Business Challenges of the Casino Inudstry

Business Challenges

CRITICAL ISSUES

Demand Linked to Economic Cycles - Gambling revenue is affected by the health of the

economy, including the growth of personal income. During the recession of the late

2000s, casinos were hurt by the decrease in consumer spending and the tightening of

credit markets. The latter affected the ability of companies to make capital

improvements or expand operations. Las Vegas was particularly affected; the number

of layoffs and home and business foreclosures in Nevada was among the highest in the

US.

Dependence on Regulators - In states where gambling is legal, state commissions

oversee gaming companies and have broad powers over their activities. State

legislatures can easily raise tax rates on gambling machines. Continued industry

growth depends on favorable legislation.

OTHER BUSINESS CHALLENGES

Capital-Intensive - Companies have large capital investments in facilities and

gaming equipment and usually a large amount of debt. Gambling companies routinely

spend more than 10 percent of annual revenue on capital investments. To grow,

companies typically need to raise substantial funds. Many companies have a high

debt-to-equity ratio and are exposed to interest rate risk.

Competition from Internet Gambling - Although illegal except for horse racing,

Internet gambling involving offshore companies has grown rapidly in recent years.

Since US government objections to Internet gambling revolve mainly around the

difficulty of levying taxes, a mechanism to produce such taxes could provide a large

amount of new competition.

Bad Publicity from Compulsive Gambling - Gambling operators make most of their

profits from regular gamblers, and much of their marketing is geared toward

encouraging people to gamble more. To counter perceptions that they prey on

compulsive gamblers, operators (including state lotteries) have more proactively

addressed problem gambling, portraying compulsive gambling as a medical issue and...