Gaming in U.S. Produces Modest Gains in 1997

New York -- The appetite for gaming in the U.S., which broke records through the first half of this decade, has subsided. Casinos excepted, supply is in balance with demand, and for the first time, the industry cannot profitably absorb any more capital for commodity gaming supply.

According to a special report published in the August issue of IGWB, International Gaming & Wagering Business, gross wagering, or handle, which is the amount wagered on all forms of regulated gaming, and gross revenue, the source of both gaming industry revenues and gaming tax receipts, posted modest advances last year. Wagering in Indian casinos, machines, and on riverboats increased by double digits. Results in other industry sectors were moderate to poor.

Overall, says the report, handle rose 8.7% or $51.228 billion to a record $638.6 billion. Consumer spending on commercial games or gross gaming revenue, rose by $2.965 billion, or 6.2%, to a record $50.899 billion. Casinos, including Class III Indian games, and video lottery terminals (VLTs) fueled the increase. In 1996, handle, rose by .5.2% to $586.5 billion, and revenue increased by 5.6% to $47.6 billion.

"The Gross Annual Wager of the United States," compiled annually by Christiansen/Cummings Associates, Inc. for IGWB, portrays a slow-growth industry. While figures for handle and revenue last year represent new record highs; the rates of growth for the second year in a row are significantly lower compared with the previous two years. In 1995 the gaming industry posted a 14% increase in handle and an 11.4% increase in revenues. In 1994, those numbers soared to 22.3% and 15% respectively.

Casinos, lotteries control market share

According to the report, casinos continued to lead in market share last year, but the rate of growth was a slight 0.58%. The greatest gains were posted by Class III Indian games, riverboats, and video lotteries. Including Class III Indian gaming, casinos accounted for 51.6~ of each U.S. gaming dollar in 1997. Lotteries remained the second largest industry sector. Including VLTs, lotteries held 32.6% of the U.S. market, a decline in share of more than a point. Together the nation's casinos and lotteries controlled 86% of the U.S. gaming market in 1997.

With the exception of Indiana, the study says that supply and demand in emerging casino markets are now balanced. Casinos in Detroit will tap pools of latent demand, but once satisfied, markets for commodity gaming will end. "From here on out," says the report, "it will take more than boxes of slot machines to push growth in wagering much faster than the general economy—unless...major new casino markets open." Outside Hawaii and Utah, the report also said that unsatisfied demand in the U.S. for bingo, charitable games, lotteries and parimutuel sports no longer exists.

With commodity markets generally satisfied, says the report, consumers are moving away from the products of commodity gaming suppliers toward the products of entertainment behemoths such as Disney and Mirage Resorts. "In contrast to the demand for tables and machines," says the study, "demand for entertainment is nowhere near fully supplied locally or in the U.S. generally."

Entertainment in the economy

Following the highpoint of 1994, the report notes that the percentage of visitors to Las Vegas who gambled declined, and the average time spent per day gambling declined significantly from a high of 5.0 hours to 3.9 hours in 1997. At the same time visitor spending outside the casino skyrocketed from $79 in 199.1 to $113 in 1997. "Product offerings... like MGM Grand's refreshed City of Entertainment, New York-New York, The Forum Shops expansion, restaurants like Wolfgang Puck's Spago, and location-based entertainment like Mirage Resorts' $1.8 billion Bellagio are licenses to print money," says the study.

The shift in consumer expectations toward entertainment confronts casino operators with a newissue, says the report: capital spending for the purpose of renewing location-based entertainment or "refreshment capex." Using Disney as the performance bar—Orlando's Disney World is spending $2.5 billion in refreshment capex—Las Vegas is. keeping pace. Refreshment capex for New York-New York, MGM Grand, Caesars Palace, Hilton, and Bellagio, is near the $2 billion mark.

"What Las Vegas has that the neighborhood Indian casino or riverboat doesn't have is not gaming," says the study. "It's the entertainment supplied in Orlando by Walt Disney and Universal Studios, and in this market by Mirage Resorts, New York-New York, The Forum Shops, and Paramount."

