In the first quarter of 2016 (Q1 2016), the United States commercial gaming industry recorded the highest quarterly revenue results in over five years. During that period, the industry generated $9.74 billion in gaming revenue, growing at a rate of 2.2 percent when compared to the first quarter of 2015.
The Q1 2016 revenue growth is most notable as organic growth continues to be seen throughout the nation and the results surpassed traditional seasonality expectations, indicating growth is likely to continue throughout 2016.
IT’S ALL ORGANIC
The growth within existing markets and established casinos continues to be the catalyst for the industry’s growth. In the first three months of 2016, 18 of the 23 states (78.3 percent) that offered gaming in the first three months of both 2015 and 2016 experienced revenue increases. When examining the data from the 150 individual casinos monitored by RubinBrown, a similar trend was noted. The majority (59.3 percent) experienced revenues increases during the first quarter. With the majority of existing casinos and states seeing increasing “same store sales,” the growth is originating from organic sources and not from market expansion (opening of new casinos).
When examining the state level data, an even more important fact is noted for existing operators: All the states that grew gaming revenue did so from existing casino operations.
The only state to see a significant benefit from a new casino opening was Iowa, as 89.6 percent of Iowa’s revenue growth came from the opening of the Wild Rose Casino in Jefferson, Iowa. However, when backing out the revenues produced by this new casino, the state would have still recorded an overall increase in gaming revenues.
Outside the Wild Rose Casino opening in Iowa, there were two other notable openings impacting the first quarter revenue numbers. In Florida, the state benefitted from the Casino at Dania Beach reopening after closing in October 2014 for renovations; however, the state endured a modest 1.1 percent decline in total revenues. The other opening was the introduction of casino gaming in Massachusetts at the Plainridge Park Casino. Prior to the Plainridge Park Casino’s opening in late June 2015, the state did not have any casinos operating during the first quarter of 2015.
In the last five years, the third quarter of the calendar year has always been the highest revenue producing quarter. During this same time frame, the first quarter had never surpassed a historical Q3 performance… until this trend was broken in the first quarter of 2016.
The first quarter of 2016 surpassed the revenues produced in the third quarter of 2015 ($9.70 billion) and established a new all-time high for quarterly revenues ($9.74 billion). The ability for the industry to surpass the Q3 revenue mark and establish an all-time high for quarterly revenues is indicative of the upward momentum in gaming revenues and organic growth seen throughout existing markets.
But important to note during the review of the Q1 2016 performance was that it was achieved while enduring a modest March revenue performance. Historically, March has been the highest revenue producing month during any calendar year (absent large swings in the Las Vegas market) as the industry benefits from the excess disposable income produced by the tax refund season. But in both 2015 and 2016, federal and state taxing authorities implemented delays in processing tax refunds in an effort to deter fraudulent tax refund claims. As a result of these tax refund delays, the gaming industry is seeing a shift in seasonality trends. The spike in gaming revenues historically seen in March is being flattened as the delayed refund payments are pushing the gaming revenues associated with tax refund payments further into the April and May.
During 2016, this trend was most notable in Louisiana, where the state has implemented a 60 day processing time for electronically filed tax returns (39 days longer than the federal processing time). As a result, the earliest date a Louisiana tax payer could anticipate a refund is March 19, assuming they filed their return on earliest possible date of January 19. This delay in tax refund payments is seen as the primary reason for the state experiencing a 9.7 percent decline in March gaming revenues.
While Q1 established a new record in quarterly gaming revenues, the results broke seasonal trends. Not only did the first quarter surpass the previous third quarter results, it set a quarterly revenue record while overcoming delays in tax refund payments yielding lower March revenues.
A GLANCE AHEAD
Looking forward, there is much optimism for the gaming industry. While tax refund delays weakened the March revenue results, they will provide an extra lift in both April and May. In addition, the third quarter has historically surpassed the first quarter suggesting growth will continue throughout 2016.