Execs have their say
A recent American Gaming Association (AGA) survey revealed that while the US gambling sector may be going through a period of unparalleled growth, executives are very doubtful that the good times will continue to get better.
just 20% expect conditions to get better in the future
In a survey of US gaming executives compiled in partnership with Fitch Ratings, 62% of respondents said they consider the current business climate to be a good one. However, more telling was the fact that just 20% expect conditions to get better in the near future. Around two-thirds of respondents believe conditions will remain the same.
Commenting last year, Jefferies gaming analyst David Katz said an earnings meeting with casino management teams in Las Vegas provided “evidence of the dichotomy between the current operating strength and the markets’ expectation of a recession.” He noted that the major casino operators mulled the possibility of revisiting costs in anticipation of a slowdown in demand.
To assess whether these concerns are justified, it is important to take a look at the current situation and past examples of similar conditions.
The challenges to growth
Of course, the pessimism of US gaming execs is not baseless. There are a number of challenges now facing the industry.
The first issue is rising interest rates and inflation, cited by 69% of respondents as the top challenge facing the industry. Falling within the same category, this concern was followed by economic uncertainty at 38%. This has led to rising cost of living prices for the US public, including the cost of basic necessities such as food and gas.
This is a very real problem in the US currently. In fact, last year TD Securities predicted that the chance of a 2023 recession in the country was as high as 50%. The latest US economic data suggests that this recession is on the way, with CNBC reporting that investors need to prepare for a difficult period in the stock market.
Also making the list of top US gaming industry concerns is geopolitical risk. At the moment, this is mainly related to the war in Ukraine, which has, if not caused, certainly worsened the cost-of-living crisis for many countries across the globe. With the war now more than one year on and giving no sign of abating, the peaceful course of international relations remains up in the air.
The fact that 2024 is an election year in the US is only destabilizing the situation more. The contest for the highest office in the nation will take place in November, and the winner’s policy on the issues already mentioned will have a significant impact on the performance of all US businesses.
Warning signs
First things first when considering the validity of the above concerns, are there currently any signs of these challenges having a detrimental impact on US gaming? After all, each of these issues is already a very real factor.
We have more millennial business than we’ve ever had”
MGM Resorts International CEO Bill Hornbuckle gave us some insight into his view on the current situation towards the end of last year. Speaking during CNBC’s Evolve Global Summit, the exec said that even though he eventually expects it to have an impact on gaming revenue, the rising cost of living “hasn’t yet.” In fact, Hornbuckle actually expressed optimism over the growing number of younger gamblers. “We have more millennial business than we’ve ever had by 20%,” the chief executive affirmed.
AGA data certainly supports Hornbuckle’s claims to date. In 2022, US gaming hit new heights, recording $60bn in revenue for the full-year, up 34% from 2021. This has continued into 2023 too, with US gaming economic activity growing by more than 8% over the past three quarters. “Simply put, American adults are choosing casino gaming for entertainment in record numbers,” AGA CEO Bill Miller said this year.
This growth can be seen on a state-by-state level too. Only this week, Nevada reported a new quarterly high for gaming revenue, hitting $3.82bn in Q1. March marked the 25th consecutive month of $1bn+ revenue in the gambling hub. In the same month, Pennsylvania exceeded $500m in gaming revenue for the first time ever, while revenue grew 15% year-on-year in New Jersey.
Evidently, according to this data, the challenges facing the gaming industry are not yet preventing its current growth.
Learning from the past
The sector appears to be snowballing in the correct direction, but with experts anticipating a recession could well be on the way, what can we learn from the past to inform us on how the sector might handle this?
The last real economic recession took place between 2007 and 2009, in which time Nevada gaming revenue saw its growth stunted. In 2007, gaming revenue hit $12.8bn, up around 2% from the prior year. However, 2008 brought a steep drop off in gaming revenue at 10%, down to $11.6bn. Then, 2009 saw the worst decline in Nevada history pre-COVID at just over 10%.
Similarly, on a nationwide level, casinos saw a downturn in business during the last recession, although not as dramatic as Nevada specifically. According to data from the University of Nevada, overall US casino revenue dropped around 3% in 2008 before declining another 5% the following year. After this, US gaming revenue gradually increased until the pandemic.
the industry is not immune to an economic downturn
There has also been plenty of research into the effects of recessions on casino gambling, with most studies determining that the industry is not immune to an economic downturn, despite what may have been previously believed.
For instance, the Journal of Gambling Studies assessed data on US per capita gambling consumption between 1959 and 2010. It found that the industry grows during times of economic uptick and experiences no growth during recessions. Lottery, however, seemed to be exempt from this, which saw gambling levels actually increase in times of financial hardship.
Pessimism warranted
For US gaming execs then, it seems that there are reasons to be cautious about what may lie on the horizon. The multitude of challenges facing the industry currently have not had a negative impact on its growth to date. However, a recession is a new level of problem entirely, and one that we have learned the sector can not escape.
the global gaming industry is a strong and adaptable sector
Despite this, it is also important to note that the global gaming industry is a strong and adaptable sector. It survived, and even thrived, during a time of complete global chaos during the COVID pandemic. Now, facing a new challenge, its executives can take heart from that evidence of their own resilience.
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