The notion that regional gaming is a flat-to-slightly-positive growth market is a misconception, argues Deutsche Bank analyst Carlo Santarelli. In a January 24 investor note, Santarelli delved into the nuanced factors driving casino revenue growth—or decline—across the United States. His analysis highlights the critical need for context when interpreting industry trends.
Growth or Decline? It’s Not That Simple
Gross gaming revenue (GGR) is often used to measure the health of regional casino markets. But Santarelli argues this metric oversimplifies a complex picture. Factors such as localised competition, regulatory changes, and new supply significantly influence results. By isolating these variables, the research aims to offer a clearer view of regional performance.
Santarelli and his team examined data from 80 casinos across several states, applying rigorous criteria to ensure fair comparisons. These casinos debuted before 2013 and experienced minimal external disruptions like nearby competitors or legislative changes. Only states with detailed monthly revenue reporting were included, further refining the study’s accuracy.
The State-by-State Breakdown
The study paints a diverse picture of the regional gaming landscape, with notable disparities across states. Here’s a closer look:
- Ohio and Maryland: The standout performers, with gaming revenues growing by 46% and outperforming inflation by 14 percentage points. Both states benefitted from the relatively recent establishment of casinos and steady growth in demand.
- Maine: A surprise leader, with a 25% revenue increase driven by new legal frameworks supporting the industry.
- Iowa, Missouri, Indiana, and Kansas: Moderate growth was observed, ranging from 2% to 20%, suggesting stable markets with incremental improvements.
- Louisiana, West Virginia, Pennsylvania, and Michigan: These states saw double-digit revenue declines, with Louisiana leading the losses at 17%. Analysts cited competition and market saturation as key factors.
Ohio alone contributed 20% of the overall growth in Santarelli’s analysis, underlining its outlier status. When Ohio’s performance was excluded, the industry’s growth flattened to a slight decline of 0.2%.
The Role of Online Gaming
Santarelli’s findings also reveal a growing tension between physical casinos and online gaming (iGaming). In 11 states where iGaming is legal, brick-and-mortar revenues fell by an average of 9.7% over the past decade. This cannibalisation effect was particularly evident in Michigan, Pennsylvania, and West Virginia.
Conversely, states without iGaming, like Ohio, demonstrated resilience in the face of digital competition. Excluding the three hardest-hit states, physical casino revenues across the study group rebounded by 4.5%.
Notable Observations
- States with limited casino expansion since 2015 saw stable or improving revenues.
- Legislative action and new competition remain pivotal in shaping state-by-state outcomes.
- Inflation—running at 32% over the study period—adds another layer of complexity, affecting consumer spending habits and the relative performance of gaming markets.
Lessons from Santarelli’s Analysis
The report challenges the conventional wisdom that regional gaming growth is predictable or uniform. Instead, it suggests that local dynamics, regulatory frameworks, and even the timing of casino openings play a critical role in determining outcomes.
For states like Ohio and Maryland, a combination of favourable legislation and measured competition has driven exceptional growth. Meanwhile, markets such as Louisiana and West Virginia serve as cautionary tales of overextension and shifting consumer preferences.
Santarelli’s analysis is a reminder that one size doesn’t fit all when it comes to regional gaming strategies. Industry stakeholders must carefully evaluate local market conditions and emerging trends to make informed decisions.
