Will Gaming Continue Its Downward Slide?

A tough economy and steep fuel prices are hurting Las Vegas and other casino areas. Relief might not come anytime soon

Casino operators have been rolling snake eyes this year. In the U.S., would-be gamblers, hit with higher gas prices and rising unemployment, are nixing their Las Vegas vacations this summer, and some gaming companies are being forced to delay expansion plans or file for bankruptcy amid the credit crunch. And things have gotten dicey overseas: Reports that the Chinese government might restrict visits to Macau, a gaming hotbed where U.S. operators such as MGM Mirage (MGM), Wynn Resorts (WYNN), and Las Vegas Sands (LVS) have significant properties, depressed the share prices of those outfits on Aug. 20.

And that's just the latest manifestation of the sector's losing streak. Since the beginning of 2008, the Standard & Poor's Casinos and Gaming Index is down 36%.

Some Regions Are Winners

A bounce-back for the beleaguered industry is not a sure bet. Shareholders in MGM Mirage, for instance, which owns gaming resorts like the Bellagio and the MGM Grand, saw the company report a 69% decline in second-quarter earnings in August. To boot, rival Las Vegas Sands posted an $8.8 million loss for the second quarter because of high borrowing costs and more competition in Macau.

Of course, there are brighter spots, as some particular regions have been more successful than others. While Las Vegas-centric casino companies have suffered from tepid tourism recently—hotels in the city saw a 2.4% drop in total occupancy levels and a 5.5% decline in average daily rates in May from a year earlier, according to a recent Las Vegas Convention and Visitors Authority report—some regional casinos have fared better. In Iowa, which houses casinos from industry players like Isle of Capri (ISLE) and privately owned Harrah's, gaming revenues were up 1.5% in July, to $126 million, according to research from Banc of America Securities.

"While in the Midwest you've seen manufacturing and the auto industry falling off, farmers are doing really well," says Esther Y. Kwon, an S&P analyst for the gaming industry. "So when you're looking at casinos you should look at them on a regional basis." (S&P, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP).)

For the complete story, please see Ricky McRosky When Will Casinos Snap Their Losing Streak?, Business Week, August 21, 2008.