Performance by segment

Turning to market segments, Indian gaming continues to post excellent returns. According to the study, Class III win reached an estimated $5.7 billion last year for a 16.9% increase over 1996. The double-digit gain followed increases of 13.3% ($555.4 million) in 1996, and 18.2% ($622.7 million) in 1995. IGRA, the Indian Gaming Regulatory Act of 1988, which enabled casino and related gaming development, has diversified and rebuilt many tribal economies. The report notes that the public sector is also benefitting from IGRA. In Connecticut alone, for example, Indian gaming has produced $154.2 million in funding for cultural, sporting, and scientific activities.

Lottery performance in 1997 was a slow-motion replay of 1996, according to the study Traditional ticket game sales rose just marginally by 1.7% to 534.419 billion compared with a 5% ($1.6 billion) increase in 1996, while losing market share. In only three states did ticket sales change by double digits: Louisiana, up 36.3%; New Mexico, up 14.4%; and Arizona, down 10.7%. The report concludes that because U.S. lottery markets are now fully supplied, ticket sales are unlikely to rise by more than a few percentage points in any given year.

Continuing a long-term trend, lotteries lost share of the U.S. gaming market last year, The industry's $16.6 billion gross gaming revenue equaled 32.6% of consumer expenditures on gaming in 1997, falling 1.31 share points below its ranking in 1996.

Revenues from video lotteries, however, turned in dramatic results. Last year, VLT handle skyrocketed by 30.2% or $2.75 billion to a recordshattering $11848 billion. This followed a 47.2% or $2.893 billion increase the previous year. According to the report, five comparatively small states (Delaware, Oregon, Rhode Island, South Dakota, West Virginia) handled just over one third or 34.4% of the dollar amount of all ticket lottery sales in the U.S. last year. In the aggregate, VLT and ticket sales rose by 7.7% or 53.326 billion in 1997 to a record $46.268 billion.

Aggregate wagering in parimutuel sports (horse racing, greyhound racing, jai alai) rose only marginally last year to 517.864 billion, while the segment's share of the U.S. legal gaming market declined to 7.5%. Handle dropped 11.8% or $662.4 million. Intertrack wagering narrowly compensated for the loss on-track, increasing by 10.74% or $700.6 million. Off-track betting also increased, though by a smaller percentage of 4.39% or $239.2 million. Gross gaming revenues for parimutuel sports were also flat last year, rising just 0.8% or $29.4 million to $3.811 billion.

Efforts to make charitable gaming more competitive with commercial slot machines produced results last year.. Following a marginal 1% or $14.5 million increase in consumer spending in 1996, charitable GGR increased by another 6% or $91.2 million in 1997 to $1.6 billion. Handle increased by a similar percentage, up 6.4% or $361.6 million to an estimated $6 billion.

Gaming on the Internet

Household gaming emerged as a significant force in 1997. The report estimates the potential for 1997 Internet gaming expenditures at $549 million, most of it in households. Currently, more than 100 Websites offer bingo, casino table, and machine games, sports betting, horse race betting, lottery games of every description, and poker. In 1997, telephone deposit account parimutuel betting on horse and greyhound races was legal in eight states. Handles, however, were small, between $400 million and $500 million, not counting Nevada.

As an economic force, gambling is pervasive in the U.S. Over the past 15 years, gross gaming revenues increased by 389% or $40.486 billion. During this same period, consumers spent a larger percentage of their growing personal income on gambling.

IGWB, the leading business publication for executives of the gaming community, is published monthly by GEM Communications, LLC, New York City. IGWB is presenter of the 12th annual World Gaming Congress & Expo '98, September 23-25, at the Las Vegas Convention Center. Some 23,000 industry professionals from over 100 countries are expected. Over 125 hours of seminar time are scheduled. Featured keynote speaker is Sergio Zyman, former head of global marketing for The Coca-Cola Company.

GAMING INDUSTRY FACTS
From the 1997 "Gross Annual Wager of the United States" Published by IGWB, International Gaming & Wagering Business August, 1998

