Although tough economic times have not slowed the explosive growth in online gaming and land-based casino revenue, there could be dark days ahead as inflation, coupled with several other economic indicators, could put the brakes on the gambling craze sweeping the United States.
Are These the Good Old Days?
Online gaming revenue has seen billions upon billions of dollars wagered while online betting sites reap hundreds of millions and kick back tens of millions to the states in which they operate. Meanwhile, casinos have been sprouting up across the nation with the most significant being 3 downstate licenses in New York up for grabs with one of those possibly being built in Manhattan.
However, dubious economic winds are blowing that could manifest into a tempest next year, sending a chill across the entire gaming industry. The global pandemic spurred much of this demand while many states adopting online and retail gaming have allowed access to markets that were, heretofore, completely untapped.
Moody’s Investors Service, aka Moody’s, stated, “While conditions are still good for US gaming, the slowing pace of revenue growth may be an early sign that consumer demand for casino gaming will be tougher in months ahead. As consumers spend more on basic needs as inflation trends higher, we expect gaming revenue growth to lose further momentum. The longer current economic challenges persist, the tougher it will be for US gaming issuers to sustain their solid earnings performance.”
The Cost of Money
Inflation and higher interest rates could spell a lull in the gaming industry, as these entities will eventually come looking for money to refinance when expanding into new markets or covering the costs of incurred debt.
“Eventually, US gaming companies will have to refinance in what will likely be a more onerous interest rate environment. While there’s not much debt maturating in the next three years, there are three US gaming issuers with heavily funded debt amortization requirements through December 2025,” added Moody’s.
The demand could also decrease, as gamblers will be focused more on essential needs and have less discretionary income to bet online or take a trip to the casino. This would also have deleterious effects on the tourism industry, which means gambling destinations like Las Vegas and Atlantic City could also be adversely impacted.
“As the economy continues to weaken, pressures will grow on EBITDA performance and rising interest rates pressures will cannibalize free cash flow as debt costs rise,” concluded Moody’s. “Similarly, if operating conditions continue to deteriorate, capital expenditures could be further directed toward maintenance levels to preserve cash resources. We expect to see US gaming issuers turn increasingly to financial engineering-type transactions, which we typically categorize as a distressed exchange (DE), or default.”
But the gambling industry has thus far weathered the storm admirably and the hope is that the recession, or however the politicians choose to spin it, may not be as severe as anticipated. That would mean customers will continue to allocate their money to an old pastime that has experienced phenomenal growth since the pandemic put the general public in lockdown for several months.
*Bookmakers Review will continue to monitor this story and provide updates to our readers as events unfold.
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