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Fitch Ratings States that California Casinos Will Continue to Suffer Because of Weak Economy

Fitch Ratings said on August 27th, 2009 that with the Southern California housing industry still struggling the unemployment rate still rising, local Indian casino facilities will go at least through another year of dropping revenue before things change. But some of the area's biggest gaming players are well-positioned to weather the problem because they have established gaming operations and cash in the bank.

Analysts said that after things recover in the sector, they expect to see some modest gaming expansion but nothing like the gaming boom that made a $7.4 billion casino industry over the past decade. The Viejas and Pauma tribes, both in San Diego County, would go forward with their expansion plans once the economy improve but they may not be as big as they previously planned.

Representatives for both Indian tribes said that their hotel-resort projects are on hold but they plan to go forward with it as they planned. Joely Proudfit, who manages media calls for the Pauma Band said that they are still trying to secure enough funding and confirmed that their plans are moving more slowly than they would have originally like. A Viejas spokesperson, Bob Scheid, insisted that the tribe's expansion plan is still in place.

Scheid said that when they have enough money and player demand is there, they will execute their plans. Michael Paladino, a Fitch analyst, said that like other businesses, Indian tribes are having a tough time securing credit for gaming expansion. Paladino said that when the credit market stabilizes, Indian tribes will face problems that other industries would not.

Tribes cannot sell stock in their gaming operations nor can they mortgage their facilities, which are constructed on land held in trust by the federal government. Recent developments would also not help. Four Indian tribes-not in the state of California-have stated that they will have trouble fulfilling their casino-related debts.

The Mashantucket Pequot Tribal Nation in Connecticut was reported to be in danger of not fulfilling their debts and trying to restructure a $3.2 billion debt. The tribe manages and operates the Foxwoods Resort Casino, the biggest casino in the US. Another Fitch analyst, Megan Neuburger, said that she did not think the situation would influence a deal between the Connecticut Indian tribe and North County's Pauma tribe. Paladino said that the industry's problems came as a big surprise to some who considered the gaming industry as recession-proof.

Paladino stated that two broad trends have made casino facilities more susceptible to changing economic trends. 1st, gaming has improve exponentially as it has gained acceptance over the past twenty years so it has a wider reach. During the recession in early 1990's, most casino gaming was concentrated in Las Vegas and New Jersey, with gross earnings between $8 billion and $9 billion.

Today, with Indian and commercial casino facilities in thirty-seven states, the industry earns about $26 billion and the state of California is second only to Las Vegas in the total amount its casino facilities take in. 2nd, casino gaming operations have diversified into non-gaming endeavors like entertainment, restaurants and hospitality, which further exposes them to changing economic trends. Paladino said that the casino gaming industry has been severely affected by the recession.

Casino operators in San Diego County reported that the same number of players are coming through their doors but they are playing less. That, aside from the money spent on advertisements intended to keep players coming in-has meant smaller profits. Generally, tribal casinos do not publicly report their financial status. Fitch said that it relied on talks with clients within the gaming industry to extrapolate from publicly available financial information.

09/03/2009 22:12 PM

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