Editor’s note: PricewaterhouseCoopers’ Global Entertainment and Media Outlook is updated annually and has included the Casino and Other Regulated Gaming chapter for four years. This year marks the second submission of its global forecast for Casino Enterprise Management. For more information or to order a copy of the Outlook, visit www.pwc.com/outlook.
The casino gaming industry will become a $156 billion industry by 2012, with consumer spending expected to outpace nearly every other entertainment and media segment, according to PricewaterhouseCoopers’ (PwC) Global Entertainment and Media Outlook: 2008-2012.
Casino and other regulated gaming are included as one of the 15 entertainment and media segments in PwC’s new edition of the Outlook. Overall, the entertainment and media (E&M) industry experienced healthy growth last year, with all but two segments expanding in 2007. The exceptions were recorded music, which fell 4.1 percent, and newspaper publishing, which had a relatively flat year. Total global spending grew 6.4 percent, with a 16.7 percent increase in Internet access spending driving much of this growth. According to the Outlook, virtually every sector of the global E&M industry will continue to expand over the next five years, with growth primarily driven by the rising value of online and mobile opportunities. Double-digit growth is expected for Internet advertising and Internet access, and significant is growth predicted for video games, television subscriptions and license fees, television advertising, theme parks, casino gaming, and sports. Sectors facing the most significant challenges are publishing and music distribution, where technology—in the form of digital distribution—is becoming the dominant and preferred vehicle for sales.
In the area of gaming, data from the Outlook shows that global end-user spending on casino and other regulated gaming is expected to be $119 billion in 2008, representing the highest consumer spending among all E&M segments, with the exception of television subscriptions and license fees. This trend is expected to continue through 2012.
Spending in the global gaming market is estimated to grow at a 6.5 percent compound annual rate from $113.9 billion in 2007 to $155.7 billion in 2012. Asia-Pacific is predicted to experience the most growth, expanding at a rate of 15.2 percent through 2012, from $18.3 billion in 2007 to $37.2 billion in 2012. New casinos in the billion-plus development range and enhancements to existing facilities will be the principle drivers in global growth.
The United States is expected to make the greatest contribution to total gaming revenues during the next five years, with an expected $73.3 billion in revenues stemming from U.S. casinos and gaming outlets. Other regions contributing to global gaming spending include Europe, the Middle East and Africa (EMEA), with $38.5 billion, or 24.7 percent, of total global gaming spending; Asia-Pacific is expected to bring in $37.2 billion, or 23.9 percent; Canada is predicted to contribute $6.2 billion, or 4.0 percent; and Latin America is expected to reach $514 million, or 0.3 percent, of global gaming revenues.
The United States
Skyrocketing oil prices are also impacting the gaming industry. In April, the oil cartel OPEC warned that crude oil will reach $200 per barrel. After mid-July’s record highs, oil prices dropped to about $115 a barrel in late August, with an average gas price in the United States of $3.68 per gallon. However, consumer demand for gasoline continues to be lower than this time last year, and it will likely take another 35 to 45 cent drop per gallon to spark an increase in consumer consumption and travel expenditures, both critical factors for the casino gaming industry. The year-over-year increases in crude oil prices, higher fuel expenses and the continued housing slump are predicted to lead to near-term declines in overall casino gaming revenues in Nevada and Atlantic City.
During the forecast period of 2007 to 2012, U.S. casino gaming revenues are expected to grow at a 4.0 percent compound annual growth rate, from $60.3 billion in 2007 to $73.3 billion in 2012. This growth represents an increase in gaming revenues of $13.0 billion.
Nevada
Nevada, the largest single casino gaming state in the United States, is projected to generate $12.4 billion in casino gaming revenue in 2008. That represents a decline of $414 million, or 3.2 percent, from 2007. By 2012, Nevada revenues should reach $14.8 billion.
In 2007, Nevada contributed 21.3 percent to total U.S. gaming revenues. Revenues are expected to decline to a 20.2 percent contribution rate in 2012 as tribal and regional casino revenues continue in positive year-over-year growth throughout the observation period.
Principle drivers:
• Economic conditions will continue to be the principle driver for the Nevada market. Higher fuel costs will raise airline ticket prices, translating into fewer U.S. travelers. The declining value of the U.S. dollar will encourage overseas visitors, but not enough to offset the lower contribution rate from the core U.S. visitor.
• Openings of property additions in early (Palazzo) and late 2008 (Encore), along with new casino/resort openings in 2009, will help stave off sharp revenue declines. However, resort developments remain fluid, as evidenced by this Boyd Gaming announcement on Aug. 1, 2008: Echelon, originally scheduled to open on the Las Vegas Strip in 2010 will now be delayed due to “…the difficult environment surrounding today’s capital markets and the challenging economic conditions that currently exist. [Boyd] expect[s] to resume construction when credit market conditions and the overall outlook for the economy improve.”
• With the openings in 2008 and 2009, as well as the rebound of the general U.S. economy, which is expected in late 2010, higher casino revenues overall are anticipated.
