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You are here >   After the Impact
  
 
 
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Richard Swayze
 
 Canadian Gaming Business Spring 2013
 

 

Feature Story - Archives
After the Impact: The North American Numbers After the Worst Recession in a Generation
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 After 15 years of continuous growth, the Canadian gaming industry as a whole contracted in 2010 (March 31st year-end).  When final data are released, HLT Advisory estimates the decrease will be in the order of 2.5%; a decline of $380.2 million.  Additionally, total industry win is estimated to decline from $15.43 to $15.05 billion.  The decline was widespread as all traditional gaming sectors and virtually every province contracted.

 

 

 


Across the country, the largest decreases were experienced in Alberta and Ontario.  Combined, these two provinces accounted for over $320 million of the total $380.2 million decline.  The only province to post an increase was Saskatchewan.  Saskatchewan increased just over $10 million  - or about 1.5% - largely due to the strength of its casino sector.  The remainder of Western Canada (Manitoba and British Columbia) and the two smallest provinces (Newfoundland and PEI) experienced a slight decrease (less than 1% each).  Quebec and New Brunswick decreased by less than 1.5% each.  After Alberta (about 7.5% decrease), Nova Scotia had the largest percentage decrease at over 3.5%, followed by Ontario at just over 2%. 

While every gaming sector contracted, about 80% of the $380.2 million decline was accounted for by EGDs (electronic gaming devices: VLTs and EGDs at other gaming facilities such as racetracks or bingo halls) and casinos.  The VLT sector experienced the largest decline at $164.1 million, with 2010 VLT revenues in every province running below the previous year.  Since 2006, Canadian VLT gaming has declined by almost $0.5 billion in the wake of most provinces restructuring their programs (e.g., less machines and/or fewer sites).  Only Manitoba and New Brunswick have larger VLT sectors today (as measured by win) than in 2006.  VLT gaming today accounts for 19.9% of the total Canadian gaming industry, down from 21.7% in 2006.

 

The performance of the casino and EGD-Other (slots at other gaming facilities) sectors combined were not as uniform across the country.  Aggregate win in Ontario, Alberta, Nova Scotia and British Columbia declined by just under $200 million, while aggregate win in Saskatchewan, Quebec, Manitoba and PEI increased by over $50 million, resulting in a net decrease of about $148 million or 1.9%.  Ontario and Alberta experienced the largest decreases, while Quebec and Saskatchewan had the largest increases.  In 2010, the combined sectors generated $7.8 billion in win and represented 51.8% of the entire Canadian gaming industry, up from 47.6% in 2006. 

While the lottery sector as a whole was down $10.5 million, an equal number of provinces showed positive and negative growth.  This total decline only represents a 0.3% decrease.  British Columbia, Saskatchewan, Manitoba, Ontario and New Brunswick had minor increases while the remaining provinces had minor decreases.  Quebec had the largest decrease at $14.9 million or 1.6%.  The lottery sector is the second largest sector in Canada and represents 25.3% of the total industry, up slightly from 24.2% in 2006. 

 

The remaining two sectors, bingo and pari-mutuel declined by $32.5 and $24.9 million respectively.  This magnitude of decline is significant as these two sectors are the smallest in Canada.  Both sectors in 2010 generated about $375 million each in total win and combined account for 5% of the total Canadian gaming industry, down from 6.5% in 2006.

Future growth

While most agree that the worst of the recession is over, how the Canadian economy and the Canadian gaming industry will perform over the next few years is still uncertain. Unemployment is expected to remain high and the total impact of the recession on  discretionary income levels, especially incomes of people over 50 years old (key gaming demographic segment), is not well understood.  With that said, positive growth should come from a number of recently completed developments and planned/proposed changes in the industry:

  • Replacement of VLT machines in Quebec and likely machine replacements in other provinces
  • Increased betting limits/prize payouts (e.g. casinos and VLTs)
  • Increased spending and/or increased use of a greater range of marketing tools.
  • Continued implementation of smaller gaming centres in British Columbia (i.e. Community Gaming Centres) and in New Brunswick (i.e.  Coasters)
  • Full year of operations of a number of larger and/or recently expanded gaming facilities, such as the Moncton Casino and a number of slots at racetrack facilities in Ontario (e.g. Woodbine, Ajax, Georgian Downs)
  • Internet activity expansions in British Columbia and Atlantic Canada, and the introduction of internet activity in Quebec and Ontario
  • A full year of operation of Lotto Max

In short, it will likely take two years for the industry to surpass the total win of $15.4 billion achieved in 2009. 

