Big trouble for small casinos, industry head says

Tuesday, November 18, 2008 | 8:31 p.m. CST

LAS VEGAS — Casino companies are all grappling with the rough economy, but smaller operators might be less likely to survive, the American Gaming Association's leader said Tuesday at a conference.

Frank Fahrenkopf Jr., president and chief executive of the industry group, told reporters size also matters for companies that support casinos, such as slot manufacturers and other suppliers.

"The big guys have more ability to go out in the marketplace and raise some (capital). Some of the smaller companies do not," Fahrenkopf said.

Revenue was down nationwide in the third quarter by 4.6 percent compared with the same period a year earlier as U.S. casinos took in $8.4 billion, Fahrenkopf said.

Fahrenkopf said companies are seeing two major, "unprecedented" problems: banks unwilling to lend money at favorable interest rates to build projects, and consumers spending less on gambling and entertainment at casinos.

Individual markets also face specific challenges, such as hurricanes in Mississippi and Louisiana and smoking bans in Illinois, Colorado and elsewhere.

In Las Vegas, which accounts for more than three-fourths of the nation's gambling revenue, operators have had to slash hotel room rates just to keep people coming through the doors. And they're finding visitors less willing to splurge on expensive meals, shows or spa visits at the same time that they're gambling less.

As traffic slows, casinos are making tough decisions.

"All of our companies, if you talk to their CEOs, they will tell you, they are tightening their belts," Fahrenkopf said.

Fahrenkopf spoke at the Las Vegas Convention Center before the start of the Global Gaming Expo, the largest trade show of the year for the North American casino industry.

Organizers expected 25,000 to 30,000 people to attend the show over three days, with about 750 exhibitors using a total of 345,000 square feet to peddle everything from automatic card shufflers to tax services.

"Our industry is not just the operators, but the people who are renting space on this floor here," Fahrenkopf said. "Clearly if our operators are in trouble, are they going to be buying new slot machines, equipment and so forth? This is an industrywide problem."

Some slot manufacturers are finding that some casinos are leasing instead of buying machines as a hedge against the risk that games will fizzle on the floor.

"Operators were looking to how do I keep my floor fresh, how do I do it without spending dollars," said Chris Strano, vice president of sales and marketing for Pleasantville, N.J.-based AC Coin & Slot. He said AC Coin saw interest in leasing rise starting in the summer.

Casinos pay distributors like AC Coin & Slot for leased games through daily fees or revenue sharing, depending on the game. When casinos buy a slot machine, they keep all its revenue.

But Dan Savage, vice president of marketing for slot maker Bally Technologies, said casinos don't like to share the revenue from a hit game.

Savage said the choice between buying and leasing depends on how much a casino can afford to spend and how it operates.

"It's really a double-edged sword," he said. "They're guessing."

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