Fall 2016 issue of Horizons

GAMING

New Jersey Highlighting Underlying Weakness New Jersey once again experienced growth in the first six months of 2016, as Atlantic City reported revenue gains of 0.6% when compared to the first six months of 2015. While the growth is notable and a possible indication that New Jersey’s casino industry depression has passed, the effects of northeast market saturation continue to weigh down the sea-side resort town. After reporting increases in revenues, the Unite-HERE Local 54 president, Bob McDevitt, cited the increase in gaming revenues and stabilizing finances as the primary drivers in the union’s efforts to recoup the concessions first given to the casinos in 2014. The union’s efforts made national headlines over the July 4 holiday as they threatened to strike at 5 of the 8 casinos continuing to operate in Atlantic City. From a data perspective, the efforts made by the union are noteworthy given Atlantic City’s overall increase in profitability. Since 2014, the casinos that remained open have collectively seen their revenues increase $43.4 million or 3.9%. However, the numbers show a different story for those casino companies targeted for potential labor strikes over the Fourth of July holiday. During the first six months of 2014, Caesars Entertainment operated four casinos and generated $500.5 million in gaming revenue. Since then, Caesars has closed one casino and endured a 21.4% decline in revenues. When removing the casino that closed (Showboat) from the comparison, the Caesars Entertainment casinos that operated in both 2014 and 2016 generated 1.9% less revenue in 2016 when compared to 2014. While the gaming company continues to endure a decline in gaming revenues, it did

This means that of the $219.5 million in overall gaming revenue growth, 62.3% can be attributed to organic growth from existing casino operations. A Pause in Growth While the revenue growth reported for the overall industry is encouraging, the second quarter gaming data highlights that there remains underlying weaknesses in the industry’s overall growth. In the second quarter of 2016, the U.S. commercial gaming industry reported revenue growth of only 0.1% when compared to the second quarter of 2015. Most notably, only 41.7% (10 of 24) of the states reported growth in gaming revenues. The limited growth in second quarter gaming revenues is attributed to revenue declines along the Las Vegas Strip and overall weakness in the industry. The Las Vegas Strip saw revenues decline 2.2% or $33.2 million. The declines were attributed to soft gaming activity (coin-in) in April and May when compared to 2015. In 2016, the Las Vegas Strip was not able to capitalize on the gaming activity historically generated around the annual Floyd Mayweather - Cinco de Mayo weekend boxing match, as Floyd retired in August 2015. Further compounding the soft wagering activity (coin-in), was an earlier than normal Memorial Day and a May weekend calendar that included two fewer gaming days. Outside the strip, gaming markets continued to see soft revenue results as overall wagering activity (coin-in) remained down in existing geographic markets. While a weak second quarter does not indicate the industry is shifting away from overall growth, it’s a reminder of the underlying weaknesses that exist in today’s gaming markets.

page 26 | horizons Fall 2016