Casinos lucky days running out - Tuesday 25th of March 2008

long-held belief in the casino industry is no matter how bad the economy gets, gamblers will somehow come up with the cash and keep making trips to the casinos.

For proof, one had to look no further than the aftermath of 9/11, when the casino industry managed to weather a downturn in the economy.

But some analysts are now questioning the theory gambling is recession-proof.

Across the country, visitation to casinos is down, and the gamblers that do go to the casinos have put themselves on a budget.

"The results are suggesting, and a lot of companies are saying, that they believe the economy is having an impact on the amount of people coming (to the casinos) and the amount of money they are wagering," said Keith Foley, vice president and senior credit officer at the Moodys rating agency.

In a report it released to clients yesterday and obtained by The Star-Ledger, Moodys pointed to some dismal results in January. The Illinois gambling market was down a whopping 17 percent, Atlantic City fell 10 percent and Indiana 8 percent. Other markets with smaller declines included Nevada, Louisiana, Missouri and Iowa. The report is titled "Economic Slowdown Hits U.S. Gaming Sector."

In February, most markets fared better, helped by an extra Friday, courtesy of Leap Year. But many analysts think the worst is not over.

"Will gaming continue to slide as spring approaches?" Deutsche Bank analyst Andrew Zarnett asked in a recent report. "We believe the answer is a resounding YES."

What makes this recession different than others is it is consumer-based, analysts said. Higher energy and food prices, coupled with the crashing real estate market, have put the squeeze on consumers, giving them less money for extras -- even gambling. Complicating matters are smoking bans that have been imposed in some markets, including Atlantic City and Illinois, as well as heightened competition for gamblers as the industry has expanded. All that has taken its toll on many markets and on companies bottom lines.

"Its a different environment," Wachovia analyst Dennis Farrell said. "So the concept (of gambling as recession-proof) is under more stress now."

Moodys recently revised its outlook for the casino sector from stable to negative. Currently, the ratings agency has 11 casino companies under review for possible downgrade. That includes debt held by Trump Entertainment Resorts, which owns three Atlantic City casinos, the parent company of the Tropicana, and the two Connecticut casinos, Foxwoods and Mohegan Sun. Six companies already have a negative outlook.

Since the end of last year, Foley said, there have been 12 negative rating actions, four directly due to the weaker economy.

Foley said the reason Wall Street came to think gambling was resistant to economic weakness is it is a young industry. Only in recent years has it spread beyond Las Vegas and Atlantic City.

After the Sept. 11 attacks, many industry observers predicted the slowing economy and downturn in travel would hurt the casino industry. Instead, gambling became more popular.

But casino officials said yesterday they never thought the industry was immune to a recession.

"The industry is somewhat resilient to a recession," said MGM Mirage spokesman Alan Feldman. "But in no way, shape or form is it recession-proof."

Trump Entertainment Resorts Chief Executive Mark Juliano called the notion "an old wives tale."

"I never thought it was recession-proof," Juliano said. "After all, it is a consumer industry that relies on discretionary spending. Theres certainly no necessity required here."

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