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May 20, 2019

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Analyst predicts more tough times for gaming industry

While Moody's Investors Service says the outlook for the U.S. gaming industry has improved, an analyst is arguing that the industry still faces plenty of challenges including the troubled U.S. economy, threats of more layoffs by local governments and higher taxes facing Americans.

Deutsche Bank corporate debt analyst Andrew Zarnett on Thursday issued a report noting that the Federal Reserve this week cautioned that the economic recovery will be gradual because of factors including the weak housing market, constrained consumer spending and economic turmoil in Europe.

Zarnett noted that Deutsche Bank's chief U.S. economist this week reported the "U.S. economy appears to have worsened substantially in recent quarters, due to recent developments in Europe and increased stress in financial markets."

"These reports reaffirm our view that the recovery in the gaming industry may take longer than expected by some investors," Zarnett wrote.

"We may have passed through the darkest point in the tunnel, but it would be a mistake to assume that tough times are behind us. We continue to be concerned about a possible pull back in consumer discretionary spending in 2011 as high taxes, rising unemployment and increasing state debt continue to exert pressure on the overall U.S. economy and consumer spending," Zarnett wrote.

The analyst said that as states deal with massive budget shortfalls, they're likely to lay off more employees -- a negative for gaming as that would reduce consumer spending.

Another negative: Less spending because many consumers will have to pay more in federal taxes.

"Beginning Jan. 1, 2011, higher-income Americans will see their federal taxes rise from 35 percent to 39.6 percent. That will be followed by more tax hikes (including higher taxes on capital income). The new health care plan looks likely to impose greater taxes and costs on Americans," Zarnett wrote.

Moody's on Tuesday lifted its outlook for the U.S. gaming industry to stable from negative, but warned it may be "challenging for U.S. gaming sector conditions to materially improve from their very weak levels, and for many U.S. gaming companies to reduce their significant debt burdens."

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