MGM reported net income of $113.1 million, or 40 cents a share, down from $360.2 million, or $1.22 a share. The latest results include $19 million in insurance recoveries from the January Monte Carlo fire, while prior-year results included a gain of $264 million on property sales.
Net revenue slipped 2% to $1.9 billion.
The mean estimates of analysts polled by Thomson Reuters were for earnings of 42 cents a share on $1.89 billion in revenue.
Casino revenue decreased 4%, largely due to a 7% drop in table-games volume at the company's Las Vegas Strip resorts, while slots revenue dipped 2%, including a 10% drop on the Strip.
Revenue from the company's hotel rooms fell 6%. Revenue per available room at Strip properties -- which include Bellagio, MGM Grand and Mandalay Bay -- declined 5% as the average daily room rate slipped 4% and the occupancy rate declined to 97% from 98%. Food and beverage revenue rose 2%.
The casino industry is facing what insiders and analysts call its biggest challenge in years. Rising gasoline prices, the housing crisis and other economic troubles are prompting consumers to gamble less and to spend less at the luxury boutiques and restaurants where casinos draw most of their profits.
The casino business makes most of its money on "avid gamblers", which is a euphemism for people who don't quite have control of their habit. They tend to fall into two categories: high rollers with high net worth, and ordinary folks who do extremely unwise things like go into massive debt in order to gamble. With credit drying up, the latter group is probably having a hard time finding the money to gamble. And as for the former group--well, the middle class suffer more during recessions, in terms of actual decline in personal utility. But the rich actually take the larger financial hit, because their income is more dependent on business profits and capital gains, which varies strongly with recessions.
Online casinos: saving you gas money!
PBR me ASAP!!!
Just don't try to cheat an Alabama man out of his Natty Light.
Not well versed on the gaming sector, but I suspect that as Vegas has diversified from gambling into more of a destination resort, with high end suites, entertainment, restaurants, etc., it has lost the characteristics that made it recession resistant.
Not as many Midwesterners hopping on Southwest for a weekend in Sin City these days...
Las Vegas may be a huge tourist draw but local residents make up a non-insignificant percentage of casino patronage. The fact that the subprime mortgage fallout and the real estate decline has hit Las Vegas harder than almost any other major metropolitan area certainly isn't going to be good for this aspect of the casino business.
Is it possible that this is simply due to people traveling less, rather than gambling less?
I could go to Vegas, or I could go to the local indian casino and not have to pay idiotic fees on my checked luggage.
There might still be logic to the "sin stocks" theory. But, of course, there is now lots of research to show that addictions such as smoking are highly responsive to price - which suggests they should also be responsive to changes in disposable income.
Gambling, well there is a sure sign of economic hard times. Usually though it actually goes up as the lotter seems a better option.
Bergamot is right.
And, at least in this part of the country, those casinos are not MGM brands. They are Ameristar, Harrah's, ...
It's possible MGM is taking a bigger hit than those companies.
Bergamot is right.
And, at least in this part of the country, those casinos are not MGM brands. They are Ameristar, Harrah's, ...
It's possible MGM is taking a bigger hit than those companies.
And that's why I personally couldn't give a crap less about casino profits. They were a driving force behind the laws that made online poker much more difficult to do. Because of them, I now have to put my money through more hoops to get it to and from the few online poker-rooms which still allow US players which means more of my profits get eaten in bank fees. Due to their interference, I would have to make a job out of what I once did for recreation and slight gain (doing at the recreational level would generate no gain or slight loss due to the higher cost of doing business).
Yes, tangential to the point I want to make, I know, but god I just need to vent that.
"Is it possible that this is simply due to people traveling less, rather than gambling less?"
Yes, and I'm sure that has a role. Other non-Vegas forms of gambling are down as well. Most racetracks have taken in less "handle" (wagering dollars) than previous years despite higher on-track attendance. I'm sure gas prices have some effect at the margins even for that, but it's not a huge expense to drive to the track (most patrons are located nearby) or OTB for most people.
"Is it possible that this is simply due to people traveling less, rather than gambling less?"
Yes, and I'm sure that has a role. But other non-Vegas forms of gambling are down as well. Most racetracks have taken in less "handle" (wagering dollars) than previous years despite higher on-track attendance. I'm sure gas prices have some effect at the margins even for that, but it's not a huge expense to drive to the track (most patrons are located nearby) or OTB for most people.
The casino business makes most of its money on "avid gamblers", which is a euphemism for people who don't quite have control of their habit.
This is trivially true, in the sense that the more you spend (more precisely, the longer you spend), the more they earn. They use every incentive and technique to prolong your experience.
They tend to fall into two categories: high rollers with high net worth, and ordinary folks who do extremely unwise things like go into massive debt in order to gamble.
I don't think this is true. There are problem gamblers, but the big corps would have sell their stuff back to the mob if they were actually the core of the bottom line.
High rollers are important, but the competition is fierce. And important margin of the business is obtained by getting very scientific trying to find the 'optimum' gambler, who's generally well off, but not what one would consider a classic 'whale.'
Really the bulk of the revenues and the profits at practically any gaming business are the slots (and increasingly video poker): low barrier to entry (for both the player and the business), prolonged 'low cost' play, and automation that results in very high productivity due to the highest gamer to employee ratio.
The other thing unmentioned in the excerpt or post is that Wynn had a heck of a quarter and blew away the expectations. They key difference is that they are not (as) leveraged to the hilt as the other big names, who are experiencing the twin squeeze of a worldwide credit crunch and being at one of the epicenters of the real estate meltdown.
As you noted, gaming and room revenue numbers aren't down that much. Not enough to dictate the dive casino stocks are taking.
The stocks are down due to the deluge of "Vegas Is Dying" stories that have been in the press the past couple of months.
Bottom line is that tourism is stable and steady here. Last evening on a hot August evening, plenty of people out and around and the usual bumper-to-bumper traffic up and down the Las Vegas Strip.
Gaming revenue is down because the table game rules have become so poor (for the player) and slots so tight, people are spending their money on shows and celeb chef restaurants instead.
The old time casino owners knew that if you let people play long enough, they would give all their money back. Make sure they are having fun while they lose it. The new-style casino management's goal is to take it as fast as they can. And people have responded... by gambling less.
Ted Newkirk
Managing Editor
Access Vegas