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A theory is only as good as statistics can prove. The theory that people will prefer Staycations over vacations in periods of escalating travel costs can also be applied to regional gaming operations. Based on a theory that higher airfares to Las Vegas may cause gamblers to stay closer to home I've taken a look at the math.

The following chart details the results from regressing quarterly YoY change in regional gaming revenues to quarterly changes in average Las Vegas airfare for the last 10 years. Airfare proves to be a statistically significant causal variable in explaining a decent percentage of the move in gaming revenues. Because of the potential that the independent (airfares) and dependent (revs) variables are autocorrelated with economic growth, I needed to control for this. In other words, a strong economy could be the driver of both higher LV airfares and higher regional revenues rather than the original thesis. Even when including the economic proxy variable, airfares remain a statistically significant explanation of movements in regional gaming revs.

As can be seen below, the Airfare t Stat remains significant (greater than 2) even after the economic variable is introduced in the multiple regression. R Square is .3 so LV airfare (variable 1) and the economy (variable 2) together explain 30% of the variance in regional gaming revenues.

Maybe there is hope for the regional gaming stocks after all. They could use the help. The precipitous fall in these stocks has driven Free Cash Flow Yields to almost 20%.