weather icon Clear

Analyst: Casino industry financial outlook for 2016 looks stable

Count the analysts at Fitch Ratings Service as predicting 2016 to be a stable environment for most U.S. gaming operators.

Few casino openings are planned that could tip the scales in saturated gaming markets. Discretionary spending by consumers remains on an upswing. Companies saddled with a hefty long-term debt — this doesn’t include Caesars Entertainment Corp. — have taken necessary steps to address near-term maturities through refinancing efforts and other means.

That’s not to say, however, the casino business is back to the halcyon days of monthly double-digit gaming revenue increases.

“We maintain that the long-term growth prospects for the industry remain lackluster,” Alex Bumazhny, Fitch’s director of gaming, lodging and leisure, wrote in the ratings service’s 2016 outlook for U.S. gaming.

Bumazhny said “secular headwinds” loom on the horizon after a year that saw casino revenue benefit from low gasoline prices to increased employment numbers.

Younger casino customers aren’t as interested in casino-based gambling as baby boomers, Bumazhny wrote. Other gaming-oriented alternatives and entertainment options, such as social casinos, online gaming and instant lottery tickets, are grabbing the attention of consumers and their wallets.

“These headwinds will impact slot-oriented regional operators and slot suppliers more than amenity-rich, resort-style casinos,” he said.

The gaming industry — especially Nevada — is addressing this issue through the development of new games that appeal to younger customers. Skill-based slot machines, which include elements of video-style arcade games geared toward a younger patron, were displayed at October’s Global Gaming Expo in Las Vegas. Most aren’t expected to reach the market until later this year.

In a separate report on the U.S-based gaming suppliers, Bumazhny warned investors that the major companies — International Game Technology and Scientific Games Corp. — aren’t providing any “game-changing slot innovations that will motivate wholesale slot floor replacements.” He said mobile gaming technology — games played on smartphones or tablets — are becoming more prominent.

“Positively, the larger suppliers have good exposure to mobile gaming,” he said.

Two major casino openings are scheduled for the United States in 2016. MGM Resorts International will open the $1.2 billion National Harbor project in Maryland — 10 miles from Washington, D.C. — in the second half of the year. In California, Penn National Gaming’s $390 million Hollywood Casino Jamul near San Diego opens in the summer.

Bumazhny included in the mix December’s opening of the $300 million Scarlet Pearl in D’Iberville, Mississippi, near Biloxi.

All three, he said, will have “competitive impacts” on their respective markets.

MGM National Harbor will take business from Penn’s racetrack casino in West Virginia and two Baltimore-area casinos operated by Cordish Cos. and Caesars. The privately owned Scarlet Pearl could peel business from the Biloxi market.

Bumazhny and Credit Suisse gaming analyst Joel Simkins — who toured the Hollywood Jamul construction site last month — said San Diego’s saturated Indian gaming market will face stiff competition from the Penn property.

Simkins said the drive time between Jamul and downtown San Diego is just 25 minutes, which makes the casino more accessible than the majority of the San Diego-area Indian gaming resorts, some of which have “overly difficult or treacherous” drives.

“In our view, Jamul should benefit from its convenience, appeal as the newest generation casino in the market, and (offer) strong California-centric food outlets that have considerable appeal,” Simkins said.

The early part of the year will be dominated by real estate investment trust news.

Pinnacle Entertainment and Gaming and Leisure Properties are expected to complete their $4.75 billion merger. Pinnacle’s 14 casinos will be acquired by Gaming and Leisure, which will lease the casinos back to the Las Vegas-based company.

MGM Resorts is creating a publicly traded REIT — 70 percent owned by the casino company — in which 10 properties, including seven on the Strip, will form the real estate business. MGM has said its REIT provides the company with “strategic and financial benefits.”

Bumazhny said casinos are “not well-suited” to be REIT tenants.

“Many proposed operating companies will have little margin for error after all of their fixed costs are accounted for,” he said.

