Land-Based Casinos See Declining Revenues in Most Areas of the United States

Harrah’s Casino in Tunica, Mississippi will be closing on June 2, costing the local economy 1,300 jobs. The casino’s fate was used as an example of the overall decline of the American gambling industry in a recent Bloomberg Business article. The Tunica casino complex features everything a resort would want, says Bloomberg, except customers.

From an all-time high of $1.2 billion in revenues in 2006, Harrah’s Casino saw revenue fall to $738 million in 2013. That’s why Caesars Entertainment plans to close the resort on June 2. The move will put 1,300 Mississippians out of work.

Saturated Land-Based Gaming Market

John Payne, president of the central markets division at Caesars, was asked recently about the closing. His answer was eye-opening. Payne said “There’s too much supply in the system.”

The gambling industry is like any other market: it follows the laws of supply and demand. In the 1990’s and early 2000’s, big land-based casinos were being built as quickly as the governmental systems could approve them. Resorts like Mohegan Sun and Foxwoods in Connecticut were making money hand-over-fist, while Tunica was quickly becoming America’s third most famous gambling hub.

American Casino Cities in Trouble

Now, Las Vegas, Atlantic City, and Tunica all have their problems. The global recession hurt the brick-and-mortar gaming interests in America worst of all. Atlantic City revenues are down from $4.9 billion in 2007 to $2.8 billion in 2013. Mississippi’s numbers are down from $2.9 billion in 2007 to $2.1 billion in 2013.

The Las Vegas Strip casinos weathered the financial storm the best, but their revenues shrank from $6.8 billion to $6.5 billion from 2007 to 2013–in a time their executives expected to see major growth. This is bad news for most of the companies in the US gaming industry, because they leveraged growth with big debts. Caesars Entertainment alone owes over $22 billion in debt. When the financial numbers cannot hit what the projections were–and miss it by billions of dollars–businesses suddenly have trouble.

Leveraged Debt Versus Declining Revenues

The five-and-a-half year economic recession is the major reason casinos are having so much trouble, though. While a profit-making business can weather an economic downturn of one or two years, it becomes difficult for any business to sustain itself when the troubles last half of a decade.

Joel Simkins, a Credit Suisse analyst, says, “Gaming can skew a little more blue-collar and middle-income, and if you look at the national economic statistics, that’s a subset that remains challenged. We need a much more robust economic climate for some of these markets to do better.”

An executive from Penn National Gaming put it a pithier way: “The low end has been wiped out.” The executive was talking about the over-50 women who used to lose $50 to $75 on the slot machines on their trips. These ladies’ gambling budget is severely curtailed, if not gone, these days.

Without the low stakes gamblers providing a constant, dependable stream of revenue, casinos are trying to appeal to the high rollers more than ever. That is why Missouri is considering joining the list of states which allow “markers”, a type of casino credit for anyone gambling over $10,000. Such credit is meant to attract high stakes gamblers, whose losses often can single-handedly affect the budgets of a brick-and-mortar casino operation.

More Competition Than Ever

With such decisions being made and more states turning to gambling for extra revenues, competition across the USA is greater than ever. The slowed economy combines with a saturated market to have caused these issues. Back in 1988, only Nevada and New Jersey allowed casino gambling. Now, 39 different U.S. states have land-based casinos inside their borders. The inception of Native American casinos was bound to hurt the business in Las Vegas and Atlantic City. These combined with state-licensed non-tribal gaming casinos to saturate the market. Then the race tracks started allowing gaming machines, so the racinos got into the action. Then the multistate lotteries began taking some of the betting dollars. Then online gambling came along.

Foxwoods Casino was in the middle of a massive building phase when the recession of 2008 and 2009 hit. Now, the world’s largest casino by floor space is now facing major financial troubles. Faced with competition in Massachusetts and Rhode Island, Foxwoods is hoping to move into the Massachusetts market or else see 30% of their business go away.

Online Gambling Seen as the Answer

With the land-based gaming operations often in trouble, state lawmakers are starting to turn towards online gambling as a solution. That is the states which allow licensed online gambling sites tie these licenses to their native land-based gaming ventures. In tough times, the additional cash boost that an online casino and poker room offers can make all the difference.