Ratings and research firm Moody’s doesn’t buy the enthusiasm surrounding the gambling industry’s growth. On the contrary, the company has a grim forecast for the future of casino gaming.
Moody’s Predicts Challenges for US Gaming
Casino GGR has been experiencing continuous increase in the last few months, with the gaming industry in the USA bracing for a second record year. While Moody’s agrees that the sector is currently in a good position, it argues that casino companies should remain vigilant.
According to the ratings firm, GGR increases are slowing down and revenues may soon begin to plummet. Moody’s said that the current slowdown may be an early sign that consumer demand will decline because of the inflation. Moody’s specialists believe that the longer the current macroeconomic challenges continue, the more they would impact casinos’ revenues.
The Macroeconomic Conditions Could Hurt the Industry
While certain markets, such as Nevada, have seen a streak of favorable monthly GGR results, the inflation is already affecting spending at casinos across America. Statistics show that people are less inclined to spend a lot and are reducing their tips. The casino industry, as a whole, is considered a consumer discretionary industry, and as such, is very vulnerable to such tendencies.
Another problem which is also caused by the macroeconomic situation, are the high interest rates. Companies that are in debt or need to take a loan will likely be hurt by these anti-inflation measures, analysts predict.
Moody’s pointed out that Caesars, MGM Resorts and Wynn Resorts, three of the biggest gambling companies in the US, would need to refinance a large part of their debt capital structure to deal with the skyrocketing interest rates.
Moody’s is also concerned about the future of free cash flows. According to the ratings firm, if companies’ EBITDA is influenced by the economic headwinds, this would also “cannibalize” the aforementioned free cash flows. This will have a very negative outcome and will reduce the company’s ability to pay back their debts. If worse comes to worst and a recession hits the market, companies with declining free cash flows will have a lot to worry about. The research firm believes if the economic situation continues to worsen, companies will turn to financial engineering-type transactions. This is a category Moody’s categorizes as a distressed exchange.
US gambling has been preparing for a second record year ever since the Q1 results rolled in. While the industry is currently basking in glory, companies should be careful and prepare for the worst.