Guest Contributor Jarrod Compton
SVP of Native American Financial Services for BOK Financial
There’s no such thing as a recession-proof industry; but there are steps tribal gaming operators can take to prepare for the uncertainty.
Native American casinos are not immune to inflation, supply chain and the staffing issues that are plaguing businesses in nearly every industry. If anything is certain right now, it’s the amount of economic uncertainty that’s ahead of us the next few months.
When we end the year, the U.S. economy will be an entirely different beast than it was at the start of the year.
At the beginning of the year, the Federal funds rate, which influences the interest rates consumers and businesses pay on debt, was near zero—which fueled a booming housing market. Consumer spending on goods was still high, while restaurants and the travel industry looked forward to more consumer spending on services once pandemic restrictions lifted further.
Then things veered pretty sharply off course.
Inflation has soared to a four-decade high and remains mostly persistent, causing the Federal Reserve to raise the Federal funds rate five times from March through September, with two more rate hikes anticipated before the end of the year.
Now, as a result of the shifts, businesses may be hesitant to make any expansions because of the higher cost of borrowing money and uncertainty about where the economy is heading.
What does that mean for tribal gaming?
The fiscal stimulus that entered the scene earlier in the pandemic had a notable effect on gaming—but that’s mostly a thing of the past. As discretionary income changes, it’s reasonable to believe gaming will be impacted as well.
Historically, in times of recession the gaming industry has not been immune to the impacts, but we have yet to see any signs that there will be a deep or prolonged recession. Also, in prior recessions the gaming industry has been most impacted during periods of high unemployment, which does not appear to be a concern at this point.
The extraordinary results seen during 2021 were largely driven by higher spend per visit, not necessarily more customers. This could be attributed to the significant influx of liquidity in the economy or higher wages, which may not be sustainable long-term.
Activity has already come down from the extraordinary levels seen during 2021, but most gaming businesses continue to see results tracking ahead of pre-pandemic levels as there is still a lot of pent up demand for travel and entertainment.
Like most industries, gaming has been impacted by labor shortages. More recently, the labor market seems to be improving and should continue to move in that direction if unemployment increases, which could help gaming business fill much needed positions. At some point this could also ease wage pressures.
In the months ahead borrowing costs will continue to increase in the near term, but conversely there will be opportunities for higher returns on deposits for those with healthy balance sheets, and declining construction costs could help ease costs of expansions and capital expenditures.
The industry has attracted a new demographic of gamers which could continue to drive visitation and revenue. In short, there are changes around every corner but with strategic planning, tribal gaming operators are poised to stay ahead of any downturns.