The Industry Disconnect – Why Isn’t Gaming Keeping Up with the Rest of the Economy?

By all accounts the economy is growing and robust. Unemployment is lower than at any time since the Great Recession began, the stock market is at a dizzying all time high, mortgages rates are still very, very low, new housing starts are up, as are sales of existing homes and for the traveling public, gases prices are down; consumers are confident. Whatever measure one uses, the recession seems to be over. We might very well be on the road to returning to those good-old, shop-as-if-there-is-no-tomorrow days of yore.

The US economy grew at an annual rate of 3.5% in the July-September quarter, the Commerce Department has said. That was better than the 3% pace that economists had been expecting and follows the 4.6% growth rate recorded in the April-June quarter. Strong export growth and higher government spending helped to boost growth in the third quarter. ..The fall in the unemployment rate to a six-year low has helped to boost that confidence. BBC News, 10-30-14

“Today’s number represents a return to a healthy-looking trend. The most recent IMF forecasts suggest the US economy will grow 3.1% next year and 3.0% in 2016, and these could be revised further upwards in the coming months,” said Ben Brettell. BBC News, 10-30-14
A recent report says revenue at casinos in the United States jumped 4.5 percent in 2012…Casino City’s North American Gaming Almanac found that revenue generated by Indian casinos rose less than 2 percent in the same period…Total gambling revenue in 2012 was $94.47 billion, with the largest share, $40.38 billion, from casinos and card rooms. Tribal casinos generated $28.14 billion, lotteries accounted for $23.41 billion and revenue from racing and sports gambling amounted to $2.55 billion in 2012. Stephen Singer, Associated Press, 11-6-14

This is a growth economy, that is what the numbers indicate and it is what the news reports say. Still, something is not quite right. It does not feel like those old days; something changed during the recession. And it is not just a feeling. Small retailers, entertainment businesses and casinos are all saying the same thing – the post-recession customer does not spend money the way the pre-recession customer did. They know because their revenues are down even when the number of customers is not. In the casino industry, there has been a steady decline in revenue, this year and last year. Same-store regional gaming revenues declined 3 percent in September, a decline that is typical for all of 2014.

“Regional gaming across the United States has serious challenges not just in Cleveland or Cincinnati, but across the United States,” Dan Gilbert said. John Kosich, WEWS-TV, 10-30-14

This is not new and not news, still when the rest of economy is bustling, it is worth considering. The regional gaming operators are all experiencing the same trends. Take Penn National as a typical example. In the East and Midwest its revenues are down 16% year-to-date, its western region was only down 1.4%, but the Southern Plains were down 14.8 percent. Boyd, Pinnacle, MGM, Churchill Downs, Monarch and Dover Downs reported similar results. The exceptions came from Las Vegas and companies with properties in Macau.

PENN derives more than half of its revenue from the East/Midwest segment, while it derives 34% and 9% of its revenues from the Southern Plains and West segments, respectively. East/Midwest – This segment reported net revenues for nine months of $1,082 million, down 16.3%…EBITDAR declined by 21.1% to $324 million. West – This segment reported net revenues for nine months of $179 million down 1.4%…EBITDAR increased by 6.7% to $50 million. Southern Plains – This segment reported net revenues for nine months of $659 million down 14.8%…EBITDAR also declined by 11.9% to $213 million. Shawn Bolton, Market Realist, 11-6-14

It is well-known that one of the problems is increased competition from surrounding states and even within a state when a new casino opens. For example, Maryland Live had 3 percent less gaming revenue in October, but there is a new casino in its market area. Caesars opened a Horseshoe in Baltimore in August. Maryland reported a 30 percent increase in casino revenue in October, but on a same-store basis they are down 3 percent. However competition is not the only cause – it is just the easiest to identify. That leads me to the real question, the one I cannot answer.

What is the real cause, the underlying cause? Is it the internet? Have people changed significantly the way they spend disposable income? Where are they spending that money? Savings are not up, so that is not the answer. Other forms of entertainment are not experienced increased revenues, so movies, restaurants, theme parks and sporting events are the culprits. I wish I knew the answer; the question is one that is bedeviling the casino industry across the country. It is particularly disturbing because the overall economy appears to be so healthy. It is growing like a little weed in the spring, while gaming languishes in the shade. All I know for certain is we cannot overcome the problem until we understand its causes. I don’t, do you?


