Recession-Proof?

People will always need to spend money on necessities. Nonetheless, I don't believe any industry or company can truly be classified as "recession-proof." If a product or service costs too much or is not really a must-have, no small number of customers will trade down, choose a substitute, or go without (whatever the risks).

Regardless, the idea that the gaming industry, especially in light of all the excesses of recent years, could have been viewed in this way, as the following Reuters report, "Casinos Feel U.S. Downturn as Gamblers Pinch Nickels," seems to suggest, kind of sums up the dubious thinking that passes for analysis on Wall Street these days.

Casinos, generally seen as recession-proof, are beginning to feel the pain of the slowing U.S. economy.

The gambling industry has expanded rapidly in recent years, as more U.S. states allowed casinos and existing gaming parlors expanded. Casino gambling revenue, the amount lost by players, doubled between 1995 and 2006 to $32 billion, according to the American Gaming Association.

But with the U.S. economy slowing, there are signs that Americans, especially patrons of local casinos, are not in a betting mood.

"Competitive pressures in several markets do not appear likely to lessen in the near term," Oppenheimer analyst David Katz said in a report released Wednesday.

Harrah's Entertainment, the world's largest casino company, and Boyd Gaming both posted weaker quarterly earnings Wednesday and both described the economic environment as "challenging."

Their weaker earnings come a day after Pinnacle Entertainment, which operates casinos in regional U.S. markets, posted a wider fourth-quarter loss, mainly because of costs related to opening a new casino. The company said progress on other projects hinged on improved access to credit financing.

Harrah's, which operates Las Vegas Strip resorts like Caesars Palace and the Flamingo, posted a fourth-quarter loss, burdened by impairment charges and losses at its properties in Illinois and Indiana.

Gary Loveman, Harrah's chief executive, said during a conference call that results at regional casinos were "mixed," while in Las Vegas "the gaming business has held up well, but room rates are off a bit."

Boyd Gaming, which owns and operates 17 casinos in seven states, posted a 45 percent drop in fourth-quarter profit.

Boyd, which is building a casino resort called Echelon on the Las Vegas Strip, said net income fell to $31.2 million, or 35 cents per share, from $56.3 million, or 64 cents per share, a year earlier. Revenue fell 8.1 percent to $478.6 million, Boyd said.

The chief executive of Boyd, Keith Smith, said that the company experienced "some softness or weaknesses in the business" in late November through January, but that trends improved in February and that the company was "cautiously optimistic" for this quarter.

Fourth-quarter earnings at its downtown Las Vegas properties, aimed at tourists, posted a 13.8 percent profit drop, while profit fell 13.2 percent at Boyd casinos in the U.S. Midwest and South, as its Blue Chip casino in Michigan City, Indiana, suffered from new competition.

At the same time, profit from Borgata in Atlantic City, New Jersey, a joint venture with MGM Mirage, was essentially flat as it faced competition from video lottery terminals added in nearby Pennsylvania and New York.

Boyd's earnings at its casinos catering to Las Vegas locals rose 3.3 percent as the company overcame a 1.5 percent dip in revenue.

Harrah's, which was acquired last month by the private equity funds Apollo Global Management and TPG Capital, posted a net loss of $47.8 million, compared with a profit of $47.6 million in the same quarter a year earlier.

Comments

[Adamant]

I can only think of one recession-proof industry: toilet paper.

[Will]

Whiskey and cigarettes, man, whiskey and cigarettes. When paper money is worthless and the guy down the road won't trade you *any* of his hogs for your gold nuggets, there are two things that will still be universally tradable.

[Edward Charles Ponzi Jr.]

recession-proof industry: razor wire

[Pat]

In view of the fact that America is facing high foreclosures in the mortgage market, it stands to reason that government necessarily must question its role, if any, in those foreclosures, by allowing high risk commercial practices without monitoring them.

Bailouts, if any, have been referenced as possible, but only for those who were legitimately swindled, not for those who arbitrarily took advantage of the predatory practices for their own greed and purpose.

If government can be the guarantor of an economic climate that doesn't reward greed but does protect the vulnerable, it stands to reason that government bailouts of industries who follow the same patterns of investment/greed oriented enterprise might suffer the same patterns of economic judgement. Why should government bail out companies who take high risks beyond their ability to perform? If capitalism is appropriate for companies as well as individuals, similar sets of rules would be in place for both if both are required to act within the confines of solid financial social responsibility.

That companies are rewarded for risk, and then bailed out as if risk was irrelevant defies the convention that capitalism depends upon risk to capture potential rewards, the mantra for defending capitalism among individuals and companies.

If government's role is to insulate against risk, presumably that risk would not be arbitrary but within the confines of previously identified criteria of social responsibility - for companies or or individuals.