Local casinos vie with Vegas as gamblers pull back
NEW YORK (Reuters) - As travel costs continue to rise, some analysts say closer-to-home regional casinos might attract gamblers away from "destination" gaming centers like Las Vegas and Atlantic City.
They argue that the extra costs involved in traveling to those two popular cities could make some gamblers choose instead to keep their hard-earned cash for local tables and slot machines.
Others, however, believe both regional and major gambling venues will continue to suffer as the U.S. economy weakens and consumers are more careful about staying on budget.
In Las Vegas, a number of prominent gaming companies -- including MGM Mirage Inc (MGM.N) and Wynn Resorts Ltd (WYNN.O) -- reported deteriorating quarterly earnings in the last three weeks.
On the East Coast, Atlantic City-based Trump Entertainment Resorts Inc TRMP.O, chaired by property magnate Donald Trump, reported a wider first-quarter loss, saying revenue was hurt by increased competition from Pennsylvania and New York.
"People will go to a good alternative ... the best example right now is Pennsylvania," said Keith Foley, senior vice president at ratings agency Moody's.
"There are a lot more choices, the product is good and everybody is trying to draw from further distances. So some of these markets are really going to overlap," Foley added.
As another example, Foley cited the L'Auberge du Lac casino resort in Lake Charles, Louisiana, which had its best ever month in March according to owners Pinnacle Entertainment Inc (PNK.N).
Foley said L'Auberge du Lac gets most of its customers from Texas and for those gamblers, Lake Charles is roughly one tenth the distance of Las Vegas.
"As consumers trim their travel budgets ... many may shy away from Las Vegas and Atlantic City," he said. "They'll opt instead for less-expensive trips to regional gaming markets closer to home."
BUDGET
Still there are those who maintain that all gambling markets will feel the pinch.
They say regional casinos have been hit just as hard as Las Vegas or Atlantic City in the current slowdown, and some argue that local as well as destination gambling venues will continue to suffer as they compete for the same customers.
"It's certainly possible that some people ... may substitute a Vegas trip with a three-hour drive, but I don't see that as being one of the big drivers of why trends are slowing down," said Majestic Research analyst Matthew Jacob.
"Gamers just don't feel like they have the same budget they used to have," added Jacob.
In a recent report, Goldman Sachs (GS.N) said the slowing economy would take its toll on U.S. casino operators, which had held up relatively well in previous economic downturns.
Las Vegas operators generate a large part of their revenue from non-gambling sources, which are discretionary and likely to be more vulnerable if the economy worsens, Goldman Sachs said.
Susquehanna Financial analyst Robert LaFleur also said Las Vegas would suffer.
"Higher gas prices, higher airline tickets, the high cost of going to Vegas for all the other things like rooms and meals and shows -- they are all having a negative impact," said LaFleur.
On May 5, privately held casino operator Tropicana Entertainment LLC said it filed for bankruptcy protection. It owns the Tropicana casino in Las Vegas and eight other properties in regional U.S. gambling markets.
In its report, Goldman Sachs said several of the biggest casino companies had business development plans of about $45 billion to $50 billion in the pipeline.
However, with debt markets under pressure, Goldman Sachs said it expects some casino projects to be delayed or canceled.
LaFleur held out at least one, albeit short-term, ray of hope for the gaming industry.
He said gamblers might take some of the tax rebates of up to $600 currently being issued by the U.S. Government to the casino.
"I'm sure that's not what the Government intended but people being how they are ... I'm sure that's going to happen," said LaFleur.
