Is There a Correlation between Recessions and Gaming Revenues?

With the media reporting whether there might be a recession and, if so, how severe it likely would be, are casino owners prepared to respond when and if a recession occurs? Have any of the academics or gaming associations in metro Las Vegas studied the correlation of the severity of recessions to the downturn in gaming revenues reported by casinos?

One recent study, commissioned by the American Gaming Association, found casino executives to be fairly sanguine (or complacent, depending on your point of view) regarding recessionary effects on the industry. After all, so far, gambling revenues have defied inflation and gas prices to remain not only on pace with last year, but well ahead of 2019, prior to the pandemic.

Among executives surveyed, only 8% anticipated worse business conditions while 38% actually expected business and economic conditions to improve.

Meanwhile, the Current Conditions Index from global capital-market research firm Fitch, when applied to gaming, scored a 99.5 (our of 100), “reflecting approximately stable casino gaming-related economic activity in the third quarter relative to the second quarter.” However, the Future Conditions Index is only a 95.3, indicative of a modest decrease on the horizon.

“The weaker outlook evident in the Future Conditions Index reflects a baseline that now assumes a mild recession during the first half of next year,” reports the AGA.

Even the third quarter of this year betrayed some slowdown of revenues, industry employment, and wages. That said, the industry is coming off several quarters of 5% growth. That, Fitch says, “reflects real underlying growth, even when controlling for the effects of inflation.”

CEOs are upbeat about the future, but not as much as they were six months ago, the AGA found. Positive responses outweighed negatives by 25%, down from 40% two quarters back. Doubtless, this is because of indicators like the Oxford Economics outlook, which point to inflation (up), interest rates (up), the labor market (down), and the supply chain (tight) and predicts a “mild” recession in 2023. Also, gaming is not performing so much as outperforming: Casino attendance is below what it was in 2019. The industry is breaking records by dint of fewer patrons spending more.

Fitch’s Future Conditions Index predicts almost a 5% slowdown in casino revenues in the months to come. It’s somewhat of a chicken-and-egg predicament. While this may reflect worsening economic conditions, one has to ask how long gaming can be expected to maintain the (over?)heated pace of 2021 and early 2022.

Still, 68% of gaming-industry CEOs describe conditions as “good” and 28% as “satisfactory.” But only 8% find access to credit “easy,” while 31% say it’s “tight.”

Those expecting future capital investment to accelerate have dwindled from 71% to 50%, but that’s still a large number. And recent weeks have seen a number of capital-intensive projects announced by industry-leading companies. Only half of slot manufacturers expect sales of new machines to increase. Ditto replacements of aging existing machines.

A year ago, 71% of industry bosses anticipated hiring would increase. It almost had to, given how deeply staffing levels were slashed during COVID. That's now down to 28%. These top executives also say the supply chain has eased up, but not by much. While 75% were hamstrung by supply-chain issues a year back, 65% still are today.

The (high) number who are concerned by interest rates and inflation has stayed the same (roughly 62%), while uncertainty about the future of the gaming industry has risen as a worry slightly, from 46% to 50%. Fully half fret about a shortage of labor and nearly as many (46%) about a dearth of skilled workers.

Executives expect to spend less across a variety of categories. Only 44% plan to lay out more on food and beverage. That’s bullish compared to hotel budgeting (38% ), parking (25%), live entertainment (19%), and the casino floor itself (21%). So while industry bosses were described as expressing “cautious” optimism at the recent Global Gaming Expo in Las Vegas, it’s not like they aren’t already tightening their belts.

Which is probably a good thing. We hope gaming’s leaders are right in their cautious optimism and that any recession will be moderate. But we would hate to see them get caught out, as they inarguably were by the Great Recession of 2008. Too much of our world hinges on it.