3 Responses to “The Industry Disconnect – Why Isn’t Gaming Keeping Up with the Rest of the Economy?”

  1. 1 rexdstock1 November 15, 2014 at 3:55 pm

    Marge and Bill, as they were known at Fitz, have died. Their younger friends, are moving closer to death. Except for the Vegas nightclub scene (they’ll get older too), there is nothing coming in to replenish the lake of customers that was filled by the river of customers we used to draw from the tributaries we called feeders. Try mangling up a metaphor more than that!

    Gaming experts went out and spent incredible amounts of money to exploit the internet. As I said back then, these kids don’t care who makes the sites. And, for the older players on Zynga, they never wanted to be social and go to a casino anyway.

    The only possible thing that can save gaming is to figure out the dickhead Millennial; but, that’s just a fool’s errand because these mobs-of-blobs want everything given to them. Gamification for participation can now be done by buying a burrito. We even have the new guard at the NBA thinking about allowing gambling because of the Fantasy Sports Rage.

    I hear gaming people still talk about not wanting to use a system that allows people to earn bonus points by playing not with a card, but through facial recognition. The myth being that somehow the player would be offended because they were identified by a camera.

    All the same crap I heard when Mick Roemer and John Acres demonstrated to us how Celebrity Circle worked back in 1985–thirty freaking years ago… The senior management at Harrah’s said “We can’t have their name pop up on the ‘welcome screen’… Our players don’t want to be known…”

    Open up the pot rooms, let people broadcast live from casinos, charge them for doing that broadcast, and look for something else to invest in…

    Rex D Stock

  2. 2 Ken Adams November 17, 2014 at 4:53 pm

    First off — you have asked the KEY question — why the disconnect between the gaming industry and the economy AND, even more astutely, you almost answered your own query by focusing on the key statistic that everyone ignores — Same Casino/Store Revenue. I’ll give you the $5 explanation for why this is happening; don’t hesitate to call me and I’ll go into more detail on any aspect of this.

    By way of background, I’m a 30 year marketing veteran who worked in Atlantic City, Vegas and most importantly, Laughlin, NV. I also did consulting work for Foxwoods, Seminole Hard Rock properties and more. 10 years ago, a few years after I left Laughlin, I developed my theory on hyper-competition(which is featured in the Casino Enterprise Management article I attached; it forecasts much of what we are seeing in AC and beyond)…where the “hyper” refers to the length of time any industry suffers a decline — in this case, Laughlin’s gaming revenue. The depth of the decline is irrelevant…the duration is critical. What I learned…in the case of casino gaming…is that the casino industry has only two strategies to deal with competition: Lower room rates and increase comps. What I studied was the change in customer/player ATTITUDES and BEHAVIORS over time as a result of these strategies. THIS is what is causing the disconnect you speak of.

    After several years of decline, our players came to understand that the comps were coming their way no matter what…and they slowly started to gamble less than they used to. In addition, prices of rooms and everything else dropped so precipitously, that it became cheaper to buy these on the open market, rather than risk gambling to win comps to get them. As time went on, prices went so low, lower socio-economic groups came in for what was the cheapest four-star vacation in the Southwest and squeezed out our regular customers.

    What the casino industry never realized (and still doesn’t) is that every casino evolved into a locals “joint.” We were all fighting for the same customer; if we tried major events on weekends, the place got crowded and our regulars stayed home to avoid the crowds…they could come any time they wanted …and so they waited…and came less often. The more weekend events we created, the lower gaming revenue went. This is why AC does not benefit from things like the Airshow and mega-concerts on the beach. It is why I implored everyone in Laughlin and AC to do these events Sunday-Thursday. Even if fewer people attended, it would still be a net positive.

    In addition…and perhaps worse…the only marketing strategies these guys know is: Use what worked when things were good. My background in communications and persuasion theory suggests that this strategy induces “cognitive dissonance” and only serves to accelerate the decline. (I get it…this is esoteric — if you have time…call me, I can explain in greater detail).

    This is why the Do AC campaign was such a huge failure; it was also why the NJ “Stronger than the Storm” campaign with Governor Christie after Hurricane Sandy, resulted in some of the worst tourism numbers this state has ever seen; obviously, they chose to blame the decline on Sandy itself…they were wrong.

