Friday, February 29, 2008

Crap Economy

Casinos, generally seen as recession-proof, are beginning to feel the pain of the slowing U.S. economy.

The gambling industry has expanded rapidly in recent years, as more U.S. states allowed casinos and existing gaming parlors expanded. Casino gambling revenue, the amount lost by players, doubled between 1995 and 2006 to $32 billion, according to the American Gaming Association.

But with the U.S. economy slowing, there are signs that Americans, especially patrons of local casinos, are not in a betting mood.

"Competitive pressures in several markets do not appear likely to lessen in the near term," Oppenheimer analyst David Katz said in a report released Wednesday.

Harrah's Entertainment, the world's largest casino company, and Boyd Gaming both posted weaker quarterly earnings Wednesday and both described the economic environment as "challenging."

Their weaker earnings come a day after Pinnacle Entertainment, which operates casinos in regional U.S. markets, posted a wider fourth-quarter loss, mainly because of costs related to opening a new casino. The company said progress on other projects hinged on improved access to credit financing.

Harrah's, which operates Las Vegas Strip resorts like Caesars Palace and the Flamingo, posted a fourth-quarter loss, burdened by impairment charges and losses at its properties in Illinois and Indiana.

Gary Loveman, Harrah's chief executive, said during a conference call that results at regional casinos were "mixed," while in Las Vegas "the gaming business has held up well, but room rates are off a bit."

Boyd Gaming, which owns and operates 17 casinos in seven states, posted a 45 percent drop in fourth-quarter profit.

Boyd, which is building a casino resort called Echelon on the Las Vegas Strip, said net income fell to $31.2 million, or 35 cents per share, from $56.3 million, or 64 cents per share, a year earlier. Revenue fell 8.1 percent to $478.6 million, Boyd said.

The chief executive of Boyd, Keith Smith, said that the company experienced "some softness or weaknesses in the business" in late November through January, but that trends improved in February and that the company was "cautiously optimistic" for this quarter.

Fourth-quarter earnings at its downtown Las Vegas properties, aimed at tourists, posted a 13.8 percent profit drop, while profit fell 13.2 percent at Boyd casinos in the U.S. Midwest and South, as its Blue Chip casino in Michigan City, Indiana, suffered from new competition.

At the same time, profit from Borgata in Atlantic City, New Jersey, a joint venture with MGM Mirage, was essentially flat as it faced competition from video lottery terminals added in nearby Pennsylvania and New York.

Boyd's earnings at its casinos catering to Las Vegas locals rose 3.3 percent as the company overcame a 1.5 percent dip in revenue.

Harrah's, which was acquired last month by the private equity funds Apollo Global Management and TPG Capital, posted a net loss of $47.8 million, compared with a profit of $47.6 million in the same quarter a year earlier.


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