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May 24, 2015

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Report: Rising gas prices will bring weaker results to gaming industry

Higher fuel costs will likely take a toll on the U.S. gaming industry as Americans scale back on discretionary spending to fill their gas tanks, according to a new Moody’s Investors Services report.

The credit rating service said in a report released Thursday that the increase in gas prices could flatten all or a considerable portion of the favorable earnings the gaming industry has experienced in the recent months. Weaker companies could find the period especially challenging, Moody’s indicated in the report.

Moody’s noted that most gamblers in the United States drive to casinos, and as they continue to cut back on spending, they’ll likely take fewer trips or shorten their stay, and spend less while they’re there.

The report indicated the gaming markets that will be the most affected by the fuel price increases will be those where guests have to drive a significant distance to get to the destination, like Lake Charles in Louisiana, where Las Vegas-based companies Pinnacle and Boyd Gaming own casinos.

The company also said Strip casino operators such as Caesars Entertainment and MGM Resorts International, which depend on their Las Vegas resorts for a significant portion of their revenue, could face difficulties as well because a large number of their customers drive from Southern California, where gas prices are some of the highest in the nation.

Air traffic to Las Vegas could also be affected as the price of jet fuel rises.

Casino operators such as Wynn Resorts and Las Vegas Sands, who derive about 75 percent of their revenues from overseas markets, will fare better, Moody’s said.

But a few markets where customers only have to drive a short distance to get to a casino, like the Philadelphia metropolitan area, might dodge the effects of higher fuel costs. The effect will only be temporary because Moody’s said that over time, high energy prices will dissuade those gamblers, too.

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