Casino Review asked Michael Pollock, MD of Spectrum Gaming Group, how rising inflation in the US could impact casino operators.
The modern casino industry in the US was born in 1978, right in the heart of the most pernicious period of inflation in modern times. The industry grew dramatically, but that does not constitute a roadmap for the near future. The newness of gaming allowed it to grow in the face of inflation and then recession.
In the current environment, casino operators, like any private businesses, will have to grapple with higher costs, and the reality is that they have limited opportunities to raise prices in the face of inflation.
A $5 chip cannot be priced at $5.50, nor can a $.25 slot machine become a $.28 slot machine. Having said that, I do not believe US casinos have anything to fear from inflation for the following reasons:
1. Most economists expect inflation to level off in the short term, thus this will not likely become structural inflation.
2. Most economic news in the US is extremely positive, as the nation emerges from a pandemic. Employment is increasing, retail sales are up significantly and the stock market is at new highs.
3. Retail sales in the holiday season are a particularly important indicator of the level of disposable income, which is where casino revenues come from.
4. The stock market is a secondary indicator. As consumers feel wealthier, they tend to spend more. This Wealth Effect also works to the benefit of industries such as gaming, which rely on discretionary spending.