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A Changing Game
The gaming industry in the U.S has undergone many changes during the last two decades. Gone are the days where an operators’ performance was measured by gross gambling revenues (the difference between total amounts wagered and proceeds returned to players). Today, gaming-industry behemoths Las Vegas Sands (LVS), MGM Mirage (MGM), and Wynn Resorts (WYNN), as well as smaller competitors, such as Boyd Gaming (BYD) and Pinnacle Entertainment (PNK), own casino resorts that strive to generate revenues by providing lodging, dining, entertainment, convention, business meeting, retail, outlets, and other amenities.
This diversification has many benefits. Convention and meeting facilities, for example, enable these companies to maximize hotel occupancy during off-peak periods such as midweek or typically slower travel times. Tellingly, more than half of these companies’ revenues are generated through non-gaming activities.
This transformation has rewarded companies with renewed investor interest and should eventually, with loftier valuations. Management, in turn, has been encouraged to strive for bigger, bolder, and more costly projects. But just as the industry was heating up, a cold chill descended in 2008, due largely to the financial market meltdown. A potent combination of rising unemployment, falling home values, ebbing home equity, and soaring foreclosures, followed by a steep drop in capital spending, had a tremendous impact on the industry’s profits. More so, these factors hurt every facet of these companies’ operations. For many, the worst recession of the post World War II era occurred during the industry’s greatest expansion phase. Saddled with hefty debt burdens, some folded, while others persevered.
The tumultuous economic and financial conditions altered corporate and consumer spending behavior by forcing them to be more frugal. This, in turn, severely hurt all gaming companies (in Las Vegas, the Gulf Coast, and New Jersey, etc.) because their resorts’ success was and is predicated on attracting customers in heavy volumes. But is this temporary or permanent? If history is any indication, consumers will eventually return to the gaming tables and slot machines, and companies and trade groups will once again host business meetings and conventions in among all places, America’s desert oasis. After all, “money won is twice as sweet as money earned.” But don’t expect a healthy recovery until employment recovers and disposable income increases.
While we expect the U.S. gaming market to rebound, the legalization of gambling in foreign lands may prevent a return to the industry’s glory days. Not too long ago, gamblers from Asia flocked to domestic resorts to wager and be entertained. Nowadays, gaming resorts are mushrooming in places like Singapore, Macau, China, as well as in parts of Europe and the Caribbean, saving consumers a long trek. Many of the aforementioned companies, however, are the very same ones leading the expansion overseas. So, while the U.S. market may not prosper as it had, the companies that make up this industry may fare quite well, overall.