Canada vs. United States

Just how did the Canadian Industry fare as compared to the United States?  

Much has been written about the global economic crisis and how Canada and the United States have had both similar and dissimilar experiences.  A combined effort was required to bail out the auto sectors and the use of extensive government spending and interest rate intervention measures was needed to stimulate both economies.   The biggest difference was that United States also had to bail out its financial sector.  In general, Canada seems to have weathered the storm better than its neighbour to the south.  

In the United States, the casino sector can be divided into two groups: Indian Casinos and Commercial Casinos.  Indian Casino revenue numbers are released by the National Indian Gaming Commission on a broad regional breakdown annually.  The latest available numbers are for fiscal year 2009.  Commercial Casino revenue numbers are released by individual states.  As per the American Gaming Association, there are 13 states that have Commercial Casino.  Four of these states also permit racetrack casinos (similar to slots at racetracks in Canada).  Revenue numbers from these racetrack casinos were included in the Commercial Casino numbers for those states that have both.  For comparison purposes, monthly US data was reformatted into March 31 fiscal year ends as this is how Canadian Casino (and EGD Other) numbers are reported.  

It is important to note that no attempt to convert currencies was made; Canadian figures are quoted in Canadian dollars and United States figures are reported in US dollars.  Also, not all of the changes in performance can be solely attributed to the economic climate.  No attempt has been made to fully qualify the list of events that had an impact on performance over the past two to three years.  

The total Commercial Casino sector in the United States generated win of $30.7 billion in 2010 compared to $7.8 billion in Canada.  Overall, the biggest difference between the United States and Canada is that the US has experienced two years of decline compared to one year for Canada, and the declines in the U.S. has been far deeper.   The US industry declined by 5.9% in 2009 and 4.0% in 2010, while in Canada, casino (and slots at other gaming facilities) gaming grew by 2.7% in 2009 and only declined by 1.9% in 2010. 

Like Canada however, a number of regional variations exist in the US.  The region hit hardest by the recession seems to have been Nevada.  Las Vegas experienced a gaming revenue decline of 14% in 2009, followed by a further decline of 2.7% in 2010.  The rest of Nevada did not experience a similar rebound like Las Vegas in 2010.  In 2009, the rest of Nevada declined by 10.8% and further declined by 9.7% in 2010.  

While Atlantic City has posted three straight years of declines, neighbouring Pennsylvania introduced racetrack casinos in 2007, and by end of 2010, these facilities generated $2.1 billion in win compared to $3.8 billion in Atlantic City.  In 2007, win totalled $5.2 billion in Atlantic City.  Mississippi and Louisiana combined were down 5.2% in 2009 and a further 8% in 2010.   The past five years have not been kind to the two gulf coast states with both man- made and natural disasters taking their toll.  Illinois also was hit hard (19.3% decrease in 2009 followed by 7.9% in 2010).  

Besides Pennsylvania, Indiana and Missouri posted positive growth over the last two years (i.e. new facilities in Indiana, and elimination of loss limits in Missouri).  Both Michigan and Iowa only experienced one year of decline in 2010 (0.3% for Michigan and 2.8% for Iowa).  Colorado declined by 10.4% in 2009 and posted growth of 1.9% in 2010, largely due to increased betting limits on table games and increased hours of operation.  

Based on performance data, the Canadian gaming industry and especially the casino sector (including slots at racetracks and bingo halls) has weathered the economic recession better than the Commercial Casinos in the United States.  In short, the impact has been shorter in terms of time and less severe in terms of magnitude.  On a-go-forward basis however, future growth in Canada is not certain and it will likely take a couple of years before the industry reaches the win levels achieved in 2009.

By Rob Scarpelli & Katia Muro, HLT Advisory Inc. 

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