Gaming: Don't Bet On Recovery Until 2012
While the rest of the U.S. economy inches slowly through recovery, the gaming sector will likely lag behind by as much as a year and a half before returning to pre-recessionary levels, according to new research from PwC.
According to PwC forecasts, total U.S. gaming revenues will increase to $68.4 billion in 2014, up from $57.2 billion in 2009. However, much of that growth will not be realized until after 2011, as consumers -- who had been using disposable income for necessity purchases during the recession (and may have put off some necessary purchases that need to be made as recovery takes hold) -- take some time to build up discretionary spending income, says Mary Lynn Palenik, director of gaming, entertainment, media and communications practice at PwC.
"The gaming industry recovery is going to coincide with the general recovery, but it's going to lag behind about 12 to 18 months," she says. "The industry is dependent on disposable income. But when the recovery happens, [consumers] are starting to spend that on necessity items."
During the next four years, the company predicts much of the growth will come from regional casinos, which will continue to gain market share from Atlantic City and tribal casinos. According to PwC's forecast, regional casino revenues will rise to $22.2 billion in 2014, up from $16.6 billion in 2009 (a 6.1% compound increase). Comparatively, tribal casino revenues will increase to $30.3 billion in 2014, up from $26.5 billion in 2009 (a 2.7% compound increase).
Tribal casinos, which fueled growth at double-digit annual rates through 2006, have since experienced fewer openings, a slower economy, and increased competition from regional casinos. A return to double-digit increases that characterized the first half of the decade is not expected. Rather, revenues at tribal casinos will increase from $26.5 billion in 2009 to $30.3 billion in 2014, a 2.7% compound annual increase. By contrast, Atlantic City will have declining revenues, dropping to $3.4 billion in 2014 from 3.9 billion in 2009.
"Atlantic City has come upon challenging times," Palenik says. "The facelift Atlantic City was to have [gotten], never happened. We don't expect it to regain the lost ground during the observation period."
Nevada, which will remain the top gaming destination in the world (although under pressure from points in Asia Pacific), will see revenues begin to pick up in late 2011 and then experience mid-single-digit gains from 2012 to 2014. PwC predicts the state's revenues will increase to $12.5 billion in 2014, from $10.2 billion in 2009.
Finally, one area that will likely see growth over the next five years will be online gaming. While U.S. regulations continue to be murky, though Palenik believes federal legislation governing activities such as online poker will be coming soon. By 2012 or 2013, the states will also look to align regulations across borders, much like the lotteries have done, Palenik says, adding that even as online gaming grows, the revenues will not cannibalize on-site gaming revenues. "In our opinion, we expect them to be incremental to casinos but not substitutional," she says. "Gaming is a very social medium. Online gaming may take away from other entertainment. It will creep [into other gaming sectors] very slowly."