GamblingCompliance: Fitch Sees Flat Regional Gaming Markets But Bright Future For Las Vegas

25TH JUL 2017 | WRITTEN BY: CHRIS SIEROTY

Regional casino revenues in the U.S. are expected to be no better than “flattish to slightly positive” this year, with the forthcoming Hard Rock casino in Atlantic City a threat to incumbent operators there, according to a report published by Fitch Ratings.

The ratings agency attributes its cautious outlook for some regional markets to pockets of weak consumer confidence, particularly in parts of the country reliant on the energy sector.

Revenues from casino markets outside Las Vegas were up 2 percent through the end of May, with June up on the prior year as well, Colin Mansfield, director of corporate ratings gaming, lodging and leisure, wrote in a report following meetings with gaming companies and manufacturers.

“The consumer continues to feel healthy, except in petrochemical-dependent pockets of the southeast,” Mansfield wrote, referring to Louisiana and parts of Mississippi in particular. “Northeast and western markets continue to fare better than the more mature Midwest and some southeast markets with more struggling economies.”

Mansfield told GamblingCompliance that Midwestern markets such as Indiana, Missouri and Iowa are likely to see flat revenues this year as they generally have “a relatively stable supply but not a great deal of positive economic catalysts.”

“Conversely, some pockets of slightly positive growth will likely be seen in Ohio and Massachusetts as casino openings from the past few years continue to ramp up, and markets with stronger underlying fundamentals (Florida, Las Vegas Locals),” Mansfield said.

In New Jersey, Mansfield said that most of the casino operators Fitch recently met with “believe the addition of Hard Rock to Atlantic City will negatively impact the market.”

Hard Rock International, which is owned by the Seminole Tribe of Florida, has begun a $500m renovation of the shuttered Trump Taj Mahal, which it acquired for just $50m.

Hard Rock boss Jim Allen has been bullish about the future of the Trump Taj Mahal and Atlantic City, telling attendees recently at the East Coast Gaming Congress at Harrah’s Atlantic City that the “challenging days are behind us.”

That may be so. Through the end of June, year-to-date gaming revenues in New Jersey were up 3.5 percent. However, a 28 percent increase in internet gaming accounts for a significant chunk of that and land-based gaming revenue at Atlantic City casinos was up only 1.5 percent, according to the New Jersey Division of Gaming Enforcement.

New Jersey currently has seven casinos in Atlantic City, with the Atlantic Club, Showboat, Revel, Trump Plaza and Trump Taj Mahal casinos all closing between January 2014 and October last year.

Mansfield on Thursday reiterated his concern that the addition of Hard Rock “will negatively impact some of the current operators.”

“Atlantic City has stabilized around a $2.4bn per year market and the current operating environment (with seven properties) has been healthier,” Mansfield told GamblingCompliance. “It’s allowed the remaining operators to increase their profitability relative to a few years ago when there were as many as 12 properties.”

As for Las Vegas, Mansfield noted that the development of non-gaming offerings continues to “be in favor given the strength of visitation and convention business in the face of stagnant room supply.”

The next injection of new supply on the Las Vegas Strip is expected to come when Malaysia’s Genting Group opens the $4bn, 3,000-room Resorts World Las Vegas project.

The Malaysia-based Genting bought the property in 2013 from Boyd Gaming for $350m. Boyd had started building a resort on the site of the former Stardust casino when the recession struck, leaving just a steel-and-concrete skeleton standing on the property.

In a note to clients, Mansfield and fellow Fitch analyst Alex Bumazhny said the Resorts World property “has not changed much since our last visit in October.”

Meanwhile, the stalled Alon casino project appears to continue to be up for sale, the analysts noted.

By the time Resorts World opens, Las Vegas will have hosted its first NFL game after owners approved the relocation of the Oakland Raiders to southern Nevada in time for the 2019 season.

“All [casino] operators feel the new NFL franchise is positive for the long-term health of Las Vegas and will help boost visitation around the eight home games,” Mansfield said, citing meetings with nine gaming companies including Las Vegas Sands, Wynn Resorts, MGM Resorts International, and Caesars Entertainment.

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