While increased competition has been a challenge to the bottom line at regional casinos, at least one silver lining has emerged: states have had to modernize some of their laws to keep their properties from falling behind.
That concept is just one of several contained in a report released last week by Fitch Ratings that those interested in the casino industry could likely glean insight and advice from. The report, part of Fitch’s Eye in the Sky series and simply titled “U.S. Compendium,” analyzes the casino business environment of 11 states.
“The takeaway is that the gaming market is in a mature phase in terms of supply, but in terms of regulation, there likely is still some potential for movement,” said Alex Bumazhny, senior director of Fitch’s real estate and leisure sector.
For example, Indiana is adding table games at its racetrack casinos to keep up with competitors in surrounding states. Other states are weighing whether to lower their tax burdens because neighboring states have the money to entice gamblers across their borders.
“It’s more of a slow, glacial move toward more positions and more liberated types of positions,” he said. The report also explicitly states that “… rarely do we see regulations become stricter.”
Bumazhny notes that studying regional gaming now is particularly important because there has been so much recent corporate movement, with Penn National Gaming merging with Pinnacle and Caesars emerging from bankruptcy.
The states that Fitch studied were mostly in the Midwest and South and account for more than half of the gaming revenues for Penn National Gaming, Eldorado Resorts and Boyd Gaming.
Bumazhny notes that mature gaming states tend to be geographically adjoined to other states that also have developed gaming industries. Meanwhile, the states which have no gambling, such as Kentucky and Texas, are so socially conservative that casinos are unlikely to arrive there anytime soon.
There are exceptions, of course, to the idea of just keeping up with the neighbors. Bumazhny notes that Louisiana is easing up on its 30,000 square-foot-limit not because of nearby competition, but to be able to offer a product more in line with customers’ expectations.
“If you go into a casino [in Louisiana] now, they’re basically stacked rows of slot machines. It’s more of a modernization of the gaming industry in that state,” he said.
Neighboring states are also studying the lesson that Illinois learned the hard way. The state began allowing video gaming terminals in 2012; now, the revenue from bars, truck stops, and the like has carved into the commercial casino business. In the 2017 fiscal year, the Illinois machines, even with a $2 maximum bet and $500 maximum jackpot limitation, brought in $296 million, compared to $270 million at the state’s 10 traditional properties.
“Illinois was kind of an extreme example,” Bumazhny said. “I think most states that introduce these VLT bills are more cautious (now). It’s a lot more incremental at this point.”
Sports betting could be another area for change in the gaming markets, but its effect is expected to be minimal. The Supreme Court is deliberating a pending ruling on the federal ban on sports betting, so some states are eying the market and beginning to prepare preliminary regulations.
“The margins are going to be very small, because you’re talking about an activity with a low hold, and then a possible high tax rate or an onerous integrity fee,” he said. “It’s hard to see a lot of marketing spend being put on that. It will be more of an amenity, kind of like poker.”
Sports analysts often call the NFL a “copycat league,” meaning that one team will borrow the formations, strategies, and techniques of a successful rival. In some ways, that’s what is happening in the casino business now. With information being disseminated almost as it happens, casino operators – and their customers – are operating in an almost homogeneous environment. But, like it or not, legislatures don’t work that way. There are too many layers of obstruction. Keeping that in mind, it will naturally take rival states some time to work their way onto equal footing. But it will eventually happen.
