Can there be a better business in the world? Your customers give you money for an experience that costs little to nothing to produce. I just can’t understand how and why all these casino companies are running into financial problems. What do you know to be the cause?

Are you sure about that?

Supply is rising faster than demand.

Too many casinos chasing a pool of gambling revenue that is relatively stable. My assumption is all those unoccupied slot machines are leased and are not contributing to revenue.

What am I missing? Pay some dealers minimum wage or buy/rent machines that light up and make noise.

You can't seriously think that those are the only expenses involved in running a casino.

Why would players come to this casino that's just a building with dealers and machines if a neighboring casino has good restaurants, comps, better odds, spas, nice hotel rooms?

I used to work for a casino and I don't think you've captured the financial picture accurately. Land based casinos are very operationally geared businesses, with high fixed costs that don't vary that much in line with revenue. This can be a great place to be if you have loads of customers because your fixed costs (by definition) don't go up that much as your revenue increases. But if your revenue is disappointing, you still have to cover fixed costs like:

• all salaries (obviously headcount is broadly in line with customer numbers in the long term, but you can't exactly fire people any time you have a quiet month then hire loads of people again as soon as things get busy)
• Gaming Duty (or equivalent taxes)
• rent/mortgage on the building
• maintenance (customers don't like shabby casinos)
• licensing, regulatory and compliance costs
• marketing costs
• recruitment costs
• cleaning costs
• IT costs (huge for casinos)
• video monitoring costs
• customer promotions and comps

You also have to pay for the bar/restaurant - it's common for casino bars to lose money once you factor in the costs of the staff working there and in the kitchen, but you can't just shut it down because people want the option to eat and drink.

You may well have loans too, with associated interest payments - for example to ensure a good float of money for weeks when there are some big wins and your revenue is actually negative but you still need to cover all these costs somehow.

What happens if you have a quiet period, or your new casino just isn't getting off the ground?

Your revenue is just your house edge x number of customers x amount bet per customer. If the house edge is 5% and 1,000 customers a day bet an average of $200 your revenue in a 31 day month would be £310k. You can make the customer numbers and average bet larger or smaller depending on the casino but you get the idea.

Casinos certainly can make a profit and many do consistently. But only when their footfall is big enough (and has enough big gamblers) to pay for all the above. If you have a quiet period, or the high rollers all your competitors are also trying to charm start going elsewhere, it's certainly possible for the house edge on the players you do get to fail to pay for all this.

From a finance standpoint, you are correct. Casinos are a money maker. They generally make bank.

However, from a finance standpoint there is a tendency to take a company that makes a lot of money and leverage it up. Why accept the returns you can get with a $1,000,000 investment when you can invest $$500'000 and borrow $500,000 instead?

Make more money with less investment!!!! Win win.

So private investment companies will buy casinos and then load it up with debt. They are money makers, so leverage is good. Make more money.

This works really well until it doesn't.

All of a sudden the economy goes into a recession and the casino doesn't make as much money as it did and lenders expect interest on that debt.

Boom. A financial problem.

Or, more likely, investors fail to realize that casinos require constant reinvestment. The gaming floor and hotel rooms need to be constantly updated to remain relevant.

Reinvestment can be put off in the short term and profits will look phenomenal in that short term However, eventually things become dated.

When they do, profits plunge.

To summarize, it is short term thinking. Running good in the short term makes people do stupid things that hurt them in the long term. I.E. leverage. ......

This is why someone like Steve Wynn was so good. He looked at buy at the bottom when everyone else was suffering. He also never assumed that the good times would last forever. So he never did stupid stuff like leverage himself to the hilt during those good times.

Back in the early 80s I saw the electric bill for the Commerce, it was over $10,000. That's over $35,000 today and there were no slot machines. That's a single example of an expense that's larger than most people will consider.

It takes a decent management team to hold it together and make a business profitable, even a cash cow like a casino - maybe especially like a casino.

interesting question... and i have me first idea as you i.e. "licence to print money"

i think a few posters nail it 100% as competition.. places where it 's a government monopoly (Ontario? for a long time?), it is/was "a license to print money"

competition is tough.. look at how many casinos in Vegas?... and Atlantic City got killed by new places like Foxwoods (kinda far, i know) and i presume phildelphia may have had new casinos

i think the most profitable casinos are high end and low end (think slots)

Vegas has had to diversify from gaming because much smaller % of young people gamble hard

Steven Wynn didn't leverage himself? wasn't he financed by Michael Miliken? sp? Milken?

Think thus is very insightful. I never thought about it as an investor, but I think you are on the right track.

You missed the second half of my quote. He never leveraged himself when things were going well. Wynn was notorious for buying at the bottom. He leveraged himself at the bottom.