Gambling Downturn Puts States on a Losing Streak
And the resulting budget gap may mean more taxes for all.
As consumers across the country readjust their spending habits to the new reality of less readily available credit and a weak job market, trips to Vegas, Atlantic City, and the local riverboat are getting the ax. The Wall Street Journal reported yesterday that, after dropping 2.2% in 2008 from the year before, state gambling revenue was weak again during the first 6 months of 2009.
Casino companies, too, are smarting, with Las Vegas Sands (LVS), MGM Grand (MGM), Wynn Resorts (WYNN), and Boyd Gaming (BYD) all off sharply from their 2007 highs. Most of the stocks, however, have had a banner year in 2009: Wynn Resorts is up over 300% since its March lows, while Las Vegas Sands has spiked almost 600% since the spring.
The downturn has been particularly acute in Nevada and Illinois, where the gambling trade slid at a faster clip than did the states' overall revenue. In Illinois, cash siphoned from casino profits tumbled a whopping 23.8% compared to last year, while the state's total revenue dropped 9.1%
The casino trade, however, isn't hurting everywhere: Maine, Pennsylvania, and Oklahoma all saw gambling revenue jump by more than 20% over last year's total. Still, all 3 of those states experienced drops in overall revenue.
The general decline of the gambling industry over the past 2 years has come at a time when states were hoping to tap into consumers' penchant for risk-taking to offset falling tax receipts and rising debt costs. Minyanville's Kevin Depew touched on this subject in Five Things: Secular Risk Aversion yesterday, which lays out how this shift away from risk-taking isn't just some passing fad, but a structural shift in consumer behavior.
This trend doesn't bode well for cash-strapped states, many of whom face steep budget shortfalls. Some lawmakers in California -- which just recently stemmed the bleeding from a disastrous bout with a wrecked budget -- are exploring other, more exotic sources for new income.
As our economy becomes ever more dependent on government-directed spending, Americans can expect more of one of life's few certainties: Taxes. Already, Nevada is planning to hike sales and payroll taxes this year to combat its cash shortfall.
This trend is likely to pick up steam as state and local treasuries strain under a growing burden of service obligations and legacy entitlements. After all, they're taking their cue from Washington -- what else can we expect?
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