Casino industry outlook still uncertain

30 July 2010

LAS VEGAS, Nevada -- Double-digit declines in monthly state gaming revenues have dissipated in the first half of 2010, but a national credit and bond rating service isn't ready to say the financial health of the American casino industry is on the path to recovery.

In a report on U.S. gaming released late Wednesday, Moody's Investors Service said there is a "high degree of uncertainty" over how much gaming trends will improve through the end of the year. Analysts are also concerned about the sustainability of those improvements.

In addition, many American gaming corporations -- including MGM Resorts International, Harrah's Entertainment, Boyd Gaming Corp. and Isle of Capri Casinos -- took measures to refinance long-term debt over the past year. But analysts believe the companies may have only succeeded in delaying an inevitable credit crunch.

"The industry, after having two years of a down market, would welcome having stable cash flows," said Moody's Senior Vice President Keith Foley, one of the authors of the report. "We still have a cautious view of the U.S. gaming sector even as those severe year-over-year declines in monthly gaming revenue have subsided. In our view, the gaming industry is not much better than it was, but it's also not much worse."

In Nevada, gaming revenues have recovered somewhat from 2009's record decline of 10.4 percent and the 9.7 percent decrease of 2008. Through May, gaming revenues statewide are down less than 1 percent, but are up 4.4 percent on the Strip, due in large part to a 32.9 percent increase in February.

Moody's told investors the bulk of the casino industry does not have the financial flexibility to absorb a year or more of flat profits. Companies with substantial debt may find it difficult to address large payments and expiring maturity dates without an equity infusion or some other deleveraging event.

The key to the industry, Foley said, is consumer demand for gaming. If discretionary spending by consumers remains depressed, the result could leave some companies short.

"At this point, some companies need overall business conditions to improve, not just stabilize, for (cash flows) to rise and leverage ratios to improve in time to refinance outstanding maturities on less-than-onerous terms," Foley said in the report.

The report cited MGM Resorts and Harrah's as two companies that took measures to improve their credit profiles, although both remain highly leveraged. MGM Resorts' debt is more than 10 times the company's cash flow, Moody's said. Harrah's has more than $22 billion of total debt and a debt-to-cash flow ratio of more than 10 times.

"We do not believe Harrah's will be able to generate enough cash to improve its leverage and credit metrics, especially during a tepid recovery," Foley wrote in the report. "In all likelihood, Harrah's will have to sell assets, issue equity or restructure its debt obligations. Obstacles accompany all of these measures, however, and they likely would result in impairment to debtholder claims."

In an interview, Foley wondered if Harrah's was "too big to fail. We just don't know what the company's next step is going to be."

On the opposite side, Wynn Resorts Ltd. and Las Vegas Sands Corp. are less affected by the current situation because of their substantial holdings in Macau, where revenues are up more than 70 percent through June.

Foley said the revenues generated by the companies' Macau resorts more than make up for weakness at their properties on the Strip. Las Vegas Sands also benefits from its newly opened $5.7 billion resort in Singapore, where only two casinos are allowed to operate.

"Those companies are in great position to benefit as new foreign markets open up," Foley said. "They now have a track record for success."

Other factors that could unfavorably influence the industry's financial prospects include legislative actions that result in higher gaming taxes as states address budget deficits, higher financing costs for gaming companies and lower development spending by casino operators.

"While all three factors are clearly a byproduct of the economic recession, we expect they will have long-lasting effects and could substantially mute the sector's recovery prospects," Foley said.

Related Links
Boyd Gaming Corporation Gaming Vendor Information
Caesars Entertainment Ownership Details
MGM Resorts International Ownership Details
Nevada Gambling


Copyright GamingWire. All rights reserved.
Featured Vendors
AmericanChecked
Kallop
AmericanChecked
Background checks for the gaming industry with key & non-key packages & fingerprinting solutions
Kallop
Reward every play like a VIP with exclusive luxury brands at affordable prices.
TDN Money Systems
Oklahoma Indian Gaming Association (OIGA) Conference
TDN Money Systems
Cage, cash/chip handling experts representing CountR, ARCA, AccuCASH, Fujitsu & NCR
Oklahoma Indian Gaming Association (OIGA) Conference
The biggest little show in Indian gaming! Save the date: Aug 9-11, 2022 in Tulsa!
.Dot-iGaming.com
TribalHub
.Dot-iGaming.com
Fully loaded advanced casino platform. One time (low) fee, 100% your property, start now!
TribalHub
23rd Annual TribalNet Conference Sept 12-15, 2022 Grand Sierra Resort & Casino in Reno, NV
Imagine This
Casino City Press
Imagine This
Imagine This #1 Source for Player Gifts. Over $50 million in stock ready to ship! Let us serve you!
Casino City Press
A leading publisher and distributor of casino and gaming business data and market research reports.
Rymax Marketing Services, Inc.
Casino Network
Rymax Marketing Services, Inc.
Leader in creating award winning player & employee loyalty programs & events proven to increase ROI
Casino Network
20+ years experience selling refurbished slot machines, parts & glass for all major brands
Talisman Group Creators of EZ Baccarat
TOP ONE TECH LIMITED
Talisman Group Creators of EZ Baccarat
With over 800 tables in 150+ casinos, EZ Baccarat is the number one brand in baccarat.
TOP ONE TECH LIMITED
GLOBAL TOUCH SOLUTION PARTNER OF CHOICE,10+ years OEM manufacturing,100+ thousand units application
Plastic Card ID
Broadband Hospitality
Plastic Card ID
The World’s Lowest Prices on Printed Plastic Cards and Card Printers!
Broadband Hospitality
Improve these critical guest-facing amenities: In-room TV, Wi-Fi, Mobile App. Priced right. All here
Slot Machines Unlimited
Betson Imperial Parts & Service
Slot Machines Unlimited
Exporter of IGT, Williams, AVP, Trimline, Aristocrat, Konami, Bally, & parts over 20 yrs experience
Betson Imperial Parts & Service
Your one stop shop for all your gaming and OEM needs!
Global Gaming Expo (G2E)
Sunkist Graphics, Inc.
Global Gaming Expo (G2E)
The largest gathering of global, commercial and tribal gaming professionals in North America.
Sunkist Graphics, Inc.
Specializing in the creation of best-of-breed gaming graphics - slot glass, sign faces, and more
Casino Schedule Ease
Casino Schedule Ease
Get a 90-Day Free Trial of 100% contactless, customizable table game & full casino scheduling


Your Guide to 15,522 Gaming Industry Suppliers