Moody’s sour on casino recovery

Casino operators have told the investment community that business levels along the Strip have stabilized in recent months.

Visitation has picked up, especially on weekends, although hotel rooms are going for nightly rates not seen in almost two decades. Customer spending, however, is down from a year ago.

Still, there have been expressions of optimism.

But Moody's isn't buying it.

In a report on the American gaming industry, the bond rating service told clients it had a negative outlook for the casino business over the next 12 to 18 months.

Moody's Senior Vice President Keith Foley said trends that began in 2008 have not shown any "tangible signs" of stabilization.

"Our outlook for the U.S. gaming industry remains negative amid uncertainty about the timing and degree of a recovery," Foley wrote in a report updating December's market research.

The bonds from 72 percent of U.S. gaming companies have been given a negative outlook by Moody's or face a possible downgrade.

Foley said gaming's biggest risk is the possibility consumers will further reduce discretionary spending over the next 18 months.

He was especially harsh on casino companies operating on the Strip and Atlantic City. Both markets have seen double-digit gaming revenue declines in the first four months of 2009. Foley isn't predicting a quick recovery.

"We do not assume that because gaming demand declined along with the economy, it will return to pre-recession levels once the economy improves," he said.

Las Vegas was hit harder by the recession than any American gaming market. Atlantic City casinos have lost customers and cash flow because of the economy and competition from expanded gaming in Pennsylvania and at the Yonkers Raceway near New York City.

Negative trends have put significant pressure on the major casino companies.

Harrah's Entertainment is at risk because its eight Strip casinos (including the Rio) and its four casinos on the Atlantic City Boardwalk provide 20 percent of the company's operating income.

"As a result, (Harrah's) remains highly vulnerable to the changing competitive landscape," Foley said.

The report wasn't all bad. Foley said casino expansion in Indiana has helped the state grow gaming revenues. The elimination of a loss limit and liberalized gaming boosted Missouri casinos.

Foley also praised cost-cutting steps taken by Las Vegas Sands Corp., Boyd Gaming Corp. and Ameristar Casinos. He cautioned against additional reductions.

"There is a risk in some cases that cost-cutting might affect quality of the gambling proposition and customer experience," he said.

Howard Stutz's Inside Gaming column appears Sundays. E-mail him at hstutz@reviewjournal.com or call 702-477-3871. He blogs at lvrj.com/blogs/stutz.