Gaming companies likely to stay course despite potential recession

The U.S. stock market nosedived earlier this week amid worries about a recession — an event that could have a significant impact on Las Vegas.

“There used to be a concept that Las Vegas was recession-proof,” said Jeremy Aguero, principal analyst for Las Vegas-based Applied Analysis. “I don’t think that was ever the case, and I don’t think that’s the case now.”

On Wednesday, the Dow Jones Industrial Average plummeted 800 points, its worst day of trading this year.

That came after the yield on the benchmark 10-year Treasury note slipped briefly below 2-year Treasury yields, a possible early warning sign of a nearing recession. The shift indicates investors expect the U.S. economy will expand much slower in the coming months.

The movement has preceded at least the past five U.S. recessions, but as much as two years could pass before a recession hits.

Holding steady

All major gaming companies found themselves losing billions in stock valuation amid the drop. Wynn Resorts Ltd. closed Friday at $105.55 per share Friday after closing at $107.87 a week prior, and Boyd Gaming Corp. dropped from $24.41 to $23.01 in that same time span.

The stock market’s movements aren’t likely to warrant immediate action from companies, according to Union Gaming analyst John DeCree. He doesn’t expect to see casinos modify their investment plans anytime soon, especially if they already have projects underway.

But it could make them second-guess projects that haven’t started yet.

“The threat of a U.S. recession over the next 12 months could potentially convince companies to act more cautiously,” DeCree said. “We wouldn’t be surprised to see companies allocate additional capital to share repurchase or potentially debt pay down.”

John Restrepo, principal of Las Vegas-based RCG Economics, believes gaming companies will wait to see if the pattern continues before changing any expansion or investment plans.

It’s “too early to tell,” he said.

David Strow, spokesman for Boyd, said there have been “no impacts or changes to our current plans” from the market shifts. Representatives from MGM Resorts International, Red Rock Resorts and Las Vegas Sands Corp. declined to comment. A Caesars Entertainment Corp. representative referred the question to an Eldorado Resorts representative, who declined to comment. Wynn spokesman Michael Weaver did not return requests for comment.

Severity of downturn

When the recession does come and forces consumers to tighten their purse strings, Restrepo said, resort-casinos — and Las Vegas’ economy — probably will take a hit.

“Our economy remains largely dependent on discretionary spending tourists,” Restrepo said.

Aguero said the slowing of the global and U.S. economy are “legitimate economic concerns,” especially because Las Vegas remains one of the least-diversified economies in the U.S.

“We are going to have a recession in the future,” Aguero said. “How that that recession is going to be (is still unknown). … Some of them have been relatively narrow, while others have been relatively significant.”

DeCree expects the next economic downturn to be less severe than the 2008 recession.

Then, Las Vegas resort-casinos faced tightening credit markets, decreased demand from consumer discretionary spending and a rapid increase in supply on the Las Vegas Strip. DeCree said Las Vegas’ economy today is a different story.

“The supply growth today is much less than that leading up to the 2008 recession, so the magnitude of the impact on the Las Vegas casinos should be much less,” he said.

Many economists believe consumers can withstand the next downturn. Household debt as a percentage of income is much lower than before the Great Recession, and lower interest rates make it easier to pay off debts.

That’s likely to sustain U.S. growth, albeit at a slower pace.

“Consumers’ financial health has improved, and even in the case of an employment and income shock, they’re going to remain resilient enough to withstand the shock,” said Alexander Lin, U.S. economist at Bank of America Merrill Lynch.

The Review-Journal is owned by the family of Las Vegas Sands Corp. Chairman and CEO Sheldon Adelson.

Contact Bailey Schulz at bschulz@reviewjournal.com or 702-383-0233. Follow @bailey_schulz on Twitter. The Associated Press contributed to this report.