by James Rutherford
January 1, 2011
The Long Road Back
Things actually are looking up for the U.S. casino industry as we enter the new year.
With the economy slowly digging out, a new report from Moody’s Investors Service is forecasting an uptick of 1-2 percent in GGR nationwide over the next 12 months and a nice little 2-4 percent bump in profits.
It even uses the word “recovery”.
But not being a group anyone would mistake for cockeyed optimists, Moody’s did temper their outlook. The nation’s persistently high unemployment is of particular concern, they said. And they expect the rebound will be “uneven,” with some newer markets faring well and others continuing to “struggle”.
In the latter category they mention Las Vegas and Atlantic City specifically.
So the two markets that together account for about one-third of the commercial sector’s gambling revenues — the two that led the way down, in other words — will not be leading the way back up.
This is an interesting phenomenon, counter-intuitively speaking. And it’s interesting that it’s occurring for opposite reasons.
Viewed in a certain light, Atlantic City’s problems are the result of chronic “under-supply” — not enough hotel rooms, a dearth of non-gaming attractions, not enough reasons to make the trip except to gamble — and whether the economy gets its act together next year or in two years or five, the town could do with some purposeful capital investment. (Which, in part, is why “boutique” casinos are a good idea and why online gambling is a thoroughly bad one.)
Vegas is stuck at the other end of the pipeline — too much cheap money, too many expensive rooms, too many overly leveraged balance sheets. Room supply increased in each of the last three years — by 2.7 percent in 2008, 3.5 percent in ’09, by 5 percent last year — upwards of 20,000 rooms piled onto a foundering economy. And, as we now realize, far too many were of the wrong kind. As one local industry consultant recently told the Las Vegas Sun, “We forgot that the middle market, Ma and Pa Kettle from Dubuque, was the basis of our business.”
On the plus side, if the larger hospitality sector is showing us anything it’s that the process of absorbing the oversupply will become less painful as it progresses. Last year saw the number of extended-stay room nights hit a nationwide record for any January-September period, according to Smith Travel Research. Room revenues hit a third-quarter record. STR was predicting a solid 7 to 8 percent increase in RevPAR for the year. For the sector overall, PricewaterhouseCoopers is forecasting ADR growth in 2011 of 4.1 percent.
This year the first of the nation’s 77 million Baby Boomers will reach the traditional retirement age of 65, and, as Hotel Interactive points out, they’ll be hitting that magic number at the rate of 11,000 a day for the better part of the next two decades — the “healthiest, wealthiest and most active senior generation” in history, in the words of a recent study by Preferred Hotel Group and leisure consultants Ypartnership and Harrison Group.
For Atlantic City the challenges are daunting and will remain so. But government and the industry are tackling them with a shared sense of urgency. As I write this, the New Jersey Legislature was preparing for a final vote on a measure to create a new state-run “tourism district” encompassing the casinos and the Boardwalk. Regulations are being loosened. One or two of those boutique casinos could be breaking ground in the next 12 months. Sports betting could be on the ballot in November.
“I’m not kidding myself about 2011. There’s a lot of heavy-lifting to do,” Trump Entertainment’s new CEO Bob Griffin told The Associated Press at the start of the year. “But I’m very positive about the future three to five years after that because of the work we’re doing now.”
He could have been speaking for the entire industry.
is a New Jersey-based freelance writer.
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