Caesars marks the one-year anniversary Friday of the bankruptcy filing for Caesars Entertainment Operating Co. The operating division seeks court approval to eliminate almost $10 billion of debt by placing its two dozen casinos, including Caesars Palace and Harrah’s Reno, into a REIT. Caesars Entertainment will keep ownership in the operator and property companies.

The REIT matters weigh down Fitch’s gaming outlook going into the year.

“We would also be more positive should the pending REIT plans be canceled or if the REIT leases are underwritten more favorably with respect to the operating companies,” he said.

— Howard Stutz’s Inside Gaming column appears Wednesdays and Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. Find on Twitter: @howardstutz.

Don't miss the big stories. Like us on Facebook.
Business Videos
How much do Las Vegas casino CEOs make?
Las Vegas gaming CEOs made anywhere between $1 million and $24 million last year, according to company filings with the U.S. Securities and Exchange Commission. ((Las Vegas Review-Journal)
30-year-old Rio needs a little TLC
Nearly 30 years after the Rio opened, the red and blue jewel that helped catapult Las Vegas to a new level with its buffet and nightclub has lost its status along with its shine.
The latest on the Drew Las Vegas - VIDEO
Eli Segall recounts his tour of the Drew Las Vegas, formerly the Fontainebleau, on the Las Vegas Strip. (Michael Quine/Las Vegas Review-Journal)
Pinball Hall of Fame to move near south Strip
Operators of the Pinball Hall of Fame have been approved to build a new, larger arcade near the south edge of the Strip on Las Vegas Boulevard near Russel Road. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
National Hardware Show underway Las Vegas
The National Hardware Show kicked off Tuesday at the Las Vegas Convention Center (Mat Luschek / Review-Journal)
Caesars for sale?
Caesars Entertainment Corp. has been swept up in takeover speculation since the company’s share price tumbled last year amid disappointing earnings and concerns over a recession. Amid the decline, hedge funds scooped up shares. Billionaire activist investor Carl Icahn began buying shares of Caesars as early as January. Icahn acquired nearly 18 percent by mid-March. In February Icahn called on the Caesars board to study a sale as a way to boost shareholder value.
Las Vegas home prices
Las Vegas home prices grew fastest among major markets in February for the ninth straight month. But amid affordability concerns, the growth rate has slowed down. Southern Nevada prices in February were up 9.7% from a year earlier, according to the latest S&P CoreLogic Case-Shiller index. The last time Las Vegas' price growth fell below 10% was in September 2017, S&P Dow Jones Indices reported.
Free Parking Coming To Wynn
Free parking will come to the Wynn and Encore resorts on May 1, 2019. (Mat Luschek / Review-Journal)
Founding Venetian employees talk about 20 years at the Strip resort
The Venetian, which opened May 3, 1999, is celebrating 20 years on the Las Vegas Strip. Seven original employees talk about opening the luxury resort and working there for two decades. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Circa aiming for December 2020 opening
The 1.25-million-square-foot property will have 44-stories and 777-rooms. It will also have a separate nine-story, 1,201-space parking garage.
Boxabl official explains the building concept
Boxabl business development manager Galiano Tiramani shows off a room built by his company. (Blake Apgar/Las Vegas Review-Journal)
TI/Mirage Tram reopens
The tram that shuttles guests between TI and Mirage reopened this week after being closed for much of 2018.
Las Vegas Convention Center expansion taking shape
Renderings and actual footage show how the Las Vegas Convention Center is evolving.
Former Starbucks CEO Howard Schultz at Las Vegas convention
Former Starbucks CEO and potential presidential candidate Howard Schultz spoke at the Epicor Insights user conference at Mandalay Bay Convention Center Wednesday, April 17, 2019. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Drew Las Vegas to open in the second quarter of 2022
The 67-story Drew Las Vegas is slated to open in the second quarter of 2022 at the north end of the Las Vegas Strip. (Michael Quine/Las Vegas Review-Journal)
NAB Day 1 (Time Lapse)
NAB kicked off at the Las Vegas Convention Center on Monday, April 8, 2019. (Mat Luschek / Review-Journal)
National Association of Broadcasters Show shows 1mm thick 8K TV with 22.2 channel digital sound
