Gaming growth continues to be the theme of 2015, with revived regional markets leading the way
Growth in gaming continues through the first six months of 2015.
From Jan. 1 through June 30, the U.S. commercial gaming industry generated $19.18 billion, a 2.7 percent increase over the same six month period in 2014. Of the 24 states that offer commercial gaming (Massachusetts became the 24th state with the opening of Hollywood Plainridge Park Casino on June 24) 19 states experienced revenue increases in the first six months of 2015. In comparison, during the same period in 2014, only six states experienced increased revenues. While the revenue growth seen earlier this year was attributed to a milder winter, the continued growth is indicative of improving economic conditions.
During the second quarter of 2015, the commercial gaming industry generated $9.65 billion in gaming revenue, a 2.4 percent increase over the second quarter of 2014. This growth followed an already strong first quarter performance, where the gaming industry grew at a rate of 3.0 percent. While the growth seen in Q2 2015 was less than the overall growth rate experienced in Q1 2015, there were two notable deviations in the data that suggest the growth trends will continue for the remainder of the year.
First, the largest revenue producing month during the first six months of 2015 was May instead of March. In May 2015, the U.S. gaming industry generated $3.43 billion, which was $74.8 million, or 2.2 percent, more than the revenue produced in March 2015. The significance of May outperforming March is important to note as March is consistently the highest revenue producing month for the U.S. commercial gaming industry. The reason March is traditionally the highest revenue producing month is based on casino patrons incurring more discretionary spending upon the receipt of their annual tax refunds.
Second, May 2015 was the highest revenue producing month on record for the U.S. commercial gaming industry and March 2015 was still a top three month for the commercial gaming industry. The top three revenue producing months for the U.S. commercial gaming industry include May 2015—$3.43 billion; March 2014—$3.37 billion; and March 2015—$3.36 billion. The new record established in May 2015 is also notable, as the revenue produced is largely attributed to organic growth. Since May 2014, the expansion of new casinos has slowed with the total number of casinos remaining unchanged (five closures and five openings).
REASONS FOR GROWTH
The growth in gaming is due to a continued resurgence in the regional markets. At the end of the first quarter of 2015, 68.8 percent of the 65 markets monitored by RubinBrown were seeing a year-over-year increase in revenues. Through the first six months of 2015, this number increased to 75.4 percent of the regional markets experiencing growth. In comparison, only 24.6 percent of the regional markets experienced growth in the first six months of 2014.
Most importantly for the regional operators, the growth in gaming cannot be attributed to large fluctuations in the Las Vegas Strip’s performance. During the first six months of 2015, the entire U.S. commercial gaming industry experienced a $507.0 million increase in gaming revenues when compared to the first six months of 2014. During this period The Las Vegas Strip only contributed $9.4 million in revenue growth, meaning the regional operators were able to capitalize on $497.6 million in increased gaming revenues.
While the first quarter revenue results were attributed to a milder winter in 2015, there is not a primary factor that explains the continued revenue growth outside a continued resurgence in the regional markets. This growth is indicative of the improved economic conditions which has been noticeable through increased consumer spending and continued reductions in unemployment.
MARKETS IN DECLINE
While the revenue growth continues to produce optimism for the overall gaming industry, five states still experienced a decline in gaming revenues. Of the five states enduring declining revenues, three states are continuing to face increased competition from gaming expansion from neighboring states.
The three states facing the most significant increases in competition include Delaware, Illinois and West Virginia. The increased competition has originated from the August 2014 opening of the Horseshoe Casino in Baltimore, Md., three new Ohio racinos opening in the summer of 2014, and the continued expansion of slot machines in restaurants, taverns and truck stops throughout Illinois and West Virginia.
New Jersey continues to endure the largest declines in gaming revenues; however, the declines are attributed to the casino closures and market contraction. For the eight casinos that continue to operate in Atlantic City, six have seen increased revenues during the first six months of 2015. Of those six casinos, the average year-over-year increase is 9.2 percent. The two casinos that continue to see declines include Bally’s Atlantic City, which has been challenged by the ongoing Caesar’s bankruptcy, and the Taj Mahal, which has faced an uncertain future until Carl Icahn was approved to take ownership on June 10, 2015.
Gaming revenues are expected to continue to increase throughout the remainder of 2015. However, the August 2015 revenue results will be a telling month for the continued health of the industry, as it begins to look towards 2016 and beyond. The gaming revenues generated in August 2014 was the fifth highest month on record. If the industry is able to surpass this revenue benchmark in August 2015, the industry will be able to record three straight quarters of revenue growth and be on pace for continued growth in 2016 and beyond.