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Is Gaming Industry Immune from Economic Downturns?
By Jack Katzanek, The Press-Enterprise, Riverside, Calif.McClatchy-Tribune Regional News

Apr. 27, 2008 - Not everyone goes through tough times during a recession.

The health care professions always need more employees during an economic slump because financial problems often lead to stress-related illness. Repairmen, for everything from cars to computers, are in demand when times are tight because fixing something is cheaper than replacing it.

Gambling is considered, at least by some, to be a recession-proof industry. The prevailing theory is that people will make wagers, whether at casinos and racetracks or on state lotteries, despite hard economic times, and maybe because of them.

However, experts are calling that a myth, and suggesting that a recession, which many economists now believe exists in Inland Southern California, coupled with high gas prices, should add up to worries for casino operators, including Native American tribes with casinos.

That issue's importance goes beyond the financial prosperity of the tribes in San Bernardino and Riverside counties that feature casinos. The gaming tribes have become major employers in the Inland region, with an estimated 30,000 workers. The Pechanga Resort and Casino near Temecula has 5,000 alone.

Many economists believe the area has already fallen into recession. What is different from other economic downturns is something experts call "stagflation," a stalled economy accompanied by inflation, mainly record-high gasoline prices.

Redlands-based economist John Husing, who once worked as a casino manager in a small Nevada town, said he doesn't see gaming as a recession-proof industry -- at least not this time. The current downturn has seen an erosion of the job markets in the Inland region to go along with high cost of gas.

"You have both those things going on and it would decrease discretionary spending on entertainment, including gambling," Husing said.

Rose Salgado, tribal council secretary for the Soboba Band of Luiseño Indians, said the tribe anticipates revenues might be down this year at its casino near San Jacinto, but probably not enough to affect any long-range plans.

"We have the same volume of people, but they're spending a little less money," Salgado said.

Business at the Pala Band of Mission Indians' casino in northern San Diego County has fallen off about 2 percent, and Robert Smith, tribal chairman, said most of the casinos in California are reporting similar drops. Like at Soboba, the cash played per player has been declining.

"A lot who used to play dollars are playing quarters or nickels or pennies now," Smith said.

Smith said Pala is seeing an increase in players who avoid the cost of gas by coming to the casino in chartered buses. But that increase is not a significant one, he said

Players who gamble less in a recession might cancel out the revenues casinos gain from gamblers who try to wager to make up for economic losses, said David Schwartz, director of the Center for Gaming research at the University of Nevada, Las Vegas.

"In the aggregate, it's a push," Schwartz wrote in an e-mail.

Less money spent by each player indicates belt-tightening, said Bill Eadington, a professor of economics at the University of Nevada and director of the Institute for the Study of Gambling and Commercial Gaming.

If the players stayed home altogether it would be an indication of the effect of gas prices, he said.

"Los Angeles players may feel more of a driving effect," Eadington said.

It should be easier to spot the economy's effect on tribal casinos now than it was a few years ago because the novelty has worn off, Eadington said. It is now 10 years since California voters passed the ballot initiative legitimizing Las Vegas-style casinos and about four years since several Inland-area casinos expanded.

The newness of the Indian casinos allowed them to do continue to do well when the country was in a brief recession in 2001, he said.

"Once a market reaches maturity, after five or six years, it would tend to be resilient but certainly not recession-proof," Eadington said.

Holly Thomsen, director of communications for the American Gaming Association, an advocacy group for commercial, or non-tribal, casinos, said that the myth of gaming being recession-proof is just that, a myth.

"There's been an old-wife's tale in the past that the gaming industry was somehow immune from economic downturns. That's not true," Thomsen said. "We're a consumer-driven industry and we are vulnerable to anything that would affect spending."

Some of the major gaming corporations and their Wall Street market-watchers have already adopted a defensive crouch. Earlier this month, MGM Mirage announced it would lay off 400 managers, a cost-cutting plan company officials said was in the works since last August, when mortgage defaults caused an international credit crunch.

In March, several investment houses downgraded stock price and earnings targets for some of the largest corporations, including MGM Mirage, Las Vegas Sands Corp. Wynn Resorts Ltd. and Boyd Gaming Corp.

Thomsen said it's difficult to pin down the effect of the current economy on a national scale because of several other factors, including smoking bans in some areas, new competition in Eastern states and casinos on the Gulf Coast that have reopened after Hurricane Katrina damage.

The gaming revenues in all of Nevada casinos declined year-over-year in the first two months of this year and also in November 2007, according to the Nevada Gaming Commission. Also, wagering on the Super Bowl has dropped the last two years after six straight years of increases.

Over the last half-dozen years, Las Vegas has successfully remade its image as an entertainment destination not based solely on gaming, which now accounts for about 35 to 40 percent of the resorts' revenue, compared to 60 percent a decade ago.

Ray Poirier, the longtime editor of Las Vegas-based industry magazine Gaming Today, said in the 1930s, when the only legal gaming was at the racetracks, people still laid down their $2 bets.

It's a different gaming world today with some sort of legal gambling in 48 states, and people are cutting back. Poirier said the average visit to Las Vegas used to be four days and three nights but that's been cut back to three days and two nights, and they're spending less on rooms and other amenities as well.

Poirier said the same economic conditions will be felt in California. "They patterned themselves on Las Vegas casinos, so on that basis they will feel the same effect," Poirier said.

The California Lottery's proceeds have declined to the point where its commitment to provide $1 billion for education in the state is at risk, said Al Lundeen, the press secretary.

The lottery had a record year of $3.6 billion in sales for the fiscal year that ended in June 2006, and $3.3 billion in 2007. But for the first half of the current fiscal year, July through December 2007, revenues were only $1.5 billion, or halfway to $3 billion, which Lundeen said is the level it needs to make the $1 billion contribution to schools.

"Lotteries across the country have seen sluggish sales that can be attributed to a slow economy," Lundeen said.


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