The Evolution Of The Gaming Market

By Geoffrey Michael AAA

The type of gaming brought to you by the Las Vegas strip (not Nintendo) has a long and colorful history. While commonly referred to as gambling, gaming is the accepted term to describe the business. It's used for the same reason casinos use chips instead of cash. It's easier for you to part with chips because they don't look and feel like real money.
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There's a possibility that the United States never would have gotten off the ground if legalized gambling hadn't existed. The first settlement, in Jamestown, Virginia, was partially financed by lotteries. The 13 original colonies all instituted lotteries and it was considered a civic duty to participate in them to raise much-needed revenues. Without those lotteries, many churches and libraries would not have been built. The founding fathers, including Washington and Franklin, all supported various lotteries for projects that benefited the public good. (For related reading, see Going All-In: Comparing Investing And Gambling.)

Frontier Days
Frontier spirit and gaming were closely connected, as settlers started the Westward migration during the 1800s. The era was characterized by opportunism, adventure, risk taking and high expectations. Horse racing, cockfighting, public lotteries and small casinos all became part of the frontier culture that moved along with cowboys and fortune hunters. Saloons and taverns featured dice and card games that would later become staples in the lavish casinos of the future.

Because of its strategic location at the foot of the Mississippi River and prominence as a key southern port, New Orleans became the center of gaming for traders, farmers and merchants. The riverboats and steamships carried passengers and professional gamblers who had cash to spend and were looking for entertainment. There was opposition to gambling based on moral and religious views, and some states eventually banned lotteries.

Wild West
Mining booms and the railroads ushered in a new era of gaming, as gold and silver propelled the growth of the western states and territories. San Francisco became the new gaming capital, where a 25' x 15' tent served as an old West casino and rented for $40,000 a year, payable in gold dust. It was here that the slot machine was invented in 1895, but was outlawed in California by 1911.

The crackdown on gaming in California spurred more activity in neighboring Nevada. Other than horse racing (allowed in a few states), gaming outside of Nevada was prohibited for most of the country. New Mexico and Arizona were forced to close their casinos in order to become states in 1912.

Modern Era
The Great Depression allowed for the return of gaming to other states as a source of new revenue and a way to stimulate the economy. As gaming spread and Prohibition was passed, organized crime saw a new opportunity to cash in. As law enforcement agencies cracked down on the East Coast gambling rackets, mobsters moved west to safer turf, like California and Nevada. Nevada legalized most forms of gaming by 1931 and was looking to capitalize on the expansion fueled by the new Hoover Dam.

One of the mobsters, Benjamin "Bugsy" Siegel, invested in the Flamingo Hotel development on Las Vegas Boulevard and ultimately oversaw the completion of the construction. Opened in 1946, it was billed as the most luxurious hotel in the country and became the anchor property of the now famous "strip." It attracted movie stars and famous entertainers, as well as more mobsters looking to get in on the action. As a result of many government hearings and investigations, the criminal influence in the gaming industry gradually declined.

In 1976, Atlantic City, New Jersey legalized casino gaming to spur investment and redevelopment of its rundown boardwalk. Once a popular tourist destination, the goal was to provide northeasterners a reason to spend their money locally and reinvigorate the Jersey shore. More recently, multistate lotteries and online gaming have rapidly grown into multibillion-dollar enterprises.

Financials
Most of today's large casinos are owned and operated by multinational, publicly-traded corporations. The newer hotel-casinos are mega-resorts that no longer cater exclusively to gamblers, and they have created new revenue streams that didn't exist 20 years ago. These include luxury shopping centers, spas, world-class restaurants and family entertainment.

While growth in the U.S. stalled during the recession, the Asia-Pacific region shows no signs of slowing down. PriceWaterhouse-Coopers (PWC) reported 2010 gaming revenues in the U.S. of about $57.5 billion, and the company projects annual growth of 5% through 2015. That compares to 2010 Asia-Pacific revenues of about $34.3 billion, with annual projected growth of 18.3% over the same period. By 2015, PWC estimates that the Asia-Pacific region will surpass the U.S. with revenues of around $79.3 billion vs. $73.3 billion.

The PWC study attributed the U.S. growth to regional casino expansion and projected improvement in the economy. Massachusetts is joining the casino market and table games are being introduced and expanded in Delaware, West Virginia, New York and Pennsylvania.

Nevada was hit hard by the recession, which also devastated the real estate market. Statewide gaming revenues topped out at about $13 billion in 2007 and slid to approximately $10.4 billion in 2010. That decline rippled through the local economy and drove unemployment rate above 13% in July, 2009. Revenues aren't expected to recapture the 2007 level until 2015. (For related reading, check out Simple Ways To Invest In Real Estate.)

The future is bleaker for Atlantic City, which peaked at around $5.2 billion in 2006 and dropped to about $3.6 billion in 2010. PWC expects a further decline to $2.8 billion in 2015 as a result of fierce competition from neighboring Northeast casinos.

The Bottom Line
There are few businesses that depend more on disposable income than gaming. Las Vegas depends heavily on visitors from Southern California, and those visits have declined, potentially as a result of rising gas prices and unemployment rates, as well as declining real estate prices. California is saddled with huge debt and businesses have left the state for more tax-friendly locations. (For related reading, see Where Should Your Small Business Incorporate?)

In addition, businesses cut back on conventions and business conferences that constituted a significant chunk of Las Vegas's lifeblood. With an economy so dependent on the gaming industry, the financial impact has been severe. A sustainable economic recovery is needed before Las Vegas can return to its glory days.

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