Fitch Ratings still skeptical about regional gaming recovery

28 September 2015

(PRESS RELEASE) -- Investors should view the recovery in the year-to-date gaming across regional markets with caution, according to Fitch Ratings.

We believe that regional gaming remains secularly challenged and long-term growth will largely be flat and possibly slightly negative despite the 2.2% gaming revenue growth year-to-date through July. Secular challenges include millennials' lower propensity to gamble, baby boomers' less certain retirement prospects, less robust growth in median wages, and a proliferation of gambling alternatives.

Easy year-over-year comparisons along with more affordable gas prices are masking these secular headwinds. Looking at more static states in terms of supply (PA, MI, MS, IA, and MO) gaming revenues are up 3.2% year-to-date through July over 2014 same-period revenues but are down 0.7% relative to the 2013 same-period revenues. The decline relative to 2013 would likely be steeper if not for the lower gasoline prices, which declined by about one-third in the first-half 2015 relative to first-half 2014 and full-year 2013 prices. (Gasoline makes up 3%-4% of personal consumption spending.)

Positive U.S. economic indicators are encouraging despite our longer term cautious view. The improving indicators, should they be sustained, will support the credit profiles of regional gaming issuers given their relatively healthy operator balance sheets and free cash flows (FCFs). Gaming operators continue to sound optimistic on their earnings calls saying that the consumer is looking stronger and are finding further efficiencies resulting in solid EBITDA flowthroughs.

However, another downturn could be especially problematic for operating companies that sold or spun off their assets and now are obligated to make lease payments for right to operate these assets. The lease payments taken together with maintenance capex increase these companies' operating leverage, making their FCF especially susceptible to operating pressure.

Slot suppliers are more of a focus versus operators given the former's more acute exposure to regional secular pressures relative to the operators and, in some instances, higher leverage. Still, we believe slot suppliers' positive FCFs, good liquidity, and increased diversification should keep defaults at bay, at least in the near-to-medium term.

Additional information can be found in Fitch Ratings' Gaming, Lodging, and Leisure (GLL) electronic newsletter including brief sector comments, recent/upcoming events, and links/summaries to rating actions and detailed reports. Links to GLL-related reports/comments from other Fitch groups including Leveraged Finance, Credit Market Research, REITs, Public Finance, and Structured Finance can be found there.

Related Links
Fitch Ratings Gaming Vendor Information

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


Your Guide to 15,524 Gaming Industry Suppliers