Japan’s NHK Science & Technology Research Laboratories booth featured a 1mm thick 8K TV system used in conjunction with a 22.2 channel digital sound system at the National Association of Broadcasters Show at the Las Vegas Convention Center. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Nevada shoppers react to Smith’s no longer accepting Visa credit cards
On March 1, Smith’s announced that it would no longer be accepting Visa credit cards at any of its 142 supermarkets, including the 45 in Nevada.
Massachusetts Gaming Commission asks how long Wynn executives knew about misconduct
Business reporter Rick Velotta gives an update on the adjudicatory hearing on the suitability of Wynn Resorts to retain its gaming license in Massachusetts.
Henderson app developer part of Startup in Residence
Henderson based developers of the app On Point Barricade are taking part in Startup in Residence, a North America program dedicated to pairing tech companies with governments. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Sam's Town employees and customers talk of their love for the iconic casino
Longtime Sam's Town employees and customers love each other and love their casino. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Las Vegas apartments rents
Las Vegas’ apartment market has accelerated in recent years. Developers are packing the suburbs with projects, landlords are on a buying spree, and tenants have filled buildings.
William Boyd talks about the birth of Sam's Town
On the eve of the 40th anniversary of Sam's Town, William Boyd, executive chairman of Boyd Gaming and son of hotel namesake Sam Boyd, talks about how the casino became one of the first local properties in Las Vegas. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
High Roller observation wheel turns five
The world’s tallest observation wheel celebrates it’s fifth year on Sunday, March 31, 2019. (Michael Quine/Las Vegas Review-Journal) @Vegas88s
Escape Room Industry Growing In Las Vegas
Escapology employees discuss the growing escape room industry in the U.S. and Las Vegas. (Bailey Schulz/Las Vegas Review-Journal)
Impact of parking fees on visiting the Las Vegas Strip
There are no data showing a relationship between Strip resort and parking fees and the number of out-of-state visitors to Las Vegas. But there are data showing a relationship between Strip parking fees and the number of local visitors to the the Strip. ‘’As a local, I find myself picking hotels I visit for dinner or entertainment, based on whether they charge for parking or not,”’ said David Perisset, the owner of Exotics Racing. ‘’It is not a matter of money, more of principle.’’ A 2018 survey by the Las Vegas Global Economic Alliance found 36.9 percent of Clark County residents reported avoiding parking at Strip casinos that charge for parking. 29.1 percent reported avoiding using any services from a Strip casino that charges for parking.
MGM's sports betting deals
MGM Resorts International signed a sports betting sponsorship agreement with the NBA in July It was the first professional sports league to have official ties with a legal sports betting house. The deal came just two months after the U.S. Supreme Court overturned a law prohibiting sports betting in most states. In October, MGM became the first gaming company to sign a sports betting partnership with the NHL. In November, MGM became the first gaming company to sign a sports betting partnership with the MLB. Financial terms of Tuesday’s deal and earlier partnerships have not been announced.
Faraday puts Las Vegas land on the market
Nearly two years after Faraday Future bailed on its North Las Vegas auto factory, the company has put its land up for sale. (Michael Quine/Las Vegas Review-Journal)
El Cortez owner Kenny Epstein on running the iconic property
Kenny Epstein, owner of the El Cortez Hotel in downtown Las Vegas, talks about Jackie Gaughan mentorship and answers rumors about bodies in the basement at the mob-era casino. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
LVCVA recommends construction of underground people mover
The Las Vegas Convention and Visitors Authority announced the recommendation for an underground people mover for the convention center. The system would have the potential to expand and connect Downtown and the resort corridor all the way to McCarran. (Michael Quine/ Las Vegas Review-Journal)
Caesars new CEO appears to be in for the long term

Based on the terms of Tony Rodio’s employment agreement disclosed in a Securities and Exchange Commission filing, he appears to be in for the long term with a $1.5 million annual salary, prospective bonus payments of $3 million, as well as a $3 million buyout clause. This doesn’t look like the pathway to a quickee company sale.