than gaming,” Foley wrote.

Another caution offered by Foley is that operators cannot cut costs much further without damaging the industry. “Too much cost-cutting could sacrifice quality and service,” he wrote, “which operators cannot afford at time when they are battling for market share amid supply increases.”

American Gaming Association President Geoff Freeman, in a statement published by the Vegas Inc. website, extended the caution to government officials. “It’s incumbent upon state officials to review their gaming policies to ensure they promote innovation and reinvestment that will spur greater growth, create more jobs and provide additional tax revenues that support vital public services,” Freeman said.