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    MARKET EDGES

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And it’s not much different from what’s wrong with Vegas.

A competitor put out a note questioning the vitality of the regional markets.  We wholeheartedly agree that there is something wrong with the regional markets.  We’d take it even farther to say that there is something wrong with domestic gaming, not just regional.  Indeed, beginning in April of 2012, we put out a series of notes and analyses, discussing the lack of recovery in Las Vegas and the regional markets and the reasons behind it. 

The best explanation for domestic gaming weakness is twofold:  demographics and economic sensitivity.  The core slot player demographic is in decline – younger players are not playing slot machines.  There is no new customer base to fill the void of shrinking baby boomer generation.  Unfortunately, most attempts at attracting a younger base of players have failed.  Here are the bullets:

  • Average age of slot player
    • Still rising
    • Efforts to appeal to younger generations have not worked
    • Video game generation not attracted to archaic technology and random outcomes
  • Boomers artificially inflated gaming revenues
  • Smaller generations entering sweet spot

On the cyclical side, gaming has proved to be more sensitive to an economic downturn than virtually all other consumer sectors.  We don’t believe the macro will be an economic tailwind until the economy is consistently and strongly growing.  Higher taxes in 2013 will not help.

Back in April 2012, our sequential projection model was showing that the underlying trends in the regional markets were actually not getting better and could actually be getting worse.  Since then, monthly regional gaming revenues have generally flat lined on a sequential basis – adjusted for seasonality – and actually deteriorated in the summer.  Interestingly, as shown in the chart below, December was actually the best month of the year relative to our model even though the absolute YoY growth was -2%.  Unfortunately, Q1 is not shaping up well for the regional markets.

WE’LL TELL YOU WHAT’S WRONG WITH REGIONALS - slot0

In Las Vegas, we follow the slot volume metric closely as this represents the highest margin revenue driver and ultimately is the best barometer of the health of the Strip.  Monthly strip slot volume was down most months of 2012 and generally lower since 2009 as the chart below shows.  This is very consistent with our demographic views and supported by the data.  As we’ve written about consistently, the data shows that:

  • Lower % gambling
  • First time visitors at all-time low
  • Smaller casino budgets
  • Daily hours gambled all-time low
  • Increasing average age of casino visitor
  • Younger crowd clubbing, not gambling 

 WE’LL TELL YOU WHAT’S WRONG WITH REGIONALS - SL.OT1

Please let us know if you would like a copy of our April presentation “THE SLOW DYING OF DOMESTIC CASINOS”.