The Industry Disconnect – Why Isn’t Gaming Keeping Up With the Rest of the Economy? By Ken Adams November 7, 2014 at 12:53 pm By all accounts the economy is growing and robust. Unemployment is lower than at any time since the Great Recession began, the stock market is at a dizzying all time high, mortgages rates are still very, very low, new housing starts are up, as are sales of existing homes and for the traveling public, gases prices are down; consumers are confident. Whatever measure one uses, the recession seems to be over. We might very well be on the road to returning to those good-old, shop-as-if-there-is-no-tomorrow days of yore. The US economy grew at an annual rate of 3.5% in the July-September quarter, the Commerce Department has said. That was better than the 3% pace that economists had been expecting and follows the 4.6% growth rate recorded in the April-June quarter. Strong export growth and higher government spending helped to boost growth in the third quarter. ..The fall in the unemployment rate to a six-year low has helped to boost that confidence. BBC News, 10-30-14 “Today’s number represents a return to a healthy-looking trend. The most recent IMF forecasts suggest the US economy will grow 3.1% next year and 3.0% in 2016, and these could be revised further upwards in the coming months,” said Ben Brettell. BBC News, 10-30-14 A recent report says revenue at casinos in the United States jumped 4.5 percent in 2012…Casino City’s North American Gaming Almanac found that revenue generated by Indian casinos rose less than 2 percent in the same period…Total gambling revenue in 2012 was $94.47 billion, with the largest share, $40.38 billion, from casinos and card rooms. Tribal casinos generated $28.14 billion, lotteries accounted for $23.41 billion and revenue from racing and sports gambling amounted to $2.55 billion in 2012. Stephen Singer, Associated Press, 11-6-14 This is a growth economy, that is what the numbers indicate and it is what the news reports say. Still, something is not quite right. It does not feel like those old days; something changed during the recession. And it is not just a feeling. Small retailers, entertainment businesses and casinos are all saying the same thing – the post-recession customer does not spend money the way the pre-recession customer did. They know because their revenues are down even when the number of customers is not. In the casino industry, there has been a steady decline in revenue, this year and last year. Same-store regional gaming revenues declined 3 percent in September, a decline that is typical for all of 2014. “Regional gaming across the United States has serious challenges not just in Cleveland or Cincinnati, but across the United States,” Dan Gilbert said. John Kosich, WEWS-TV, 10-30-14 This is not new and not news, still when the rest of economy is bustling, it is worth considering. The regional gaming operators are all experiencing the same trends. Take Penn National as a typical example. In the East and Midwest its revenues are down 16% year-to-date, its western region was only down 1.4%, but the Southern Plains were down 14.8 percent. Boyd, Pinnacle, MGM, Churchill Downs, Monarch and Dover Downs reported similar results. The exceptions came from Las Vegas and companies with properties in Macau. PENN derives more than half of its revenue from the East/Midwest segment, while it derives 34% and 9% of its revenues from the Southern Plains and West segments, respectively. East/Midwest – This segment reported net revenues for nine months of $1,082 million, down 16.3%…EBITDAR declined by 21.1% to $324 million. West – This segment reported net revenues for nine months of $179 million down 1.4%…EBITDAR increased by 6.7% to $50 million. Southern Plains – This segment reported net revenues for nine months of $659 million down 14.8%…EBITDAR also declined by 11.9% to $213 million. Shawn Bolton, Market Realist, 11-6-14 It is well-known that one of the problems is increased competition from surrounding states and even within a state when a new casino opens. For example, Maryland Live had 3 percent less gaming revenue in October, but there is a new casino in its market area. Caesars opened a Horseshoe in Baltimore in August. Maryland reported a 30 percent increase in casino revenue in October, but on a same-store basis they are down 3 percent. However competition is not the only cause – it is just the easiest to identify. That leads me to the real question, the one I cannot answer. What is the real cause, the underlying cause? Is it the internet? Have people changed significantly the way they spend disposable income? Where are they spending that money? Savings are not up, so that is not the answer. Other forms of entertainment are not experienced increased revenues, so movies, restaurants, theme parks and sporting events are the culprits. I wish I knew the answer; the question is one that is bedeviling the casino industry across the country. It is particularly disturbing because the overall economy appears to be so healthy. It is growing like a little weed in the spring, while gaming languishes in the shade. All I know for certain is we cannot overcome the problem until we understand its causes. I don’t, do you?