You can see the impact of inflation throughout America.
It’s at the gas pump.
It’s at the grocery store.
It’s coming for the casino industry.
Virginia is on the precipice of a breakthrough in the casino industry, with multiple new sites under construction and more planned. Throw in the already bursting iGaming and US sports betting world, and it seems like casino companies are printing money.
But inflation lurks in the dark corner of the game floor. Its impacts are already being felt, Caesars had to delay its casino in Danville opening because of construction costs, and casinos can’t find people to work. Those are two clear examples, but what’s next?
No one is sure what the fallout will be in Virginia, just that there is one coming.
“There is no doubt that in most regional gaming markets that customer is a day-tripper utilizing gasoline to get to the facility,” said Hard Rock International CEO Jim Allen during an interview on CNBC.
“And when that’s up 30 to 40 percent, that’s going to be problematic.”
Only so much to go around in Virginia
The entire gambling industry has multiplied users and revenue thanks to improved computer technology. One could make the point that the pandemic drove people indoors, and they needed things to occupy themselves. Online gambling took center stage then – but people were eager to get out of the house (and perhaps play at a casino) when restrictions finally loosened. Now, there is a settling back to more balanced time at home and out, not to mention normal spending, but inflation is adding unexpected kinks.
Dr. Robert McNab is the director of the Dragas Center for Economic Policy and on the Joint Advisory Board of Economists for Virginia.
He believes inflation is currently being driven by many factors, including external stimuli (Ukraine) and that consumers will start to reevaluate their spending in the second half of the year.
“Casinos compete with other leisure and entertainment activities for consumer dollars,” McNab said in an email to PlayUSA.
“In locations that will be heavily dependent on outside visitors, higher inflation and slowing economic growth will likely reduce expected visitor counts once the initial excitement wears off. For casinos that are expected to draw from the local area, the competition for increasingly scarce consumer dollars will be intense.”
In addition to the Danville casino, Virginia has plans to build casinos in Norfolk, Portsmouth, and Bristol. These are clearly meant to be spots to serve as community centers, places for residents to eat, drink and place a few bets.
McNab said the question becomes how do they attract customers once the novelty wears off?
“Can these casinos attract tourists to the area without displacing their spending on other local businesses?” McNab asked.
“If someone comes from New York to vacation at Virginia Beach, the question is whether [to] spend more money or just shift spending from other locales to the casinos.”
Making yourself stand out in the market
“There is no doubt that inflation with food and groceries and even gasoline has had an impact on the lowest segments of our database for sure,” said Frank Fertitta, Red Rocks Resorts CEO during an earnings conference call.
This is why new casinos, like the ones planned for Virginia, are built more like all-inclusive resorts than anything else. Once you’re on the property, casinos don’t want you to leave. They certainly don’t want you to think about flying all the way to Las Vegas to get a better experience.
That’s why they have put hundreds of millions on better amenities (stereotypical buffets out, fine dining in) and added posh hotel rooms and entertainment pavilions.
No offense, but Norfolk isn’t Las Vegas.
“Remember, Virginia has legalized sports betting online as well as online lottery sales,” said McNab.
“Gray market machines, which have reappeared throughout the Commonwealth, will also compete with casinos.”
Gray market machines are considered ‘skill games’ in Virginia because they act like slot machines but give the player a chance to rotate the wheels themselves for a better potential payout. Their existence has caused a major legislative fight in Virginia.
I need a deal and a dealer in Virginia
Another area where casinos are feeling the sting of inflation is finding a willing workforce. Someone needs to valet the cars in all these Virginia casinos, cook the meals and deal the cards.
“Unemployment rates across Virginia are below 4% and continuing to fall,” said McNab.
“The leisure and hospitality industry has experienced historical job quits and the casino industry will find it quite difficult to hire if they offer relatively low wages.”
Casinos have begun offering incentive-laden packages to bring back workers who left during the pandemic and attract new workers.
McNab points out that the pool of potential workers is only so big. Casinos are fighting against existing hotels and restaurants for the same labor but may have the means to outbid them.
McNab knows it’s a bottom-line business for the worker. Their costs of living have gone up.
“With regards to economic behavior, inflation increases uncertainty about the future,” McNab said.
“As people become increasingly myopic, they will focus on their immediate needs and reduce leisure spending. If inflationary expectations harden, a recession becomes a self-fulfilling prophecy.”