• Consumer spending on commercial games (gross gaming revenue or GGR) rose 6.2% last year to a record $50.899 billion. This increase is about half the value of the domestic film box office.
• Consumer spending on legal games grew at an average annual rate of 11.2% between 1982 and 1997 with casinos, lotteries, card rooms, non-bingo charitable games, sports bookmaking, and Class III Indian gaming accounting for most of the increase. The telecommunications industry can point to comparable growth rates over this period, but few others can.
• Gross gaming revenue from legal games increased from .3899% of U.S. personal income in 1982 to .7405% in 1997.
• Casinos continued to dominate market share in 1997, but the juggernaut slowed to less than a share point (+0.58%).
• Aggregate gambling privilege tax receipts amounted to $18.532 billion in 1997, an increase of $1744 billion or 10.4% over 1996. The biggest contributor was state lotteries which generated $14852 billion last year.
• If 1997 consumer gambling expenditures of $50.9 billion were compared to large-scale American corporate business, U.S. Gambling, Inc., a fictitious company, would rank 11th in the 1997 Forbes Sales 500 (the same ranking as 1996) behind AT&T ($51 .319 billion) and ahead of Boeing ($45.80 billion).
• Utah and Hawaii are the only two states unlicensed for regulated gaming.
• The dichotomy between day trip and destination resort markets sharpened last year. Following the examples of Las Vegas and Orlando, every day trip casino market from Atlantic City on down is trying to transform itself into a destination resort.
• In contrast to the demand for tables and machines, demand for entertainment is nuxvherc nearly fully supplied, locally or nationally.
• Not counting Indian facilities, there are about 37,000 bingo halls in the 46 continental states. Collectively they attract 1.2 billion visits a year, slightly fewer than the 1.31 billion admissions that domestic movie theaters reported in 1997.
• Total consumer spending on bingo last year totaled $1.86 billion—the same amount The Mirage spent to build its newest gaming-entertainment facility in Las Vegas, Bellagio.
• Long quiescent, the card room industry is undergoing significant change. "Racinos" (race tracks/casinos), card rooms at casinos, and frontons, have spread from California to Florida.
• California's card club industry is undergoing a recapitalization similar to the one occurring on the Las Vegas Strip. Lavish, new facilities are driving consumer expectations up, and small clubs out of business.
• U.S. casino games won $26.9 billion in 1997, far outstripping lotteries which won $16.6 billion. This is about what consumers spent on movie tickets ($6.2 billion), recorded music ($12.2 billion), and theme parks ($7.6 billion) combined. It represents 5.5 cents of every dollar spent on leisure.
• In 1997, U.S. casinos increased table capacity by 5.1% to 11,973 tables, and realized a nearly equivalent 5.4% growth in gaming revenue gain.
• Atlantic City, already faced with the consequences of an obsolescent plant, is the victim of competitive pressure from surrounding gaming interests: Foxwoods and Mohegan Sun in Connecticut, devices in Delaware, cruise-to-nowhere gaming from New York City, and Turning Stone in New York State.
• Casino machine productivity at Foxwoods and Mohegan Sun, Connecticut's two Indian- run casino operations, won $118,771 and $119,597 per unit respectively, which is three times the machine average for any of the 316,902 machines operating in the 10 states where such games are offered.
• Unprecedented liquidity is capitalizing more traditional, and obsolete, table and slot machine facilities, and underwriting casino consolidations.
• In 1997, casinos employed an estimated 373,000 people and paid an estimated $8.3 billion in salaries and wages. As a result, gaming produced 52.189 billion in gambling privilcgc taxes.
• California contributed about 35% of Nevada casino visitors and at least $1.5 billion of the state's $7.6 billion in 1997 GGR. If a state referendum passes this November, legalizing California's 15,000 uncompacted, illegal, but highly profitable machines on Indian land, at least one-third and perhaps two-thirds of the $1.5 billion-plus that California currently drop in Nevada casinos would stay home.
• Delaware and West Virginia added VLTs in 1997, and each posted dramatic increases in reported percentage of handle gains: 94.20/o and 68.30/o respectively.
• Lotteries, which are the largest generators of government gambling revenue, posted GGR last year of $14.852 billion, advancing 7.6% over 1996. Lotteries also produced 80.4% of all gambling privilege taxes ($18451 billion) collected in the U.S. in 1997.
• Starnet Communications International, Inc., providers of Internet horse racing information and betting services, plans to broadcast horse racing coverage from Hialeah Park on its racing Web site.
• Greenwood Racing, Inc., owners of Philadelphia Park and that track's OTB facilities, will launch a multi-channel subscription television service this September called Racing Network.
• Consumers spent $495.5 billion on leisure goods, services, and activities in 1997, an increase of 6.6%over 1996. Gambling accounted for $50.9 billion or just over 10% of this amount. Altogether consumer expenditures on destination entertainment amounted to $81.8 billion.