Major future changes in supply ($1 billion-plus projects):
• Encore at Wynn opening (2008)
• M Resort opening (2009)
• Caesars Palace expansion (2009)
• Planet Hollywood expansion (2009)
• Fontainebleau Las Vegas opening (2009)
• CityCenter opening (late 2009)
Atlantic City
Atlantic City is the second-largest commercial casino gaming market in the United States. The city’s casino gaming sector generated an estimated $4.9 billion in 2007 and is expected to decrease to $4.5 billion in 2008. Atlantic City’s gaming revenues are expected to continue decreasing through 2012 at a compound annual growth rate of -0.7 percent, specifically due to expected declines in 2008 and 2009. In 2007, Atlantic City contributed 8.2 percent to total U.S. gaming revenues and is expected to decline to 6.5 percent of total U.S. revenues in 2012.
Principle drivers/constraints:
• Atlantic City’s challenges include the weak economy as well as the introduction of racinos and slot parlors in nearby states.
• The fuel crunch may mean nearby patrons are likely to continue visiting Atlantic City, but those further away will be more inclined to reduce the frequency of their of trips, leading to overall declines in casino revenues.
• Difficulties and high costs in the credit market are causing some casinos to delay construction of capital projects, which hurts the development momentum that Atlantic City was hoping would rally the local casino gaming scene.
Major future changes in supply:
• Revel Entertainment Group’s $2 billion project next to Showboat (2010)
• MGM Grand Atlantic City, a $5 billion project proposed next to Borgata (2012)
• In addition to these projects, Pinnacle Entertainment has announced plans to develop a multi-billion dollar resort on the site of the imploded Sands, but estimated start and opening dates are not yet available.
Tribal Casinos
Revenues in tribal casinos amounted to $26.5 billion in 2007 and are expected to increase by 1.9 percent in 2008 to $27.0 billion. Through 2012, tribal gaming revenues are expected to grow at a compound annual growth rate of 4.5 percent, bringing revenues of $33 billion by 2012. Tribal casinos contributed 44.0 percent of total U.S. gaming revenues in 2007 and are expected to increase to 45.0 percent in 2012, outpacing the percentage growth in all other U.S. segments.
Principle drivers/constraints:
• In several jurisdictions, tribal casinos have been permitted to expand, although scrutiny from the National Indian Gaming Commission and the federal government continues.
• In 2007, five California tribes were granted revised compacts. In 2008, five more tribes received approval to expand their current slot inventory—from 2,000 slots to 7,500 slots for the Morongo, Pechanga and San Manuel; and from 2,000 slots to 5,000 slots for Agua Caliente and Sycuan.
Regional Casinos
Regional casinos, including all gaming except tribal, Nevada and Atlantic City casinos, generated $15.9 billion in casino gaming revenue in 2007, and are expected to increase to $16.3 billion in 2008, an increase of 2.5 percent. By 2012, regional casino revenues are projected to be $20.6 billion, representing a compound annual growth rate of 5.3 percent from 2008 to 2012—the strongest compound annual growth rate among the U.S. segment. These casinos will contribute 27.0 percent to total U.S. gaming revenues in 2008, increasing to 28.1 percent in 2012.
Principle drivers/constraints:
• New licenses have been issued and racino facilities have been expanded in Pennsylvania.
• Florida has approved slots at racetracks and Jai Alai frontons.
• New casino gaming is expected in Massachusetts, Kentucky and Maryland.
• New projects in St. Louis and Kansas are expected to boost competitive development considerations.
Europe, the Middle East, and Africa
In EMEA, 2008 casino gaming revenues are expected to be $22.8 billion, excluding online and mobile gaming and sports betting. Online and mobile gaming revenues will be 4.3 percent lower than 2007, while sports betting will increase by 5.3 percent. By 2012, total gaming revenues are expected to reach $38.5 billion with a five-year CAGR of 4.9 percent. Mobile and online gaming is expected to report the highest CAGR during the observation period at 10.9 percent, even considering the 2008/07 decline. This segment will contribute 16.2 percent of EMEA total gaming revenues by 2012.
Casino gaming forecast:
• Western Europe casino-only revenues are forecast to rise to $18.9 billion by 2012. Total gaming revenues will reach $30.5 billion in 2012, including sports and online betting
• Casino-only revenues from Central and Eastern Europe were $6.3 billion in 2007. They will decline to $4.6 billion in 2012 due to forced casino closures by the Russian government.
• Middle East/Africa casino-only revenues will be $2.9 billion by 2012, growing at 11.7 percent, with total gaming revenues of $3.3 billion.
Principle drivers/constraints:
• Casinos in EMEA are generally small; only a few have hotel or convention facilities. Many are still private clubs or are restricted to spas and resorts. However, the introduction of a casino resort in Spain is expected to spur competitive growth during the next five years.
• In the United Kingdom, the lack of the super casino (permitted under the 2005 Gambling Act) will delay explosive growth, as will the reduction of the minimum slot bet, which was cut in half.
