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Gaming industry recovery unlikely until 2010

Dec 17, 2008 7:18 PM
by David Stratton |

While casino operators might be hopeful the New Year brings signs of recovery from the current economic recession, a new report from Fitch Ratings suggests relief isn’t likely until 2010.

All major sectors of the gaming industry – destination resorts, regional casinos and Native American gaming – are expected to be impacted by the recession, though regional and Native American casinos should fare slightly better than destination resorts in Las Vegas and Atlantic City.

The only segments of the gaming industry forecasted for improvement are equipment manufacturers and suppliers, according to Fitch Ratings, a financial reporting service.

Fitch assigned a Positive Rating Outlook to suppliers, based on new casino openings over the next 18 months, the need to replace older slot floors and Bally Technologies’ strong market share since its operating turnaround.

With a view that the global economy is in a severe recession, Fitch is forecasting the steepest GDP (Gross Domestic Product) decline since World War II. Fitch expects "U.S. consumer spending to decline a sharp 1.6 percent in 2009 and remain soft into 2010," according to its report released this week.

Here is a summary of the economic effects on the major gaming industry sectors:

• Commercial casinos: Fundamental outlook is negative. The weak fundamental trends, including less visitation and spending in casinos, coupled with high leverage and tight liquidity will continue to adversely impact U.S. casinos.

• Native American casinos: Fundamental outlook is negative. While Native American gaming operators are feeling similar pressure on weak operating trends, the issuers in Fitch’s rated portfolio generally maintain more conservative financial profiles relative to rating levels, and will have more ability to withstand pressures from the recession in 2009.

• Equipment manufacturers and suppliers: Fundamental outlook is stable. While the server-based gaming cycle has been slower than anticipated, many casinos are already in need of replacement outdated machines. Moreover, new openings such as Wynn’s Encore, MGM’s CityCenter, Fontainebleau and Caesars Palace expansion on the Las Vegas Strip will created limited demand for new products.

For a detailed report of Fitch Ratings economic forecasts, including the recession’s impact on credit markets, gaming regulators and distressed transactions, see next week’s GamingToday, beginning Tuesday.