Gas or Gamble? Economy Forces Some to Choose

May 12, 2008 -- Carlos Bueno and his wife, Mayra, drove three times last year from their home in Houston to a casino in Lake Charles, La., but they won't be making the two-hour drive this summer.

"Gas prices are the main reason," says the 32-year-old father of three children who works for a utility company and also is canceling the family's annual vacation to the Dominican Republic. "The economy is harsh right now, and the little money saved for vacation will have to be spent on fuel for our vehicle."

Bueno says he spent about $1,500 on his casino trips last year, and it costs about $70 a week to fill the gas tank of his Nissan Altima.

The pressures of a weak economy — concerns about job security and rising prices for gas, food, home heating oil and other goods and services — are causing many gamblers to cancel or reduce the number of casino trips. Those who go are gambling less money than in the past: At the traditional gambling Meccas of Atlantic City and Las Vegas, and in other states, casino revenue is down. Employees are being laid off, and there's concern about future growth.

It's quite a jolt for a gaming industry that has experienced unprecedented growth. Only one state had casinos in 1970 with revenue of $540 million. Now there are casinos in 37 states, with revenue reaching nearly $58 billion in 2006.

"People have been saying for years that the gaming industry is recession-proof, but that's not a valid statement," says Frank Fahrenkopf, CEO of the American Gaming Association, which represents casinos and manufacturers. "Anything that hurts consumer spending will have an impact on us."

Gaming operators are also being hurt by public smoking bans that discourage smokers from going to casinos or cause them to spend less time gambling there. And some casinos are facing increased competition from new competitors in nearby states.

"Everybody is in at least a little bit of pain," says Robert LaFleur, a gaming/lodging analyst for Susquehanna Financial Group.

•In Las Vegas, several gaming companies report that first-quarter revenue declined. Occupancy at hotels and motels dropped slightly, and room rates have fallen.

•In Atlantic City, casino revenue last year fell for the first time since the first casino opened in 1978. Revenue dropped 5.7% last year and is down 6.4% in the first quarter this year, says Linda Kassekert, chair of the New Jersey Casino Control Commission.

•At Mohegan Sun, the Native American casino in Connecticut that brings in more revenue than any other casino in the USA, slots revenue during this year's first three months was down compared with the same months last year.

•In Colorado, the state gaming division said last month that revenue at casinos took its biggest hit since a statewide smoking ban was implemented in January. March revenue fell 10%, compared with March 2007.

•A smoking ban also affected gaming operators in Illinois, where business declined for the first two months of 2008. The economy and bad winter weather were other contributing factors.

Bill Lerner, senior gaming and lodging analyst at Deutsche Bank Securities, says the weak economy has affected gaming industry revenue and profits more than anticipated. Las Vegas gaming and hotel revenues "are seemingly worsening," and regional casino markets "are faring a bit worse," he says.

No casino "has been immune," but upscale ones such as Wynn, wynn Bellagio and the Venetian in Las Vegas have been less affected, Lerner says.

Casinos in Lake Charles, La., have "fared well," he says, because they depend on customers from Houston, where the oil industry is healthy.

But even the upscale markets are feeling the pinch. At the Wynn Las Vegas, first-quarter revenue was $125 million, down from $173 million in last year's first quarter.

Occupancy at the Venetian in Las Vegas, owned by Las Vegas Sands, lvs dropped from 99% in last year's first quarter to 91% in this year's first quarter.

Dropping hotel and motel occupancy

The weak economy caused Las Vegas hotel and motel occupancy to drop from 88% during the first two months last year to 87% during the same months this year, says Kevin Bagger of the Las Vegas Convention and Visitors Authority. Average daily room rates in January and February 2008 fell nearly 4%, compared with the same months last year, he says.

Boyd Gaming byd owns 16 casinos in six states. The company reported last week that 2008 first-quarter revenue declined 5% to 6% at its nine Las Vegas properties. Revenue at its casinos in Indiana, Illinois, Mississippi and Louisiana fell 13%, and revenue at Atlantic City's Borgata was flat.

"There's no question our customers are feeling the difficult economy," Vice President Rob Stillwell says. "Every time they go to the gas station or the grocery store, it's right there in front of them."

