WHEN LESS COULD BE MORE

In every single regional gaming market, revenues are flat to down. The driver in each case is fewer admissions (visitors). The more the merrier of course, but there is a silver lining. Revenue per admission is tracking much better than total admissions and is even up in some markets on a year over year basis.

Higher spend per visit is bullish for two reasons. First, it is the lower end customer that is cutting back on visits. The lower end customer is less profitable so margins could potentially hold up better than the revenue declines would otherwise suggest. Second, the pattern of visitation in 2008 tracked gas prices pretty closely. Intuitively, this makes sense. Gas consumption comprises a greater share of a lower end player’s wallet. High gas prices probably had a big impact on the lower visitation numbers. With prices plummeting, visitation could begin to improve.

The chart below plots the year-over-year average change in regional visitation, revenue per visitor (admission), and gas prices on a trailing twelve month basis. With the exception of the 1999/2000 period, visitation and gas prices consistently move in opposite direction. A significant number of new properties and expansions caused the 1999/2000 distortion.

Win per visitor, on the other hand, seems unaffected by changes in gas prices. Since lower visitation is the sole driver of the regional revenue downturn in conjunction with skyrocketing gas prices, it is intuitive that the recent plummet in gas prices could spark a revenue rebound or at least some stability.

In a sector with rampant investor pessimism (see “A TALE OF TWO YEARS”, 12/26/08), low gas prices could provide a spark of optimism as we head into the New Year.

Gas prices drive visitation but not revenue per visitor

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