    Hyper-competition, in my opinion, is also affecting the housing industry. Years of price decline have resulted in a change of attitude and behavior with regard to home ownership. The media has headlines all the time such as “Recession Lingers as Percentage of Renters Rise.” I contend that the recession no longer has anything to do with it…peoples’ behaviors have simply changed and they don’t want to live in homes…whether it’s because they don’t want to lose money; it limits their mobility, they prefer to live/rent in cities…or simple preference.

    Once the behavior changes…you lose this audience for a generation. The analogy I use is: What can a Supermarket do to sell beef to a vegetarian?

    Your astute recognition about same store revenue is quite prescient. Eight months ago I identified the next industry that will see an Atlantic City-like collapse — all brick and mortar retail stores. E-commerce is a BEHAVIOR. People don’t seem to get that. And today, it is the behavior of choice among enough people that within 10 years it will result in the collapse of Sears, K-Mart, J.C. Penney, Best Buy, Radio Shack, Aeropostale, Abercrombie & Fitch, and more.

    The casino industry is in trouble. As their “same casino revenue” continues to drop…they will do what they always do…lower rooms rates and increase comps and this will prove detrimental to many casinos across the Mid-Atlantic and Northeast. The industry also fails to realize that its core audience, seniors…are hurting. They are working longer and will spend more of the fixed incomes on healthcare moving forward. The industry has been supported by seniors who traditionally had the most disposable income and disposable time.

    A final observation I have made is this: The closer you put casinos to people, the less they gamble. The joke is that every local in Vegas is dead broke and lost all the money in slot machines. The reverse is the case…they have much more restraint than the average player because they are exposed to gambling at every turn, Albertson’s, gas stations, local restaurants, Laundromats…namely everywhere. But they don’t all go broke.

    We will see this scenario play out across this region…as well as in Tunica, Gulfport, and other venues where there is a confluence of casinos. My forecast for New Jersey is that the entire state will revert to ZERO gaming revenue by 2021. One hope that Atlantic City had was to place a casino at the Meadowlands. Jeff Gural offered a 50% tax on slots. A great portion of that could have been used for 10 years to provide comprehensive airline subsidies to try and reinvent AC as the fly-in destination for Vacationers and Conventioneers, while the Meadowlands became the drive-in hub/casino for the tri-state area. My analysis now suggests that the referendum needed to expand gaming to North Jersey will no longer pass as a result of AC’s collapse. No one wants to accept that conclusion either.

    Early on, I was in the running for president of the Atlantic City Alliance and I developed what I still consider to be the ultimate turnaround solution…but I…and my initiatives were rejected. We see the result of that now. (I’ll be glad to send that to you if you are interested).

    One last point…I can only identify one industry that has survived an attack of hyper-competition. In most instances, it takes years to change consumer attitudes and behaviors. That said, on Sept. 11, 2001, the airline industry was crushed, as airline traffic effectively came to a halt in this country. Sales meetings, association meetings, and personal and corporate travel plans were cancelled not only for that week…but for the foreseeable future into 2002. If the airline industry responded the way AC did to declines in gaming revenue…assuming it was the result of some one-time cataclysmic event that would eventually turn around on its own…I contend there would be no airline industry today. But because they locked cockpits, forced people to undergo stringent security checks, banned liquids, ultimately made you take your shoes off…confidence returned within six months. Today the industry is stronger than ever.

    My theory on hyper-competition enables you to understand why this “disconnect” or collapse as I call it gets going and why conventional and previously workable marketing solutions no longer have any impact… other than a negative one. I would be delighted to explain any of this in greater detail. If we do not initiate an immediate 30% tax on e-commerce purchases to change that behavior immediately…we will see Atlantic City-like collapses throughout this country. Caesars and Tropicana teamed up to buy the Atlantic Club for the sole purpose of closing it and placing a deed restriction on the property preventing another casino from coming in. Imagine if Macy’s and Kohl’s teamed up to buy Nordstrom for the sole purpose of closing it?

    That is the future I see and why I am so passionate about this theory and what it happening and unfolding in AC. It was predictable AND preventable…but no one wanted to listen. I thank you for hopefully making it this far…and perhaps you’d like to take it further. My sincere thanks.

    Wayne Schaffel
    Public Relations Network
    4 Martine Avenue
    Suite 417
    White Plains, NY 10606
    917-903-0309 (cell)

  3. 3 Ken Adams November 17, 2014 at 6:30 pm

    Sweet! Passion. I love it. Not sure the airline industry would have been gone forever, but I understand his overall point. See what you do to people, Rasputin? :0) Rex D Stock

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