Our recent note, "REGIONALS: DISCERNING A TREND", outlined some key catalysts influencing the regional gamers. The disappointing revenue numbers in May (even while lapping negative factors such as the IL smoking ban and the MO loss limit), do not paint an optimistic picture, nor does the skyward trajectory of the gas price chart. Anecdotally, we are hearing June is likely to come in weak, despite an easier comparison.
Unemployment is a key variable and we take a look at that metric in this note. The unemployment chart below shows a different picture than that depicted in our 12/07/09 post, "THINK LOCALLY". The y-o-y declines are of greater magnitude. However, there are signs of stabilization in some gaming markets.
The employment situations in Houston, Dallas, Shreveport, and New Orleans are not great but they are relatively better. The sequential difference in the rate of change of unemployment in May from Q1 was generally flat in these metropolitan areas. In the fall of 2008, these were some of the most toxic employment markets we monitored. On the margin, this is positive for PNK, which derives 75% of its EBITDA from the Louisiana market. Houston and Dallas are important sources of traffic for casinos in the Bayou State.
Omaha clearly has a relative advantage over other gaming markets when it comes to unemployment. Along with St. Louis, it is one of only two metropolitan areas we examined that saw a decrease in unemployment from Q1 to May. ASCA derives 15% and 27% of its EBITDA from the greater Omaha and St. Louis areas, respectively. However, Chicagoland's unemployment picture is as bad, if not worse, than any other we monitor. ASCA and PENN have significant exposure to the Chicagoland market.
Las Vegas unemployment remains high and increased month-over-month in May. Los Angeles, which feeds some of the local LV customers, is showing some signs of relative stability. The year-over-year changes in unemployment for LA and Vegas were constant in May. While we have written that housing is the most statistically significant macro factor for Las Vegas Locals (LV LOCALS: HOUSING TRUMPS EVERYTHING, 11/30/08), the deteriorating job market will hamper economic growth. While the LV unemployment picture is not good for BYD, 2009 has already been discounted investors. We remain more optimistic on 2010 due to continued population growth.
The national unemployment picture is important for the Las Vegas Strip, which depends largely on tourist visitation to drive revenues. The y-o-y change in unemployment for May was 3.9%, worse than 1Q but identical to April. This is far from encouraging. The "less bad" thesis has played out and anecdotal evidence suggests the Strip is not getting any stronger.