Tue, 01/04/2011 – 03:05 – PokerPages Staff

The U.S. Gaming Industry received a boost recently from one of the world’s biggest credit rating services – the infamous Moody’s Investor Service.  Whilst Moody’s analysts anticipate that hotel-casinos in Las Vegas will continue to face tough times in 2011 (largely because of an oversupply of gaming and hotel rooms in the context of squeezed discretionary spending amongst consumers), the organization has increased its general expectations for the industry next year.  2011 will be a stable year, Moody’s analysts believe, with revenues growing by 1- 2 per cent and casino operator profits rising by two percentage points to 4 per cent.

The rating agency’s previous report had been distinctly gloomy, predicting that gaming revenues would be flat during 2011, increasing by no more than 1 per cent and possibly decreasing by the same amount.  Operating profits were expected to fall by as much as two per cent.

Keith Foley, Moody’s Senior Vice President, explained that the agency had revised its estimates after it became evident that the fundamental credit conditions in the gaming industry were not likely to erode significantly in the next 12 to 18 months.  Even so, the latest report is not exactly a ray of sunshine for the gaming industry: recovery will be uneven, it forecasts, and whilst no serious financial nosedives are envisioned, neither is any dramatic material growth.

The more built-out and mature markets like Atlantic City and Las Vegas will continue to struggle, although industry growth is likely to be driven by some of the newer destinations like Pennsylvania.  According to Foley, the industry is not likely to expand significantly during 2011, although there will almost certainly be more companies competing for the same customers, which will lead to some gaming proliferation

The ongoing decline in discretionary consumer spending is expected to dog the prospects of growth on The Strip, which also has the additional problem of an oversupply of gaming and room capacity.  11,000 rooms were brought online in December 2009 when MGM’s Resorts International opened City Center.  The Cosmopolitan of Las Vegas also opened 2,995 new rooms, with the inevitable result that The Strip is bound to face a tough struggle to absorb the new supply.  The number of Las Vegas hotel rooms has now grown to 149,000, according to the Las Vegas Convention and Visitor Authority.

Moody’s revised report found the prospects of recovery in Las Vegas will be slowed by this oversupply, even if general U.S. economic conditions continued to improve.  There will inevitably be considerable pressure on hotel room rates as a consequence.

The poor prospects for recovery in the Strip will, however, have knock-on effects elsewhere. Larger gaming companies like Caesars Entertainment Corp and MGM Resorts are likely to be affected.  Holdings in Asia will cushion companies like Las Vegas Sands Corps and Wynn Resorts Ltd who also have properties in the Strip – consumer demand has been considerably stronger in Asia.

On a slightly more optimistic note, gaming revenue on the strip rose to 494.8 million during October 2010, compared with 426.3 million for the same month in 2009, and Las Vegas visitor volume rose by 5.7 per cent to 3.33 million compared to the previous year.  These aren’t dazzlingly optimistic figures, but they are at least moving in the right direction.