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Howard Stutz

Gaming: Economic woes hurt U.S. casinos

15 May 2008

LAS VEGAS, Nevada -- In the 10 years that the American Gaming Association has been tracking the facts and figures produced by the nation's commercial casino industry, gaming revenues have climbed more than 73 percent.

The Washington, D.C.-based lobbying group's leader acknowledged Wednesday, however, that 2008 might be the industry's most challenging year. With the nation's economy in a tailspin and spending and confidence levels of consumers reaching all-time lows, the nation's casino companies are feeling squeezed.

"People used to say that gaming was recession proof. I liked to say we were recession resistant," said American Gaming Association President Frank Fahrenkopf Jr. on a conference call to release findings of the organization's annual State of the States report. It covered commercial casinos and has a separate section for states with racetrack casinos. Figures from states with Indian casinos were not included in the report.

"There is no question the economy is having an impact on our industry," Fahrenkopf said. "Airlines are cutting service and gasoline prices are impacting markets dependent on drive-in traffic."

Still, the report noted that gaming remains popular, with Americans spending more on gambling than on movie tickets or candy in 2007.

The survey showed that U.S. commercial casino revenues were up 5.3 percent to $34.1 billion in 2007. Citing numbers from the National Confectioners Association and the Motion Picture Association of America, the survey said Americans spent $29 billion on candy and $9.6 billion on movie tickets in 2007.

In Nevada produced gaming revenues of $12.85 billion in 2007 -- 37.6 percent of the $34.13 billion in total gaming revenues produced nationally by casinos in 12 states. But gambling win in the Silver State has declined 3.4 percent in the first three months of 2008.

In New Jersey, Atlantic City gaming revenues, which fell almost 6 percent in 2007, are down almost 7 percent in the first four months of this year.

Fahrenkopf tried to put a positive spin on things; he said in six of the 12 commercial casino states, gaming revenues are up in the first three months of the year. He said casino companies nationwide are investing more than $53 billion in expansions and capital improvements over the next few years in an effort to jump-start revenues in the slowing economy. According to the report, roughly $39 billion of the expansion efforts are in Las Vegas.

Fahrenkopf said the investments will inject billions of dollars into gaming jurisdictions in the form of jobs, tax revenue and wages.

"Notably, a great deal of this investment will come in the form of nongaming amenities," Fahrenkopf said. "These projects not only mean immediate jobs in construction but long-term, good-paying jobs on the horizon."

The number of workers employed by casinos has grown almost 11 percent in the past 10 years, but the number of jobs fell 2.3 percent from 2006 to 2007. In Nevada, casino jobs declined 6.1 percent. Recently, MGM Mirage cut more than 400 middle management positions and Station Casinos reduced its corporate work force by more than 50 employees. Fahrenkopf, however, said there have been "no wholesale layoffs" while Las Vegas Sands hired more workers for the Palazzo and Wynn Resorts has said it will not eliminate jobs.

Fahrenkopf said there were positive signs for the industry in 2007 heading into 2008. Revived Gulf Coast casinos in Mississippi, shuttered for more than a year after Hurricane Katrina hit the region in August 2005, helped the state increase revenues 12.5 percent in 2007. Small gaming markets, like Iowa, posted heathy gains.

Wages paid by casinos totaled more than $13.8 billion, a 3.8 percent increase compared to 2006. Gaming taxes paid to state and local governments were $5.79 billion, 11.3 percent more than were paid in 2006.

Pennsylvania became the 12th state with commercial casinos in 2007 and its six casinos produced more than $1 billion in gaming revenues.

However, Pennsylvania's success may have been to the detriment of Atlantic City, Fahrenkopf said, as casinos in the Keystone State have siphoned off customers from the Boardwalk.

Fahrenkopf hopes the lean economic times won't mean states will look to generate money by raising taxes on the gaming industry.

"It can get to a point where some jurisdictions set such a high tax rate, it discourages some companies from investing," Fahrenkopf said.