Casinos Battle Recession

It is a good thing oil prices have been through the roof lately, at least from the perspective of state budget officials. All that dough rolling in from mineral royalties and taxes makes it easier to overlook the fact that revenue from casinos is falling short.

The surging price of crude oil has fueled a big surplus in Louisiana’s budget even as casino gambling, which generally pumps close to $500 million annually into state coffers, has hit a slump.

Reports from the Louisiana State Police show that gamblers lost almost 4 percent less in the state’s casinos this past June 2008 than they lost in June 2007.

In the New Orleans area, which is home to three casinos, including Louisiana’s largest land-based gambling hall, the decline was steeper. The local casinos’ combined take was off 5.5 percent in June.

It is not hard to find the culprit in this weakening picture. The same faltering economy that has smacked most other parts of consumers’ lives finally has hit the gaming industry as well. Though gambling remains a popular method of separating people from their discretionary income across the country, there’s no question that “spare change” is getting thin in many households.

Even Las Vegas feels the heat. Tourism officials there say that, until recently, Las Vegas had seen gambling revenues decline only once in almost four decades. That stumble stemmed from the Sept. 11 terror attacks, which stifled revenue by about 1 percent for the year.

During the first half of 2008, however, revenue in the gambling Mecca dropped about 4 percent, according to the Las Vegas Convention & Visitors Authority. And when gambling suffers in Vegas, everything else feels the pinch. Travel analysts say the Nevada city has taken a hit in its convention business and average hotel room rates as well.

In view of recent conditions, analysts who used to consider the gambling industry “recession-proof” have had to change their tune, as some casino companies have called off big projects.

In late July, Las Vegas Sands Corp. scrapped its plan for a $500 million casino complex near Kansas City, Kan., blaming the ugly credit markets. Even the hugely successful Foxwoods Resort Casino in Connecticut laid off workers, citing the economic downturn.

In Vegas, lenders seized the $3.5 billion still-unfinished Cosmopolitan Resort & Casino early this year when its developer defaulted on a loan. The Cosmo is just down the Strip from the Tropicana Resort & Casino, whose parent company filed for bankruptcy protection in May.

And then there’s Harrah’s, operator of the massive land-based casino in downtown New Orleans. In January, a couple of private equity firms spent $27 billion to buy the casino’s parent, Las Vegas-based Harrah’s Entertainment Inc. Since then, the market value of their debt has fallen sharply. Meanwhile, the company delayed construction of its planned $700 million Margaritaville resort in Biloxi, Miss.

At Harrah’s New Orleans Casino, business in June was down 4.4 percent, according to revenue reports. Chances are, were it not for the casino’s nearby amenities, including the 450-room Harrah’s hotel and various entertainment offerings along the adjacent Fulton Street, the results may have been worse.

The casino’s local competitors – Treasure Chest Casino in Kenner and Boomtown Casino on the West Bank – both have taken harder hits from the economy. All together, the three local casinos pulled in almost $55 million in June. But business at Boomtown was off more than 5 percent, while Treasure Chest had an almost 10 percent decline from June 2007.

Most casinos are trying new enticements and packages to get more gamblers in the door this summer.

“We work very closely with our restaurant and hotel partners, and we’re working to build packages that will bring people in,” says Jim Hoskins, general manager of Harrah’s New Orleans. He says summer promotions have included $25 and $50 gasoline credit cards to help draw more drive-in traffic. Harrah’s also has become aggressive in offering customers discounted flights to New Orleans, buying blocks of seats on commercial flights or even chartering flights occasionally, he says.
Boomtown Casino in Harvey has also used a gasoline promotion, called “Cash for Gas,” to lure business in recent months. Special deals at the lakefront Treasure Chest Casino have included “free” cash for use in slot machines with the purchase of a buffet meal at the casino’s restaurant.

The casinos will no doubt continue trying to combat the slowdown in consumer spending but realistically, they may find that all they can really do is dig in and wait.
Economist Bill Conerly, who has tracked the impact of past recessions on dozens of industries, says the conditions aren’t likely to improve quickly. The Portland, Ore., consultant and author of a book called Businomics says the gaming industry tends to be slow to show the effects of recession because people “tend to persist” in their entertainment habits even as their pocketbooks get pinched. But judging by the numbers, he says the gambling business has more room to fall.

“During the average recession, gambling revenue goes down by 7.8 percent from peak to trough,” he says. “I’m guessing that we’ll have more declines in gambling in coming months.”

Harrah’s manager Hoskins, however, sees a large bright spot on the horizon: New Orleans Saints football.

“We go to all the visiting (teams’) cities and try to attract guests out of those cities to come and visit and catch their team playing the Saints,” he says. “It’s a great way to promote the city.”

Categories: Biz