Vegas hits a speedbump

The rule used to be that you should buy "sin stocks" to hedge an economic downturn--the last thing to go when you're having hard times is the alcohol budget.  (Though to be sure, I've noticed a decided shift away from mixed drinks towards PBR in the greater DC area).   The casino business, however, is not feeling so hot:

MGM reported net income of $113.1 million, or 40 cents a share, down from $360.2 million, or $1.22 a share. The latest results include $19 million in insurance recoveries from the January Monte Carlo fire, while prior-year results included a gain of $264 million on property sales.

Net revenue slipped 2% to $1.9 billion.

The mean estimates of analysts polled by Thomson Reuters were for earnings of 42 cents a share on $1.89 billion in revenue.

Casino revenue decreased 4%, largely due to a 7% drop in table-games volume at the company's Las Vegas Strip resorts, while slots revenue dipped 2%, including a 10% drop on the Strip.

Revenue from the company's hotel rooms fell 6%. Revenue per available room at Strip properties -- which include Bellagio, MGM Grand and Mandalay Bay -- declined 5% as the average daily room rate slipped 4% and the occupancy rate declined to 97% from 98%. Food and beverage revenue rose 2%.

The casino industry is facing what insiders and analysts call its biggest challenge in years. Rising gasoline prices, the housing crisis and other economic troubles are prompting consumers to gamble less and to spend less at the luxury boutiques and restaurants where casinos draw most of their profits.

The casino business makes most of its money on "avid gamblers", which is a euphemism for people who don't quite have control of their habit.  They tend to fall into two categories:  high rollers with high net worth, and ordinary folks who do extremely unwise things like go into massive debt in order to gamble.  With credit drying up, the latter group is probably having a hard time finding the money to gamble.  And as for the former group--well, the middle class suffer more during recessions, in terms of actual decline in personal utility.  But the rich actually take the larger financial hit, because their income is more dependent on business profits and capital gains, which varies strongly with recessions.


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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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