The gaming industry isn’t as recession-proof as many expected and experienced wide-scale expansion since the last economic downturn, but this year it has seen significant market activity and continued growth is expected according to Steve Epperly, Senior Director of Gaming Finance & Advisory at CIT Group Epperly explains how gaming operators are making smarter investments, why new states are looking to get involved and how online gaming may actually help traditional operators in the “U.S. Gaming Sector On a Roll” executive podcast.

The interview is part of the latest installment of the award-winning CIT 5 Minute Capital podcast series, featuring senior CIT executive commentary on current market conditions and industry trends.

High-Level of Market Activity Continues

The gaming industry has seen a significant amount of activity this year and last, with very active senior secured and bond markets. “This is being driven primarily because of borrowers running up against maturities on debt that was borrowed back in the mid-2000s,” explains Epperly. He continues, “We are also seeing a fair amount of activity for new projects in jurisdictions that have recently legislated expansion of gaming, such as Ohio and Kansas.”

Smarter Expansions

Companies are now being much more thoughtful about making new investments or growth decisions. “They really are doing the math. Only those projects that have a meaningful ROI and have a very high probability of success are getting done,” comments Epperly.

Following the Great Recession, gaming operators have learned to become more efficient with their cost structures. “Many operators have elected to sell non-core assets to assist in deleveraging or to help provide capital for new, higher-return projects,” says Epperly.

New Players Get in the Game

More states are looking to change legislation to allow gaming to augment their tax bases. “Quite frankly, they’re losing a lot of dollars to neighboring states,” explains Epperly. “Pennsylvania, for example, has 11 casinos in the state right now. They generated more tax revenue than the entire state of Nevada and that’s a pretty compelling statistic.”

Online Gaming Continues
Despite new legislation to prohibit online gaming in the United States, the industry hasn’t seen an impact. “Most of these sites are offshore and not well regulated,” says Epperly. “We see internet gaming legislation being passed right now, and I think it is more of a function of who will regulate it.”

According to Epperly, traditional gaming operators would benefit more from teaming up with these online operators. “We actually think it could create more customers, as people are going to want to have the casino experience themselves,” says Epperly. “The larger operators are already looking to acquire and get in with online companies. These companies are already experienced and licensed operators and intuitively it makes the most sense for them to be the ones leading the charge.”