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Kevin Lewis Nov-01-2022

Massive failures

What the casino suits don't realize, or maybe realize but don't care, is that the current gougefest isn't sustainable. The casino industry has always depended on repeat business. But now, they're alienating customers left and right--and those customers won't be back.Furthermore, the current feeding frenzy will subside. It'll all come crashing down. I predict that by 2030, a third of Vegas casinos will close.

Lotel Nov-01-2022

There is no recession.

just the Fake news media saying things are bad and we are in a recessions. As long as everyone is working there can't be a real recession .  Every business I go by has we are hiring signs out. Prices maybe up 8% but wages have gone up. the days of cheap child care ,  food, movie,  etc.  are over and for good reason they are paying the workers some more money they deserve.  Just go to any restaurant, movie, concert , sport event anywhere and they are all full. As always you need a good education, skill to have a good paying job and you will be fine.

gaattc2001 Nov-01-2022

It's already started....

As usual I agree with Kevin, with some differences in the details. In Las Vegas, three closed casinos are being demolished, so nobody can reopen them and compete with the big guys. In Laughlin one is closed, and two others might as well be. Several casinos in Vegas and Laughlin are so neglected and run-down that I wouldn't be surprised if one or two of them just suddenly fell down on their own.
It also wouldn't surprise me if Fontainebleau takes it on the chin again in a 2023 recession: sort of a "Triple Whammy." When and if it does open, it will have the usual high prices and "hidden" fees, just like Resorts World and all the others; and the same with the new Fertitta property on the strip.
OTOH, check out ticket prices for the upcoming Adele residency at Caesars. If people are willing to pay $38,000, or even $800, to see an artist I never even heard of--and after all, they're willing to play 6-5 Blackjack--then maybe I'm completely out of touch and there's nothing to worry about.

John Dixon Nov-01-2022

Ditto

I will echo what Lotel said. Lowest unemployment on years means more people are working than ever, higher minimum wages means those folks are making more money than ever before. So who couldn't see some inflation coming? The people getting pinched the most are fixed income folks (retirees, etc.) and those folks are savvy enough to see through the current 'Vegas and avoid it as we remember when it was a value vacation. Just watch any YouTube video of Fremont Street and count how many people over 50 you see. It won't take long. As Kevin said time will take it's toll on the big company's policies.

Doc H Nov-01-2022

defied nothing

Disagree on the industry immune to things like inflation and gas prices. The reason things have held up is the insane years of lockdowns, masks, all the drunken sailor spending by this inept crew in charge the last 2 years, especially the 1.9 trillion giveaway that the vast majority of economist's say really spurred inflation. These "Free" cash handouts not only spurred inflation, along with the insane green nonsense by crippling our energy domestic production with regulation, shutting down keystone pipeline like Mr Marbles and crew promised, also got us where we are. So this spending insanity gave people money to spend, and they did, in droves, in places like las vegas. That plus all the pent up demand of people locked down, masked up, and people went on traveling and spending binges, damn the costs. But soon it will be time to pay the piper. Data now shows personal debt is up big time, all the "Free" money is long spent, and reality will make a showing soon. Election day, HURRY!

Doc H Nov-01-2022

regards to future of LV

Disagree with the comments about las vegas's demise, losing business, x numbers of casinos will just close up. Nonsense. I think the arguments being made are coming from posters here who are up there in age based on references made here over the years when people first started visiting las vegas. The blunt reality is marketers, advertisers, las vegas, isn't targeting old people. They aren't the money makers for them. That's the reality. Las Vegas is targeting mostly the 20-40's set. You see how the casinos have positioned themselves, clubs with EDM, bars, concerts to some degree, downtown casinos with loud dance music cranked up, expensive restaurants where this demographic would rather dump money than dump it in machines. It's obvious, give the people what they want/we can make a $ at. Ain't for the oldsters, pretty clear! And the younger age set is spending and showing up in large numbers, well, until the recession, rising interest rates, inflation, and debt catches up with them.

Question of the Day - 01 November 2022

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