Gaming industry’s luck runs out

Ashley Milne-Tyte Jul 3, 2008
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Gaming industry’s luck runs out

Ashley Milne-Tyte Jul 3, 2008
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TEXT OF STORY

Bob Moon: Have you heard that even the wages of sin are falling? The venerable Associated Press reported the other day that Nevada’s legal brothels are offering gas cards and other promotions because business is off up to 25 percent from a year ago.

Now, another sign of hard times for Sin City: A big buyout deal that’s in the cards for a year is suddenly off the table. Racetrack and casino company Penn National announced today that two investment firms have dropped their $6 billion plan to buy it up.

Gaming companies have taken a beating of late as consumers increasingly stay home. An industry that not so long ago billed itself as recession-proof now seems to be rolling snake eyes. Ashley Milne-Tyte reports.


Ashley Milne-Tyte: Whether you call it gambling or gaming, the industry has exploded in the last 10 years. But that’s part of its problem.

Joe Fath is an equity analyst with T. Rowe Price. He says the business isn’t all rolling dice and one-armed bandits anymore.

Joe Fath: It used to be primarily gaming-centric and now there is also a large non-gaming component spent which I would argue is more discretionary. You can see that in the retail numbers; you can see that in the restaurant numbers of those publicly traded companies.

With so much of their revenue now tied to things like food and lodging, gaming companies are in trouble. Gas and food costs are rocketing, the price of plane tickets is soaring and now airlines are cutting service to places like Las Vegas. Many gaming fans are staying home.

Keith Foley covers the sector for Moody’s Investors Services. He says while gaming companies did a good job of marketing themselves as recession-proof, the fact is that the new, expanded industry hasn’t been around long.

Keith Foley: And to suggest it’s recession-resistant sort of discounts the fact it never really went through a recessionary period.

It certainly is now. Foley says this lean period will be a good test of how different companies manage their costs and pull in traffic.

Foley: I don’t think the interest in gaming has declined. I think the interest actually has increased in gaming. So, I would expect that when the economy recovers, that in fact the industry would benefit from the recovery.

Until that recovery comes, gaming companies will continue to struggle, Foley says. Many of them are weighed down with debt, and bankers are tightening the terms on those loans. Moody’s has downgraded 17 casino companies this year.

In New York, I’m Ashley Milne-Tyte for Marketplace.

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