Louisiana Casino/Racino Revenue Declines As Predicted

Last year, we predicted this would happen: Louisiana Gaming Control Board revenue figures for the first half of 2016 show a 4.4% decline from the same months of 2015. 

The cause as we see it is the ongoing economic devastation of the oil and gas sector. In our February 2015 post we stated: “Louisiana has the largest concentration of crude oil refineries, natural gas processing plants and petrochemical facilities in the Western Hemisphere. It is America’s 3^rd largest producer of petroleum and 3^rd leading state in petroleum refining.  Louisiana is the 2^nd largest producer of natural gas. It supplies over 25% of total US production.  While Texas leads the US in most of the categories of oil and gas production, Texas does not have casinos or racinos – so in the parking lots of casinos and racinos across the Shreveport/Bossier City and Lake Charles regions, you’ll see as many Texas license plates as Louisiana plates.”

“The halting of projects, firing of workers and deferring of investments will certainly change the economies of Texas and Louisiana and negatively affect the casino and racino business in all four Louisiana regions.” We further predicted declines in each region as:

·         Lake Charles: down 2% to 3%

·         Shreveport/Bossier City: down 4% to 6%

·         New Orleans and Baton Rouge regions: down 2% to 4% each

Actual 2015 results: 

·         Shreveport/Bossier City:  down .52%

·         Baton Rouge: up 3.9%

·         New Orleans: down 3.2%

·         Lake Charles:* up 26.25%

*Lake Charles numbers include the Golden Nugget which opened in December 2014. 

So what happened in the first half of 2016?

	Jan-Jun 2015	Jan-Jun 2016	$ Change	% Change
Shreveport/Bossier City	$373,598,857	$352,677,057	($20,921,800)	-5.6%
Baton Rouge	$196,980,177	$189,776,756	($7,203,421)	-3.7%
New Orleans	$316,596,288	$297,900,382	($18,695,906)	-5.9%
Lake Charles	$459,745,006	$433,728,972	($26,016,034)	-5.7%
Total Louisiana	$1,346,920,328	$1,274,083,167	($72,837,161)	-5.4%

Further declines are most likely. According to Zacks Investment Management (May 7, 2016): “Does the Energy Collapse Resemble Tech’s 2000 Bubble Bursting? At last count there were 59 chapter 11 bankruptcy filings from companies in the oil and gas business. The energy sector, as a whole, has felt the hit profoundly with earnings falling (-) 56.4% in Q3 2015 and (-) 78.6% in Q4 2015. For Q1 2016, the damage is estimated to be even worse, with the current Zach’s estimate being a (-) 114.5% drop in Q1. Additionally, with a handful of other small players likely in line at bankruptcy court, it may not be long before 69 filings seen by telecom during the dot-com burst in 2000.”

Further, a recent Forbes article reads, “All told, 69 oil and gas producers with $34.3 Billion in cumulative secured and unsecured debt have gone under. Since share prices peaked in 2014, the oil bust has wiped out about $1 Trillion in equity, with the Dow Jones U.S. Oil & Gas Index off 40%.”

There’s more to come: “Despite the modest recovery in energy prices (in 2016), all indications suggest many more producer bankruptcy filings will occur during 2016” writes Haynes & Boone.  According to Deloitte: “About a third of global oil and gas companies, or about 175 of them, are at risk of insolvency.”  Bernstein Research estimates that by 2019 we’ll see more than $70 Billion in defaults amid more than $400 Billion in high-yield debt.”  -- That would indicate we’re only halfway through the bankruptcies.

We will continue to monitor and report the oil and gas sector and its effect on the Louisiana casino and racino revenues. We predict that there is more to come and that our previous projections are likely modest.