It's going to be a shared pain
EXPECT DECLINESThe recession continues to affect growth in household disposable income, particularly as unemployment escalates, which is flowing through to subdued growth in consumer expenditure on all forms of gaming, writes Toon van Beeck, senior analyst with Los Angeles-based IBISWorld, a leading provider of research and business intelligence across dozens of industries. These factors, combined with smoking bans in some jurisdictions, will lead to U.S. gaming revenues declining by about 8.4 percent during 2009. Industry employment will also fall, declining by about 3,900, or 3.4 percent. Competition will of course remain significant, and as a result, some operators will continue to move into the racino sector to improve revenue and profit growth. Others will seek out new investment opportunities internationally, although the global recession and credit crunch is currently limiting this option. And as more states feel the adverse impact on budgetary finances from the recession, it is likely that gaming will be extended across more domestic jurisdictions.
WHERE IT COMES FROMAn expected 91.6 percent of total revenue for non-hotel gambling operators will come from table games and slot machines in 2009, with around 6.5 percent coming from the sale of food and alcoholic and non-alcoholic beverages, and the remainder from other sources. Overall, the industry is expected to continue to experience slow or declining growth in table gaming but achieve better growth rates in slot revenues (especially in low-denomination games) over the short term. However, increased slot revenue does not necessarily translate to increased food and beverages revenue, so overall revenues can still decline or only increase slowly.
In terms of the number of non-hotel casino establishments, the industry is concentrated in the Far West (including Nevada), the Plains region (including South Dakota), the Rocky Mountain region (including Colorado) and the Southeast (including Mississippi). (Figure 2)
The sector’s largest players are Penn National Gaming and Isle of Capri Casinos. When joined by Columbia Sussex Corp., collectively the three have generated more than 27.6 percent of the industry’s revenue, with Penn being the largest single operator in the sector, holding 15.1 percent of the market.
TOUGH OUTLOOK NEAR TERMIn 2010, only marginal domestic economic expansion, together with a subdued labor market, will continue to result in poor household disposable income growth. These factors, together with tepid business and consumer confidence, will lead to non-hotel casino revenue declining for a third consecutive year, dropping by 1.6 percent to $14.06 billion. Industry employment will fall also, dropping by 4.4 percent to about 105,600 employees nationwide. Wages are expected to decline by about 5.1 percent to $3.15 billion.
But as seen in Figure 1 the sector is expected to recover with rather healthy growth rates from 2011 onwards. In the four years to 2014, IBISWorld forecasts real industry revenue will increase to $17.88 billion, which represents an average growth rate of 6.2 percent per year. The solid growth in turnover will be due to a more robust economy from 2011 onwards, and businesses will capitalize on the improving demand in gambling.
However, the growth in the overall market is expected to be more modest compared to the rates in the 1990s, as the saturation level for gaming expenditure may be reached. It is expected that major operators will purchase other existing riverboat/barge operations to expand their activities and to take advantage of economies of scale in management and operations to boost margins. Consolidation is therefore expected to continue over the coming five years.