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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Nevada economy: Funk and fear in February

10 April 2008

NEVADA -- OK, now it's time to panic.

Despite a month that included Chinese New Year, Super Bowl weekend, the three-day Presidents Day weekend, a favorable calendar and one extra day thanks to the leap year, gaming revenues statewide fell almost 4 percent in February, giving Wall Street cause for concern.

On the Strip, casino revenues were down 3 percent from a year ago due to a lower hold percentage in baccarat and other table games. Meanwhile, the locals casino market also experienced a revenue drop.

"Gaming revenues have been soft this year. However, we believe the decline is not as bad as expected," Deutsche Bank gaming analyst Bill Lerner said in a note to investors Wednesday. "Still, with room rates down this quarter and gaming revenue declining, it is clear that Las Vegas is feeling the impact of a difficult economic environment."

The Gaming Control Board released the monthly gaming revenue figures Wednesday.

Gaming win was $1.014 billion in February, a decline of 3.9 percent from $1.056 billion a year ago.

On the Strip, gaming win was $556.6 million, a 3 percent decrease from $574.7 million in February 2007.

Gaming revenues declined in every reporting area of the state except for two locations, Carson Valley, which includes Carson City; and the area described as "balance of Clark County," which includes several locals casinos such as Red Rock Resort and South Point. Balance of Clark County gaming revenues were $107.8 million, a 1.1 percent increase from $106.7 million a year ago.

However, gaming analysts said the locals market fell more than 6 percent in February when results from the Boulder Strip (down 14 percent) and North Las Vegas (off 13.3 percent) were factored in.

Morgan Joseph gaming analyst Justin Sebastiano said the numbers didn't bode well for some casino operators.

"What's worse, we believe promotions remained high, which typically translates into tighter margins and less profitability," Sebastiano said in a note to investors. "We calculate that Boyd Gaming derives about 45 percent of its fiscal year 2007 revenue and 47 percent of its fiscal year 2007 (cash flow) from the Las Vegas locals market."

Gaming revenues reflect what the casinos collect from customers before taxes, payroll and other operating expenses are deducted.

Frank Streshley, senior research analyst for the Gaming Control Board, said there is now a downward trend for overall gaming revenues statewide. Three of the last four months have reported revenue decreases and the amount wagered on slot machines was off 1.4 percent statewide during the month.

There had been much hope within the gaming industry about February, following January's 4.75 percent decline in gaming win.

Streshley said the extra day, Feb. 29, which fell on a Friday, was thought to be worth an additional 3 percent in gaming revenue. Also, February 2007 featured the NBA All-Star Game Weekend, which drove down gaming revenues last year.

"The expectations were high but the results were not unexpected given the state of the economy," Streshley said. "When all but two markets are showing declines, that's reflective of the economy."

Streshley said a portion of the state's decrease in February could be blamed on the New York Giants' upset victory over the New England Patriots in Super Bowl XLII. Sports books in Nevada lost $6.8 million during the month, $2.6 million of which came from gamblers who bet on the underdog Giants. A year ago, sports books won $12.9 million from gamblers wagering on the Super Bowl.

"Overall, the statewide total was down $41.5 million from a year ago," Streshley said. "We had almost a $15 million swing on the Super Bowl, so that's one factor."

February had one extra weekend day than a year ago, which would have seemingly helped boost gaming revenues, analysts said. Also, the three-day Presidents Day weekend didn't have the NBA All-Star Game or Chinese New Year.

Baccarat also contributed to the down month. The amount wagered on baccarat on the Strip was $1.041 billion, up 2 percent from $1.025 billion a year ago. However, the win of $116 million was flat compared with 2007.

Bear Stearns gaming analyst Joe Greff said in an investors note the decrease in hold percentage, "wiped out the year-over-year growth in drop. Excluding baccarat, the total win on the Strip in February fell 3.9 percent year over year."

Streshley said one resort operator told him some of the high-end baccarat players from Asia, who came to Las Vegas over the Jan. 1 New Year's holiday, gambled in Macau over Chinese New Year instead of making a return trip.

"That's not necessarily a negative for the state because we did have a record baccarat win in December," Streshley said.

Statewide, gamblers wagered $10.8 billion on slot machines and $3.1 billion on table games.

Gaming revenues downtown were relatively flat in February, with casinos winning $50.6 million, compared with $50.7 million a year ago.

***

DATA: GAMING TAX COLLECTIONS RISE

Nevada collected more than $53 million in gaming taxes on casino revenues generated in February, 2.8 above the collections from a year ago. Still, gaming tax collections are off almost 3 percent in the nine months of the fiscal year compared to a year ago, and 8 percent below what the state's Economic Forum had forecasted.

Gaming Control Board Senior Research Analyst Frank Streshley said the timing of tax collections on credit play by casinos factored into the figures.

For the current fiscal year, Nevada has collected $570.9 million in gaming taxes, down 2.9 percent compared with $588.5 million for the same period in 2007. The state's economic forum had forecasted $620.5 million would be collected during the first nine months of the fiscal year, $49.6 million more than has been collected.