U.S. GAMBLING SLOWDOWN?

28 March 2008

Economic conditions could add to the burden of UIGEA


Despite political and law enforcement attempts to derail the US online gambling market, it remains a major contributor to Internet gambling revenues and therefore a new report on US gambling will be read with interest by industry observers. The report, by New York-based Moody's Investors Service claims that several factors are combining with the "economic slowdown and possibility of a long-term, consumer-based recession" to negatively impact the overall US gambling industry.

"Declining disposable income of potential customers and increasing travel costs are lowering overall visits and spending per visit in many gaming markets," said the report's author, Keith Foley, Moody's vice president and senior credit officer.

On a more positive note, the report concludes that longer-term fundamentals of the land casino industry remain favourable: an increase in the industry's key demographic base of 45- to 65-year-old customers, major challenges to competitors trying to enter the industry, and rapid advances in gaming technology.

The report's release was made on Good Friday, a day when the New York Stock Exchange and other financial markets are closed for Easter weekend, but was the findings were acknowledged by gambling group spokesmen as a short-term challenge, although longer-term fundamentals remain favourable.

In February 2008, MGM Mirage, Harrah's Entertainment and Station Casinos together with several smaller local gaming companies acknowledged that the current economic downturn has forced staff reductions and loss of hours at some properties. However, none of the companies has given hard numbers on the number of employees effected.

"As in other consumer-based leisure industries like lodging and cruises, a decline in disposable income ... combined with an increase in the cost of travel results in lower overall visitation and spending per visit," Foley wrote in the report.

The slowing economy comes while gaming companies throughout the country are dealing with various challenges, such as increasing competition and smoking bans.

Several states reported gaming revenue declines in January, including 4.7 percent in Nevada, 10 percent in New Jersey, 17 percent in Illinois, 8 percent in Indiana and less than 2 percent in Louisiana, Missouri and Iowa.

"The amount and type of competition, along with the amount of capital investment needed to compete effectively, have increased substantially since 2001," Moody's Foley wrote.

The various challenges may have a benefit for consumers as the economic slowdown leads "to further increases in promotional activity across most major markets as gaming operators compete more aggressively to maintain visitation and market share."

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