Gambling Industry Feels Economic Pinch

Scratch one axiom.

It appears that weathering the tough economy is enough of a gamble for most Americans. Casinos, lottery agencies and racetracks are losing tons of money as gamblers play it safe, laying to rest once and for all the old nostrum that gambling is a recession-proof industry.

The Nevada Gaming Control Board reported last week that revenue at the state's casinos fell by 22 percent in October, compared with the same month last year. It was the 10th straight monthly decline — and the biggest ever. The story was even worse on the Las Vegas Strip, where the October take was down by 26 percent. The steep downturn has sparked a movement to lower the legal gambling age to 18.

What happens in Vegas may stay in Vegas, to quote the city's tourism slogan, but gambling business problems are hardly isolated to Nevada. Casinos in Atlantic City, N.J., also reported steep losses in November, the New Jersey Casino Control Commission said last week. Kansas is on the hook for a $25 million deposit it needs to refund to a joint venture that was left holding the bag when Harrah's, citing its weak financial state, canceled plans to build a giant casino resort in Sumner.

Washington state casinos, meanwhile, reported a 30 percent drop in revenues so far this year, thanks to gamblers who aren't willing to bet it all these days.

"They come in less often and spend less money," said Scott Taylor, manager of the Classic Island Casino in Kennewick, Wash.

Randy Black Sr., majority owner of Black Gaming LLC, which runs three casino resorts in Mesquite, Nev., said, "Instead of coming two and three and four times and spending $200, $300 a trip, (gamblers are) coming one or two times and spending $20."

Black Gaming's gambling revenue tumbled 28 percent in the third quarter, and the fourth quarter doesn't look good, either. The company recently laid off about 350 employees at the Oasis, which is closing on Fridays to save money.

Thousands laid off as casinos near bankruptcy
For operators of casinos and other gambling concerns, the outlook is as grim as it's ever been, with executives predicting that no new casino projects will be started for at least five years.

"It's almost like a perfect storm — in a bad way," said Mark Nichols, an economist at the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada-Reno.

Stocks are low and debt is high. Layoffs are becoming daily news — more than 1,000 at MGM Mirage properties in Nevada; 700 (including the chief executive) at the Foxwoods in Mashantucket, Conn.; 400 at the Borgata in Atlantic City, N.J.; 93 at the Mountaineer in Chester, W.Va.

"All of our companies, if you talk to their CEOs, they will tell you they are tightening their belts," Frank Fahrenkopf Jr., president of the American Gaming Association, said last month at the annual Global Gaming Expo.

At casinos across the country, talk of collapse is in the air:

At the Tropicana in Atlantic City, N.J., financial restructuring advisers are preparing the casino and hotel for sale at auction in bankruptcy court.
The Tropicana in Las Vegas has been in bankruptcy since May.
The Imperial in Cripple Creek, Colo., filed for bankruptcy protection last month. Another Cripple Creek casino, the Wild Horse, shut its doors in October.
"For the gaming business, this is something they've never encountered before," said Bill Eadington, director of the University of Nevada-Reno's commercial gaming program.

'Money is hard to come around'
It's not just casinos. State lottery officials and horse racing executives are feeling the pinch, too.

After record performances in many states in fiscal year 2008, the floor has fallen out from under lottery programs since the new fiscal year started July 1.
 
The Massachusetts State Lottery recently revised its projected revenue downward by $125 million in fiscal 2009, blaming the economic collapse that began in September. The Iowa Lottery reported that first-quarter revenue was down 5.6 percent compared to the same period last year. Ticket sales for the North Carolina Lottery fell by 9 percent from October to November.

In Ohio, lottery officials had the misfortune to introduce a new keno game in early August, just weeks before the economy swooned. Sales have been so slow that the Lottery Commission now projects that the game won't bring in even half of the $292 million that had been anticipated.

In California, sales of Mega Millions tickets are down 10 percent since July.

Kelsey O'Kelly of Chico was buying a Mega Millions ticket at a convenience store in Paradise last week only because the jackpot had reached a staggering $207 million. Otherwise, O'Kelly said, she has been cutting back "because of the economy."

"It's so bad that money is hard to come around," she said.

Fewer betting dollars are going down on the horses, as well. The National Thoroughbred Racing Association said total legal betting on horseracing was by 10 percent nationwide in the third quarter, compared with the same time last year.

"As people have tightened their belts, in some instances across the country, they haven't chosen to wager at the tracks," said T. Kevin Flanery, senior vice president of Churchill Downs in Louisville, Ky., home of the Kentucky Derby.

"The gaming industry as a whole has at times been described as recession-proof, but I think that's not always true," Flanery said.

If there's a saving grace for the gambling industry, it's that it knows how to put on a show. And it's pulling out all the stops to lure gamblers back in.

Room rates at Nevada resorts are the lowest they've been in years as operators try to get people in the door. One company, Terrible's Casino Resorts in Primm, south of Las Vegas, is giving local residents rooms for free for the rest of the year — along with two free tickets to Sin City Kitties, a burlesque show, and two all-day passes to the Desperado Rollercoaster.

The hope is that guests won't be able to resist the lure of the casino floor once they're in the resorts, whose parent company recently missed a $5 million interest payment and is discussing a restructuring agreement with its lenders.

"We realize that it's a difficult time for everybody," said Michael Starr, general manager of Primm Valley Resorts.

In Atlantic City, whose casinos saw revenue decline by 8 percent last month compared with the same period last year, the Tropicana staged its own version of Pamplona's Running of the Bulls on Saturday — participants dressed as Santa Claus ran through the casino chasing scantily clad Hooters waitresses. And in a siren call to big-stakes players, the city's Trump Marina Hotel Casino is running a $1 million blackjack challenge, in which players can advance to a tournament on Jan. 3.

Back in Las Vegas, casino operators are lobbying the Nevada Gaming Control Board to lower the legal gambling age to 18 to help boost their bottom lines.

"We ought to look beyond cutting costs, and we ought to look at how we can drive additional revenue," said Tom Smock, senior vice president of Aristocrat Technologies Inc., which makes slot machines and other gambling equipment. "And one way is to increase the player base."

Smock noted that 18-year-olds could do almost anything in Nevada except drink and gamble legally.

"In this state, at least, if you're 18 there's not too many things you can't do. You can get married, have babies, buy cigarettes, buy guns, drive cars," he said.

Dennis Neilander, chairman of the Gaming Control Board, said the board neither supported nor opposed the idea but would take the suggestion to the Legislature.

Still, the real issue is not who is allowed to gamble. It's whether they have the money to do so, said Jim Duncan of Highland Hills, Ohio, who travels to Erie, Pa., three times a month to play the slots at the Presque Isle Downs racetrack.

Even though wagers may be down in the poor economy, some gamblers have powerful incentives to try and hit a jackpot, said Duncan, describing a fellow bettor he saw at one of the Presque Isle machines.

"The person had an eviction notice in his hand," Duncan said.

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