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    MARKET EDGES

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The gaming industry’s problems are wide and varied, but unemployment is certainly one of them. As we’ve highlighted in past posts, unemployment has been a key macro indicator in explaining gaming revenue changes in most markets with the exception of the Las Vegas locals market where it’s all about housing.

We can see on the map which metropolitan areas are seeing above U.S. average unemployment rates. St. Louis, Memphis and Chicagoland are enveloped in red on the map (above national average unemployment). However, as depicted on our chart, the trends in these markets are less negative than those in the Las Vegas, Texas, and Louisiana. The situation in those areas is quickly deteriorating.

This is especially true in Louisiana with both Shreveport-Bossier and New Orleans seeing a degenerating situation. Moreover, trends in Dallas and Houston, the big feeder markets into Louisiana, are also negative sequentially. This is potentially troubling for a company like Pinnacle Entertainment which generates approximately 75% of its EBITDA in Louisiana and has been posting some of the best operating results in gaming.

Turning to Atlantic City, this market receives a large proportion of its visitors from the NY and Philadelphia metropolitan areas. The AC market is one we have been negative on for quite some. While the October yoy unemployment figures are not bad, the trend is getting worse, as can be seen in the chart. TRMP, BYD, and MGM are public companies with exposure to AC. Harrah’s Entertainment on the private side is also at risk.

In the Las Vegas locals market, it is no secret that Boyd and Station Casinos have faced grim prospects. We’ve expounded on the housing situation at length and determined that housing has been the only statistically significant macro factor in driving gaming revenues for the LV locals market (LV LOCALS: HOUSING TRUMPS EVERYTHING, 11/30). In line with this, to the extent that unemployment and economic malaise affects the already deflated housing market, unemployment is a factor worth monitoring. Next to Los Angeles, the unemployment picture here is the worst in the country.

The national trend is important for the Las Vegas strip, which depends largely on tourist dollars. November’s national unemployment trend affirms the October sequential and yoy negative trend. In 2007, 88% of visitors to Las Vegas were from the United States. 25% of all visitors came from Southern California. Unemployment in California is rampant and the attached chart shows that LA and San Diego have seen a dramatic increase in unemployment. San Diego and LA have both seen a sequential increase in the yoy change of unemployment rates from the third quarter to October. The national and SoCal statistics bode badly for MGM, a company highly invested in the Strip. MGM has committed a vast amount of capital to expanding its Las Vegas Strip exposure with project CityCenter.

Rory Green
Junior Analyst