Atlantic City gaming operators have other troubles besides the economy: Smoking will be banned in casinos beginning Oct. 15. A partial ban already restricts smoking to 25% of the casino floor. Many gamblers who smoke have taken their business to slot parlors in the Philadelphia area.

Donald Trump, chairman of Trump Entertainment Resorts, trmp which operates three Atlantic City casinos, has called on casinos to file a lawsuit against the ban.

In its 2007 fourth-quarter report, the company said the introduction of gaming in Pennsylvania, where slots were legalized in 2004, "had a more severe impact than had been anticipated."

Trump Entertainment Resorts said slot revenue for the fourth quarter dropped 7% to $13 million, compared with a 14% decline at other Atlantic City casinos. Table-game revenue at Trump fell 5% to $14 million.

As revenue decreases, casino workers are finding their jobs in jeopardy.

Last month, MGM Mirage, mgm Nevada's largest casino company, laid off about 400 managers. Most were part of a corporate restructuring already in the works, the company said, but the economic downturn increased the number of layoffs.

Wynn Resorts says it has reduced its staff by about 300 employees through attrition.

Tropicana Entertainment, which owns the Tropicana casinos in Las Vegas and Atlantic City, on Monday filed for Chapter 11 bankruptcy protection. The company ran into several problems after it took over the Atlantic City Tropicana last year: Unions were angered by a layoff of nearly 1,000 employees; gamblers began spending less money in a slowing national economy; and credit markets tightened. The bankruptcy filing will cover nine properties but not the Atlantic City Tropicana, which is being sold.

The weak economy may affect the growth of the gaming industry. Developers plan to add more than 40,000 hotel rooms to the Las Vegas Strip, but scarce credit and the slowing economy may make financing difficult and postpone other projects.

In March, Deutsche Bank, the senior lender to the partially built Cosmopolitan Resort & Casino, began foreclosure proceedings on a $760 million construction loan after developer 3700 Associates was unable to raise cash.

But plenty of construction projects are near completion or proceeding. Wynn expects to open its 2,034-suite Encore hotel, including 72,000 square feet of casino space, next year on 20 acres of the Las Vegas Strip. In Atlantic City, a new 782-room tower at the Trump Taj Mahal is scheduled to open in September.

Expanding operations

Historically, tough economic times have caused expansion in the gaming industry, LaFleur says.

"Budget-strapped states have looked to gambling for incremental revenue and an alternative to raising taxes," he says. If the economy remains weak, he says, there might be more pressure for states to establish or expand existing operations.

That's already happening in Rhode Island, where lawmakers are considering measures to reduce a $568 million budget deficit by increasing weekday hours at its two slot parlors and operating around the clock on weekends and holidays. Slot machines provide about 8% of the state's income.

The weak economy isn't deterring John and Debbie Sue Bremseth of Ivins, Utah, who drive about 40 miles weekly to the Oasis and Eureka casinos in Mesquite, Nev., to play video poker. The retired couple, who pay about $3.55 a gallon for gas, say they won't change their routine.

"We will still visit casinos an average of four times a month," says John, 67, who worked in various jobs for three airlines. "The great free lounge entertainment, plus the more reasonable food costs and gaming excitement, make it a real value for us."

To save money on casino trips, Al Katz sold his SUV last month and bought a more fuel-efficient Toyota Camry.

Katz, a 55-year-old comedian, drives with his wife, Colleen, about 70 miles every week or two from his home in Kissimmee, Fla., to the Hard Rock Casino in Tampa. They also drive more than nine hours a few times each year to gamble in Biloxi, Miss.

"We may have to eliminate a trip or two" if the economic downturn continues, says Katz, who entertains on cruise ships. "Every time I get off a cruise ship, gas is a quarter more expensive."

Marie Braun, 45, of Olathe, Kan., has already made the decision to cut back, from five casino visits a year to two or three visits. Gas is too expensive for a 60-mile round trip to Missouri, says Braun, who works for a telecommunications company.

"It's pretty tough to justify spending money on any kind of entertainment when it costs so much just to get to work each day," she says.

Says Stillwell of Boyd Gaming: "At the end of the day, people don't have as much money for entertainment. It doesn't get anymore black and white, and there's nothing you can do to change that."