The US economy may no longer ben in recession but as Frank Fahrenkopf of the AGA tells Simon Liddle, it still has a long way to go

Last year, US gross gaming revenues fell 5.5 per cent to $30.74bn as the country continued to tackle the tail-end of an unforgiving 18-month recession. Economists at the National Bureau of Economic Research believe the recession technically ended in June 2009, making it the longest since WWII. 17 months or so into a somewhat painful ‘recovery’ and it’s difficult to identify any discernible improvement in the economy.

Statistically, the country’s economy has experienced growth, albeit at a very limited rate of 3.7 per cent in the first quarter of this year. The worrying news is that this rate of expansion fell to 1.7 per cent in the second quarter and the esteemed economist Nouriel Roubini, one of the few to predict the credit crisis, has forecast growth of just one per cent by the end of the year.

In real terms, millions are still out of work, household incomes are still being squeezed and, as a result, consumer spending remains down. It comes with some relief, then, to learn that despite all of these pressures, it is not as bleak a picture as might be imagined for the country’s commercial casinos.

"Overall, national gross gaming revenues have been relatively stable compared to 2009 figures, which is a positive sign," Frank Fahrenkopf, president and chief executive officer of the American Gaming Association, told InterGaming. "Other than in New Jersey, which is dealing with new competition and not just a difficult economic climate, revenue declines have been in single digits, and overall, national revenue numbers are down only a couple of percentage points for the year."

However, the fact remains that these are challenging times, even for the most established gaming companies.

"There’s no doubt the industry is continuing to be impacted by the economic conditions in the US," said Fahrenkopf. "People have fewer discretionary dollars to spend, and this drop in consumer spending is causing our revenues to decline. While visitation numbers have been strong, the people visiting casinos have been gambling less and spending less on non-gaming amenities like shows, restaurants and spas.

"In this climate, regional markets have performed better than the destination resorts because people can drive to them, play for a while and go home. They don’t have to spend the money required of a longer vacation."

Pennsylvania has been a particular "bright spot" this year, with new expansion and the introduction of table games boosting gaming revenues in the state. Although Las Vegas and Atlantic City steal the headlines - sometimes to the detriment of the rest of the industry - smaller, regional markets are bucking the trend.

"The racetrack casino sector will continue to be an area of growth, as it has been in the past few years," predicted Fahrenkopf. "Racetrack casinos are easier to develop for states that are introducing their first casinos because they are located at a previously existing gaming venue. It cuts down on potential zoning issues that can be barriers to development."

The racino sector experienced positive growth in 2009, with consumer spending rising five per cent to $6.4bn. This was largely driven by racetrack casinos in Pennsylvania and Indiana, with two in the latter recording their first full year of operations.

One notable new racino project in the pipeline is Malaysian operator Genting’s redevelopment of the Aqueduct Race Track in New York which was reported to have cost the company $380m. The new facility is expected to open with 1,600 gaming machines before a further 2,000 are installed six months down the line, potentially generating over $279m a year in revenue.

"New casino states are another area of growth," Fahrenkopf continued. "Maryland legalised casinos in 2008 and opened its first casino last month, with a second set to open in December. Voters in Ohio legalised four casinos last year and most of them are set to open sometime in 2012. Additionally, Pennsylvania looks like it will continue to grow with the addition of table games this summer and the September debut of the new Sugar House casino in Philadelphia."

The opening of new markets and the addition of new table games has provided a welcome boost to many of the country’s operators and suppliers, many of whom have seen their domestic turnover fall in recent years. There is a danger, however, that the casino industry is perceived by state treasuries to be a quick fix to their budget deficit problems. After all, taxing the big, bad casinos plays well with the voters. Although the Obama Administration has yet to take a stance on gaming (other than ill-advised references to ‘casino banking’), it’s clear that many state governments are keen to explore the expansion of gaming to boost their coffers.
It is on issues such as this, Fahrenkopf says, that the AGA must assert itself.

"The current administration has been neutral when it comes to gaming and we’re fine with that," he said. "One of the primary missions of the AGA is to protect and promote industry positions on various federal legislative and regulatory issues, so it is important for us to be able to work well with whoever is in control of Congress and the White House.

"In the current legislative climate, it is especially important for us to make sure that the industry is not used as a source of federal revenue, carved out of federal business benefits or subject to undue attacks."

With the US precariously treading the line between modest growth and another downturn, the next 12 months will be as critical for the economy as a whole as it will for the gaming industry. Fahrenkopf believes the issue of taxation could tip the balance either way.

"It depends on decisions made on tax policy at the federal level, with regard to the next few years. If taxes are raised, it will be a detriment but if the Bush tax cuts are continued temporarily, for the next two years, it will be positive for the economy.

"Gaming depends on consumer spending and when that comes back so will the gaming industry. The recession has forced the industry to make some hard decisions regarding development projects, financing and staffing, but it also has driven gaming companies to be more streamlined and innovative.

"As an industry, we have been re-emphasising our value proposition and are putting an excellent product out there, and consumers recognise that. They realise that, for the money, casino gaming is a great entertainment option. Visitation numbers bear out that people are coming to casinos, but spending less. Once they feel more confident financially, their spending will return, and our industry will recover as well."