Oct. 31 — During his 2008 presidential campaign, John McCain blamed the collapse of the United States financial system on people who "treated Wall Street like a casino." But as the economy crumbles, Americans are increasingly wary of taking their money to actual casinos.
In its 10q filing for the quarter ending June 30, 2008, the Mohegan Tribal Gaming Authority, which owns and operates the Mohegan Sun casino in Connecticut, reported a net income of just $5 million dollars, down 89 percent from the same quarter in 2007.
Like most industries in the country, gaming has taken a hit in 2008. The downturn in the casino industry's profits reflected the state of the country's economy, with revenue falling off sharply over the summer.
Fortunately for casino owners, the vast majority of income comes from table card games and slot machines. The nature of the games guarantees that, by themselves, they turn a profit. But the main issues for gaming companies’ bottom lines are overexpansion and investing borrowed money into projects that will not produce the expected returns. And like most industries, the fallout in gaming will be lower share prices for publicly traded companies and serious job losses in regions where casinos are major employers.
Patrick Cartier is a salesman at the Swarovski Crystal outlet at Mohegan Sun casino in Uncasville, Conn. He has worked there for about 18 months. On a daily basis, he sees how business had dropped off since he first started the job.
"Summer was horrible," he said, looking as if it was a period he would just as soon forget. "Last year, people would gamble and spend a little extra money."
"I don't think there's any (retail) store in the casino that's meeting last year's plan."
Cartier is a resident of nearby Moosup, Conn. and said that both Mohegan Sun, and nearby Foxwoods Resort Casino are important employers for the area. Foxwoods announced earlier this month that it planned to lay off 700 employees, or 6 percent of its workforce.
Foxwoods completed the construction of the MGM Grand expansion in May. The project cost $700 million, according to various media reports, and a lack of return on the investment forced the casino to cut staff.
Layoffs at Mohegan Sun are not as extensive as those at Foxwoods, according at to Cartier. "Mohegan Sun is doing everything they can to avoid it," he said. Cartier is employed by Swarovski, not Mohegan Sun. But considering the store's location, its success is very much tied to that of the casino.
Stopping construction on Project Horizon, which was to include a new 919-room hotel, was crucial for the casino's profit margin and ability to retain workers, according to both Cartier and Mohegan Sun CEO Mitchell Etess.
"As we were looking at decreases in revenue, we realized the hotel would not give us the right return," Etess said.
Investment returns in the entire gaming industry have not been strong. Publicly traded MGM Mirage was being traded at $96.40 a share on Oct. 12, 2007, but closed at $14.41 a share on Tuesday. New York City Off Track Betting projects a 10 percent decrease in profits for the current fiscal year, according to a report in the New York Post earlier this month.
"What we're trying to do is be more efficient here," said Etess. "You have to make sure you're staffing to your business levels."
Atlantic City is still looking to invest in the gaming industry to boost its local economy. The city announced earlier this month that it had opened the 145-acre Bader Field property, which was the city's first airport and one of the oldest airports in the country, to bidding from developers. The property is less than one mile from the Boardwalk. Bader Field closed to airplanes for good on Sept. 30, 2006.
It is "the boldest move in the history of gaming," according to Dr. Carol Fredericks, the city's business administrator. Despite Fredericks' claim that Atlantic City is trying to "reinvent" itself as both a gaming and non-gaming destination, she said the property is big enough to hold three casinos. She also claimed it has over $1 billion dollars in assessed value.
The proceeds from the property sale will go to establish the "first-ever taxpayer trust fund," Fredericks said. The fund will help pay off the city's debt and "go to pay Atlantic City residents’ taxes."
But given the current state of the industry, it is unlikely that gaming companies will be desperately bidding on this piece of property.
"I don't think any companies would be significantly interested in Atlantic City," said Bill Eadington, Director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno.
The decrease in profits for gaming companies is part of the "general malaise of the economy," said Eadington, who has advised both government and private organizations on gaming. He believes the future of the industry is out of its own hands, and subject to the state of the country’s economy as a whole, or what he calls "macro-economic forces out of our control."
What makes gaming unique, according to Eadington, is that the average consumer has a "life cycle" of approximately five years. After about five years of concentrated gambling, most consumers either quit altogether or cut back significantly. But as the current group of gamblers begins to burn out, there are fewer people with disposable income to take their place in the present economy.
"Under normal times, regular marketing efforts would address this issue," said Eadington. "These may just be very unusual times, or markets may be reaching a new kind of saturation."
In areas like Southeastern Connecticut, Las Vegas and Atlantic City, where casinos are among the biggest employers, more layoffs seem inevitable.
"I think they will lose a significant number of jobs over the next 12 [to] 24 months," Eadington said.