It was once believed that Casinos actually performed better in recessions than they did in properous times. The theory is that people down on their luck will roll the dice with their last buck to try and make the mortgage payment. Lotteries tend to increase sales during hard times for the same reason. Not this time around. Gamblers are hanging onto their hard earned dollars, cheating casinos out of much needed revenues and forcing some to consider layoffs and worse.
The Sands Casino in Las Vegas is in danger of violating terms of their loan covenants. If this happens and they can’t work out terms with the lender, their loan could be called in and the Sands will have to come up with cash to pay off all their loans. This could be a difficult proposition since they have multi-billion dollar projects in progress all over the world.
This is the same fate that has fallen on Bear Sterns, Lehman Brothers, WaMu, AIG, Freddie Mac, Fannie Mae and many smaller firms.
Most Las Vegas casinos rely heavily on transient traffic, meaning they need people to fly in from other parts of the country and world consistently day in and day out to support the huge infrastructures they have built. There is just not enough local traffic to support these giants. People are not travelling as much as unemployment rate continues to climb and are cutting back on expenditures. To make matters worse airlines are increasing their rates to compensate for higher energy costs and lost revenues.
Casinos rely heavily on volume since occasionally they have winners and they operate on small margins. I know this doesn’t seem possible, since every time most people go into a casino they come out with nothing. It seems like casinos hold 100% of every dollar that is dropped down the box, but in reality their hold percentages average around 14%. That means for every dollar that a player exchanges for chips the casino will keep 14 cents. That percentage is higher for slot machines, but still less than most people would think. So to make as much money as they do, a lot of volume (dollars) goes across the tables in exchange for chips.
Thanks to the economic slowdown, reduced travel rates and job losses the casinos are not getting the volume they need.