A sustained recovery in the U.S. casino industry appears stalled by the sluggish economy, while the already-weak Atlantic City market is not getting much of a boost from the Revel megaresort, a new report shows.
Wall Street credit ratings company Moody’s Investors Service warned Wednesday that momentum in the casino sector has been slowed by declines in gambling revenue, along with weaker consumer confidence, employment and retail sales.
All of those factors indicate that the rebound in the casino industry “has a high probability of stalling,” Moody’s said in its report, titled “U.S. Gaming: A More Cautious Consumer Steps Away from the Casino.”
“The sector’s upward momentum since the middle of last year began to wane in March, and in May most gaming jurisdictions reported gaming revenue declines. Coupled with weak consumer data, those results cause us to conclude that a sustained recovery in gaming demand will remain elusive,” Moody’s lead analyst Peggy Holloway wrote.
In the Northeast, the $2.4 billion Revel megacasino in Atlantic City and Resorts World in New York City have created new attractions, but apparently have not given much lift to those markets, according to Moody’s. Atlantic City gambling revenue fell nearly 10 percent in May, the second month of operation for Revel. New York’s results “have been tepid” since Resorts World opened at Aqueduct Racetrack last fall, the report added.
“In a poor sign for the overall health of the sector, newer casinos such as Revel in Atlantic City, Resorts World in New York and Rivers Casino in Illinois do not appear to be expanding gaming demand in their markets,” Moody’s said.
Atlantic City, in the midst of a five-year slump, has suffered an 8 percent decline in gambling revenue so far in 2012. Elsewhere in the Northeast, Connecticut’s monthly gambling revenue has declined in all but two months dating to January 2011. The Delaware, Pennsylvania and Rhode Island markets all showed flat to low-single-digit increases for April and May, a slowdown from about 10 percent growth in the first quarter of 2012, Moody’s said.
“Preliminary results suggest Northeast markets are having trouble absorbing new supply,” Moody’s said of new casino openings.
The Northeast is not alone in its struggles, Moody’s pointed out. The Central region saw gambling revenue turn negative in April and May combined, despite new casinos that opened last summer in Iowa and Illinois.
The Southeast region has reported strong revenue, but is benefiting from easy comparisons with last year’s casino closures caused by flooding on the Mississippi River.
In Nevada, the Las Vegas Strip casinos are holding up, with solid convention bookings, limited expansion projects in the market and lower gasoline prices expected to fuel modest growth in the future, Moody’s said.
There is some hope that declining gas prices and low interest rates could put more disposable income in consumers’ pockets, possibly boosting business in more casino markets, the report said. However, Moody’s added that worrisome consumer trends mean that “risks to the downside are greater today than they were a few short months ago.”
If gaming demand goes through another prolonged downturn, companies with heavy debt loads, known as leverage, could be vulnerable, Moody’s predicted. Companies characterized at “greatest risk” include Revel and Caesars Entertainment, the owner of the Bally’s, Caesars, Harrah’s Resort and Showboat casinos in Atlantic City.
“Companies with high leverage, limited liquidity, or significant near-term debt maturities are most at risk of negative rating action if declines in gaming demand accelerate,” Moody’s said. “Although we expect most companies to have a reasonable chance of refinancing their debt when they need to, the cost is likely to rise.”
Revel spokeswoman Maureen Siman declined to comment on the Moody’s report. Gary Thompson , a spokesman for Caesars Entertainment, declined to comment other than to express confidence in the company’s financial liquidity and growth opportunities.
Revel took on $1.1 billion in debt last year to finish what had been a stalled project. John Kempf, a casino analyst for RBC Capital Markets, is questioning whether Revel will be able to make its debt payments. Kempf, in a note to investors last week, wrote that Revel apparently lost money in its first two months of operation and will need to stabilize its finances this summer to keep pace with its debt obligations later in the year.
Despite having a big-name entertainment lineup, including concerts by Beyonce and Maroon 5, Revel has struggled with its gambling revenue, generating $13.4 million in April and $13.9 million in May, just eighth among Atlantic City’s 12 casinos.
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