By David Stratton | No one wants to speak out loud about a "recession-proof" industry, but Nevada is managing to sever itself from a jittery economy causing conniptions among retailers, restaurateurs and other consumer-oriented businesses – including the rest of the casino industry.
Despite higher energy prices, a volatile stock market, a slumping housing market and fears the economy may be heading into a recession, Nevada’s gaming industry posted its highest net income ever in fiscal 2007 – a combined $2.3 billion.
According to the state’s Gaming Control Board, Nevada’s 270 hotel-casinos had nearly $5.8 billion in earnings before taxes, interest, depreciation and amortization, or EBITDA – the indicator that analysts watch most closely.
The EBITDA, 23 percent of the resorts’ $25.3 billion in total revenue for the fiscal year that ended last June 30, compares with $5.4 billion in EBITDA in the previous fiscal year. The previous year’s revenue total was $24 billion and its net was $2.1 billion.
"This was the fifth straight year of increases in net income," GCB analyst Frank Streshley said. "If you look at the profit made during a slowing economy, it shows the industry was managing its expenses."
"Revenues are still increasing. Expenses are too, but at a much lower rate," he added.
In contrast, casinos elsewhere are not proving so resilient. From the riverboats of the Midwest and tribal casinos scattered across the country to gambling halls in less exotic parts of Nevada, operators are reporting slowing growth rates in recent months. In a number of places, revenues are actually down, sometimes by 5 percent or more.
"We’re seeing slowing growth in many markets across the country," said Joseph R. Greff, a gambling-industry analyst for Bear Stearns. "But I’d still say gaming is in far better shape than retail, restaurants or other discretionary consumer spending areas."
The differences reflect a wider disparity within the economy. Businesses in a variety of sectors that attract the most affluent customers and take advantage of foreigners from countries with strong currencies who are drawn to the glitter of Las Vegas and Manhattan are doing very well, while those dependent largely on middle-class buyers are having a harder time.
In Southern Nevada, one extra factor has been a booming Chinese economy, as wealthy Asian players are risking – and losing – money in record numbers inside the city’s most exclusive VIP lounges.
"Our numbers are up, up, up," said William P. Weidner, the president of Las Vegas Sands, the parent company of the Venetian and recently-opened Palazzo. With 7,000 combined rooms, the Venetian/Palazzo ranks as the one of the world’s largest hotels, yet the Venetian has been operating at an occupancy rate of 98.6 percent, he said.
The Gaming Control Board report released last week shows some big expenses last fiscal year, including higher payroll totals for employees and increases in interest expense. But there was a drop in a catchall "other" category that includes various legal expenses, insurance premiums, garbage bills and other items.
Casino departments at the big Nevada resorts reported a total of $123 million in bad debt expenses and $2.1 billion in complimentary services to high-rolling gamblers.
While the combined expenses of casino, rooms, food and beverage departments increased by 3.6 percent from year to year, total revenue increased by 4.9 percent and net revenue increased by 8.9 percent.
The $25.3 billion in statewide gross revenues in fiscal 2007 includes $12.5 billion from casino games, up $671.7 million or 5.7 percent from the prior year.
As a percent of total revenues, casino games accounted for 49.4 percent of the total, up from 49 percent. Hotel rooms revenues amounted to $5.1 billion, or about 20 percent of the total. That percentage is unchanged from the previous year.
Restaurant income increased about 3 percent to $3.4 billion, or 13.5 percent of the total; and liquor and other bar sales increased about 7 percent to nearly $1.4 billion.
Other revenue, largely from leases of resort space to retail shops, restaurants or other businesses, increased 2.7 percent to $2.85 billion.
On the expense side, executives’ pay increased 5.5 percent, to $55.8 million. Payroll for administrative, non-departmental employees increased 5.8 percent to $1.24 billion; interest expenses increased 4.6 percent to $1.68 billion; and utility costs increased 4.7 percent to $443 million.
There was little change in advertising expenses, down 0.1 percent at $430.1 million; and "other" expenses decreased 2.5 percent to $1.57 billion.
All those costs are listed under general and administrative expense, which totaled $8.66 billion. That’s up 2.2 percent from the previous year.
In the separate "cost of sales" accounting category, a $14.3 billion total was 5.9 percent higher than the previous year’s total.
"Cost of sales" includes money spent on departmental payrolls and on supplies for all hotel-casino operations. That’s everything from new card decks for blackjack tables to food for restaurants and liquor for bars.
The category used up 56.6 percent of the gross revenue. General administrative costs took the rest. Both percentages were close to the percentages for the year before.
The report is based on financial data from 270 hotel-casinos that each grossed more than $1 million during the year and account for almost all of Nevada’s casino revenues.
A breakdown shows resorts on the Las Vegas Strip had gross revenues of $15.8 billion and a net win of $1.66 billion, up 33 percent. Downtown Las Vegas resorts reported total revenue of $1.1 billion and net win of $64.6 million, down 54 percent.
Major clubs in the Reno-Sparks area had a revenue total of $1.64 billion and a net profit of $116 million, up 2.8 percent. Clubs on Lake Tahoe’s south shore had total revenue of $527.9 million and a net win of $26.5 million, down nearly 43 percent.