Economic Slowdown Hits U.S. Gaming Sector
- The U.S. gaming sector is experiencing weaker visitation and spending trends as a result of the slowing U.S. economy. Moody's recently revised its outlook for the U.S. gaming sector to negative from stable to reflect these trends.
- The economic slowdown and possibility of a longer-term, consumer-based recession come at the same time that fierce competition within and among gaming jurisdictions is requiring gaming companies to spend heavily on promotion and capital investment.
- Reduced access to capital markets is increasing overall risks to the sector’s credit profile. Decreased access to capital is also likely to result in the cancellation or delay of some planned development projects, potentially hurting longer-term revenue and cash flow growth rates.
- Many U.S. gaming markets are in their relative infancy and do not have enough of a documented history to indicate how they will perform during a period of prolonged economic weakness.
- Unfavorable legislative initiatives designed to address possible state budget deficits could result in higher gaming taxes and/or increased competition.
- Long-term fundamentals of the sector, including increased acceptance and popularity of gaming and a demographic shift towards age groups that exhibit a high propensity to gamble, remain favorable, but they may not offset near-term economic and competitive challenges.
- Negative rating actions are expected to significantly exceed positive rating actions in 2008. Eleven U.S. gaming issuers are currently on review for possible downgrade and six have a negative outlook -- those include CCM Merger, Inc. the parent of Marian Ilitch's MotorCity Casino. Combined, these issuers account for almost 25% of the total number of rated U.S. gaming issuers.
source: Moody's Corporate Finance, March 2008
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