Hey Christina!
<<Local Casinos Are Still Flush
Despite a Softened Economy
By CHRISTINA BINKLEY and JOSEPH T. HALLINAN
Staff Reporters of THE WALL STREET JOURNAL
Riverboats and other neighborhood casinos haven't felt a big pinch from the soft economy.
Gambling revenues are up sharply this year in Missouri, and trends appear strong in other states including Illinois and Colorado.
Investors have long wondered if gambling is as vulnerable to economic factors as other forms of consumer spending. Many assume it isn't, but that premise hasn't been widely tested in the U.S. America's gambling mecca in Las Vegas, dependent on conventioneers and fly-in tourists, is nothing like the small towns across the U.S. where customers play slot machines on riverboats and then drive home to bed. There hasn't been a significant recession in the U.S. since the spread of gambling throughout the Midwest and South took place in the mid-1990s.
The jury is still out -- in part because the economy isn't in recession and other forms of consumer spending are holding up. But casino operators say they believe people will keep hitting the slots this year despite the slowdown.
"I think we'll continue to remain strong," said Joe Domenico, senior vice president and general manager of Harrah's East Chicago, a casino operated by Las Vegas-based Harrah's Entertainment Inc. His riverboat casino on Lake Michigan is in the shadows of Gary, Ind.'s beleaguered steel mills, but the majority of his business comes from older people in the Chicago area, some 12 miles to the west. "They have the disposable income" and portfolios that are invested conservatively, more or less immune from the stock market's gyrations, says Mr. Domenico. Also, he adds, "they have more time on their hands."
Scott LaPorta, chief financial officer of Park Place Entertainment Corp., Las Vegas, says he is "optimistic" after seeing the performance through mid-May of his company's locals-oriented casinos, which include Caesars and Grand Casinos in Indiana, Mississippi and elsewhere.
The trend so far has led to similar optimism about gambling-type investments on Wall Street.
"Gambling as a behavior is just not as exposed to the business cycle as other areas," argues Jason Ader, gambling analyst for Bear, Stearns & Co. "People like to gamble, like to smoke and like to have a good time. And gaming, alcohol and tobacco are three of the best areas to invest in slowing economic conditions."
Harrah's is enjoying a surge of investor confidence that the company hasn't seen for years. While most major casino companies base their biggest operations in Las Vegas, Harrah's bread and butter is locals-oriented casinos spread all over the country. That has made it less-glamorous than many of its rivals. Yet as it reorganized two trouble spots in Las Vegas and New Orleans this year, confidence in its other markets has helped its stock price. It reached a new 52-week high of $36.95 in April. At 4 p.m. in New York Stock Exchange composite trading Tuesday, Harrah's slipped five cents to $36.57.
Certainly, gambling revenues have grown steadily throughout the Midwest and much of the South this year, despite a drop in the number of people entering riverboat casinos.
In Illinois, fewer people are going to casinos, but they're losing more -- a sign that casinos have been targeting heavier gamblers with savvier marketing. Admissions were down 4.4% through March, according to state gambling regulators, but adjusted gross receipts -- the amount left over after paying off winners -- were up 7%. In Missouri, admissions to the state's 12 casinos were down 8.8% during the first quarter, but casino receipts were up 8.9%.
Still, that isn't to say that casinos are completely immune from economic factors. Some observers do see a few pockets where the soft economy may be affecting gambling. In Louisiana, the good times were rolling through March, with admissions up 15% and casino winnings up 12% over last year's first quarter. But after a recent visit to Louisiana, William Schmidt, an analyst with CIBC World Markets, warned his clients that the slower economy is having an impact on some casinos, particularly in Shreveport.
Similarly, Indiana with 10 riverboats saw a softer April after a strong first quarter, says Mr. Ader. In Mississippi, which has more riverboat casinos than any state in the country, first-quarter revenues were down 0.7% from the year-earlier period.
Write to Christina Binkley at christina.binkley@wsj.com and Joseph T. Hallinan at joe.hallinan@wsj.com>> |
