by Andy Holtmann
Gaming companies should prepare to weather a lengthy economic storm
I recently had my house refinanced—yes, I was in one of those awful 80/20 programs where I was making largely interest-only payments and watching my mortgage bill dramatically increase (overall, $628 in nine months’ time). Thankfully, I was able to get out of that trap and into a standard loan, albeit for more money than I originally factored for, and with a house that’s worth less. The refinancing process was absolute hell, thanks to the current state of our economy and a rush on new loans, but at least it’s over and done with. I cut off the bleeding. Yet, I’m both haunted and captivated by what my agent—and friend—told me afterward:
“If you can, don’t spend anything for the next few years…put as much as you can away because this is only going to get worse before it starts to improve,” he said. “Anyone who can do that will be sitting pretty in three years or so.”
As I thought about that, it made sense. As a homeowner in Las Vegas—where the housing market has really tanked—I, like many of my neighbors, can’t wait for 2010 to get here. We’re anticipating—hoping is a better word—that the influx of new casino-resort projects like CityCenter and Echelon on the Las Vegas Strip will bring more people to the city, and create a renewed demand for housing…something, anything that will boost the value of my property.
But I also started thinking about today, and the two to three years that separate today from the point in time where things may finally change for the better. I’m not alone in counting my pennies. Nationwide, foreclosures were up 75 percent between 2006 and 2007. This year, it looks like more of the same. Layoffs have been occurring on a regular basis across almost every industry, and unemployment is at all-time highs in several states. Prices for gasoline, electric, natural gas and other forms of power are through the roof. Healthcare and insurance costs are borderline obscene and coverage issues are a disaster. Airline tickets are up…travel is down. And perhaps most significant—because of all these factors, people are spending much less today than a couple of years ago, fearful that they could lose it all.
Recession seems to be a daily buzz word. But no one seems to have a solid answer as to whether we’re in one or not. One thing experts on all sides of the political and socio-economic realm seem to agree on is that the U.S. economy needs a critical shot in the arm. President Bush, as of this writing, is even pushing an economic stimulus package—the centerpiece of which would be tax rebates for up to $600 if single and $1,200 if married. That, some economists have said, would be good enough to spur some additional spending…maybe a flat-screen TV, maybe a trip to a casino?
So what does this state of affairs mean for the gaming industry? Could a recession damage the industry’s ability to produce revenue and justify costs? Opinions are mixed. Harrah’s CEO Gary Loveman said the effects of the housing and gas crunches have yet to have a significant impact on his company, while countless other executives point to the resiliency of markets like Las Vegas and Atlantic City, which have successfully weathered economic downturns before (1990s Persian Gulf War anyone?).
Others are a little more guarded as to their outlook.
“This is where we actually earn our money,” MGM Mirage President and COO Jim Murren recently told the Las Vegas Sun. “It’s going to be tougher this year than it has in many years past and require a lot more work to deliver a similar performance.”
Other markets like the Mississippi Gulf Coast and Midwestern riverboat casinos have seen projects scaled back some, with casinos focusing instead on getting people through the front doors.
Regardless what your outlook on the economic status of the future is, it might be smart to have some contingency plans and strategies in place. Now is the time for marketing departments and entrepreneurs to seize the day and come up with truly innovative way to attract and entice customers or keep loyal patrons spending. After all, your competition isn’t just your neighboring casino anymore—it’s the entire economy at large. And it could remain this way for some time.