Organic growth has pushed the gaming industry to record highs. The third quarter of 2015 produced $9.7 billion in gaming revenues which set an all-time high for quarterly gaming revenue performance. Furthermore, the growth in the third quarter all but assured the gaming industry would see revenues increase for the 2015 calendar year.
Revenue growth for the gaming industry is not an uncommon trend, as eight out of the last 10 quarters produced positive industry-wide growth. However, during the same timeframe the growth within existing markets and at individual casinos has been limited.
In late 2014 the industry saw an important shift in revenue trends. While the Q4 2014 industry-wide revenues declined 0.1 percent, it was the first quarter in over three years that the majority of states offering gaming experienced state-wide gaming revenue increases. Similarly, of the casinos monitored by RubinBrown (more than 150) the majority of individual casinos also saw revenues increase.
Furthermore, when the Las Vegas Strip and Atlantic City markets are backed off the national Q4 2014 revenue number (as they represent 23 percent of the industry’s revenue, but only account for 5 percent of industry’s casinos) the collective regional gaming markets saw revenues increase by 1.9 percent.
REGIONALS TO THE RESCUE
Entering the fourth quarter of 2014 the gaming industry was doom and gloom on the prospects for future growth. The regional markets not going through expansion had endured six consecutive quarterly declines in gaming revenues, the Las Vegas Strip gaming market was showing signs of slowing as the Strip experienced its second quarterly decline in the last five quarters, and the Atlantic City market had three of its casinos shut their doors.
With the industry facing tough times, the fact that regional gaming markets and individual casinos saw increased revenues in Q4 2014 went unnoticed by many. I must admit, when looking at the data last January, it appeared to be an anomaly for an industry that seemed to be in a continuous decline. However, what was an anomaly has emerged as the new trend.
During the last four quarters more than half (50 percent) of both the states and casinos have seen year-over-year increases in quarterly gaming revenues. During this same time, the Las Vegas Strip market has declined 3.5 percent and the Atlantic City market continues to recede further into the ocean, declining another 11.1 percent.
When looking at total dollars, the strength in the regional markets is even more impressive. Using the trailing 12 month data, the overall industry generated $38.1 billion, up $641million from the year before. During this same period of time, the Las Vegas Strip and Atlantic City market saw their combined revenues decline by $530.6 million. When removing these markets from the national revenue trend, the remaining markets saw revenues increase by $1.2 billion or 4.2 percent.
THE VEGAS TRANSITION
This regional market gaming revenue growth in the face of ongoing revenue declines on the Strip begs the question: What has gone wrong with Las Vegas?
Actually, nothing is wrong with Las Vegas. Using tourism data from the Las Vegas Convention and Visitors Authority (LVCVA), the Vegas market has seen visitor volume increase 2.6 percent over the last 12 months. The market has also produced a record number of visitors with 41.9 million visiting the city between October 2014 and September 2015.
Examining the data specific to the Las Vegas Strip, a similar trend has emerged. Both the hotel occupancy and average daily rate (ADR) statistics have experienced steady increases. The Las Vegas Strip’s trailing 12 month average occupancy rate hit 88.7 percent, which is the highest trailing 12 month occupancy rate since the LVCVA began reporting the Strip’s occupancy rates in 2012. Consistent with occupancy, the Strip’s ADR increased to $135.70 in September. In comparison, in September 2013 the Strip reported an ADR of $123.72.
While the Las Vegas market continues to set records in visitation, gaming revenues continue to experience declines. When considering what is wrong with the gaming market, the answer is the goal to increase amenities and attract new visitors to Las Vegas succeeded. The decline in gaming revenues is a byproduct of diversification in entertainment. Patrons have more entertainment options competing for their total spend, which has led to the market seeing declining to flat revenues while being able to attract visitors at record rates.
Long-term gaming revenues are expected to continue to increase for the foreseeable future. However, the increase in revenues will continue to be modest. The growth will continue to be driven by the regional markets, as the U.S. continues to benefit from higher levels of employment and a higher consumer confidence.
In the more near term, the January gaming numbers will be an interesting indicator to watch. In January 2015 revenues experienced a dramatic increase (9.2 percent), benefiting from a warmer winter season. The ability to have a similar performance in January 2016 will be a tough act for the industry.