• Five new casinos in South Africa will bolster revenues in that region.
• Germany had two new casinos open in 2006/2007 and continued visitation to those properties will contribute to revenue increases.
Asia-Pacific
Asia-Pacific casino gaming revenues, excluding online and mobile gaming and sports betting, were estimated at $16.5 billion in 2007, growing to $34.4 billion by 2012. Total Asia-Pacific gaming revenues are estimated to be $18.3 billion in 2007, growing at a 15.2 percent compound annual growth rate to $37.2 billion by 2012.
Casino gaming forecast:
• Macau casino-only revenues were $10.3 billion in 2007, growing to $24.4 billion by 2012 with a compound annual growth rate of 18.7 percent.
• Australia, the second-highest revenue generator in the area, generated $2.5 billion in casino-only revenue in 2007, increasing to $3.3 billion in 2012.
• South Korea, the next highest revenue generator, reported $1.9 billion in casino-only revenue for 2007, increasing to $2.9 billion by 2012.
• The Philippines took the fourth casino-only revenue position in 2012 with $1.3 billion, a compound annual growth rate of 17.9 percent.
Principle drivers/constraints:
• Three new Macau resorts opened in 2007: Crown Macau in May, Venetian Macau in August, and MGM Grand Macau in December. Galaxy Mega Resort is scheduled to be fully open in 2009, as well as is Macau Studio City.
• Japan is expected to legalize casino gaming and open resorts in 2010.
• In the Philippines, a major project titled Pagcor City is expected to be a casino-resort with a theme park and residential condominiums. Future phases will add hospitals, a wellness center and a retirement community.
• Resort casinos in Singapore are expected beginning in 2011. Revenues will total an estimated $796 million in 2012. Once the market becomes fully established, the revenue potential in Singapore will approach $5 billion.
Latin America
In 2007, total gaming revenues reached $297 million and are expected to grow at 11.6 percent to $514 million in 2012. There are four locations in Latin America where gaming is conducted: Argentina, Chile, Mexico and Venezuela.
Casino gaming forecast:
• New casinos on the Mexican border are expected to boost gaming revenues there.
• Argentina reported casino revenues of $205 million in 2007, growing to $259 million in 2012.
• Chile had casino gaming revenues of $86 million in 2007 and should expect to reach $134 million by 2012.
• Mexico generated $5 million in casino revenue in 2007, and will grow to $119 million in 2012.
• Venezuela’s revenues for 2007 were $1 million, which is also forecast for 2008 and 2009. Revenues will stabilize at $2 million and will continue each year from 2010 to 2012.
Canada
Total gaming revenues from 2007 were $4.6 billion, growing at 6.0 percent to $6.2 billion in 2012. Casino gaming revenues alone are expected to reach $5 billion by 2012.
Principle drivers/constraints:
• A renovated Caesars Windsor (Casino Windsor) opened in 2008.
• Expanded poker offerings in Edmonton, including 24-hour poker and multi-table poker tournaments, are positively impacting the market.
• Higher fuel costs and the decline of the dollar are expected to slow visits from the United States.
Online and Mobile Gaming
In 2007, worldwide online and mobile gaming revenues reached $5.3 billion and are expected to grow to $8.7 billion by 2012.
Principle drivers/constraints:
• New licensed services will boost online gaming, while sports wagering in EMEA and mobile devices that process wagers will enhance the online and mobile market in Asia-Pacific.
Outlook Observations
There is no question that the ever-expanding entertainment and media industry continues to provide opportunities for entrepreneurial innovation as well as collaboration across the entertainment, media and communications value chains. Technological advances, newly released digital media venues and the continued convergence of industries indicate that E&M trends will become less industry-segment specific and more visible across many, if not all, E&M segments. Some of these global E&M trends are expected to include:
• Rising disposable incomes and a growing global and urbanized middle class will lead to higher spending on entertainment and media.
• Connectivity with the global community and interactive entertainment will become increasingly important to tech-savvy generations.
• Traditional entertainment and media revenue streams will continue to be supported by baby boomers and older generations who prefer more established and familiar E&M options.
• Broadband will continue to proliferate and connect consumers worldwide, driven by Web video and social networking opportunities.
• Spending on mobile access will continue to grow rapidly due to consumers using mobile products to access the Internet.
We expect that these global E&M trends will be evident in the gaming industry as well, specifically with respect to the continued integration of technology in the delivery of the casino gaming experience. While the traditional gaming and entertainment experience will certainly be preserved, particularly by those in the 50-and-above age bracket, we do expect that future increased availability and accessibility of remote, on-site gaming devices will begin to define a new perception of the overall gaming experience.
Reference: PricewaterhouseCoopers’ Global Entertainment and Media Outlook: 2008-2012.
Mary Lynn Palenik is the Director of Development, Research and Analysis for the Las Vegas-based National Gaming Practice of PricewaterhouseCoopers LLP. She has provided research for the industry since 1991, serves on several industry boards, and holds undergraduate and graduate degrees.
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