Moody’s: Fiscal cliff threatens gambling industry
December 18, 2012
LAS VEGAS – The gambling industry will be among the hardest hit if the White House and Congress fail to avoid the so-called fiscal cliff, one of the top U.S. credit rating agencies said Monday.
Moody’s Investors Service said the gambling, automobile, newspaper and lodging industries would suffer disproportionately if budget negotiations stall.
The across-the-board spending cuts and tax increases scheduled to begin Jan. 1 could undercut U.S. economic growth and cause the economy to contract, the report said. This in turn would undermine consumer confidence and limit disposable income.
Casinos could see profits decline by as much as 10 percent as more gamblers stayed home.
“The sector’s economic health depends entirely on customers’ discretionary spending habits,” the report said.
Las Vegas would be especially vulnerable in the event of a downturn because destination gambling is difficult to do on the cheap, said David Schwartz, director of the Center for Gaming Research at the University of Nevada at Las Vegas.
“For some markets like Las Vegas, there’s a much higher barrier to entry,” he said. “You can see how someone would scale back from buying six movies to five, whereas you either go or you don’t go when it’s something like Vegas.”
Moody’s said some sectors would be able to weather a downturn by lowering costs. The airline industry, for instance, could reduce its fleet.
But the gambling industry has a hard time downsizing, Schwartz said.
“Being heavily regulated, there are things that they can and can’t do,” he said. “In many markets, they have state mandated staffing levels that they have to meet.”
Many gambling companies are also heavily leveraged and must meet debt obligations, he said.
Moody’s said the tobacco, cable television, packaged food, technology and beverage industries had the least to fear from the hazards of the fiscal cliff.