Effects of national economic turmoil felt
Pub Date: 11/1/2008
By Paul F. Vang
If you throw a rock into a pond, you create a set of waves that will ripple out to the farthest shoreline. Depending on the size of the initial waves, those ripples could rock boats, or, on the other hand, be barely perceptible.
Some boulders have splashed into the national economic pond in the last several weeks and the waves are being felt on the country's northern "shores" in places like Montana.
The press has been preoccupied with Wall Street s roller coaster ride of massive federal bailouts and a roiling stock market, coupled with a presidential election in which the economy is the star player.
For us, a basic question is what impact economic woes will have on Montana s hospitality industry.
Near press time, Gambling Control Division Administrator Gene Huntington released some preliminary gaming tax collection figures.
He reported, "Our preliminary collections number for the first quarter (July 1-Sept. 30, 2008) is $15,689,671. This is a 2 percent drop from the fourth quarter (April 1-June 31, 2008) of Fiscal Year 2008 ($16,022,028) but a 2.25 percent increase over the same quarter last year ($15,344,153)."
First quarter tax collections in 2007 were up 5.2 percent over the same quarter in 2006. And tax collection an exact indicator of machine revenue have been in the 6 percent range for several years. It is too early to say, but the modest gain may be an indication of a market tightening to come.
Veterans' viewpoints
Tom and Mary Jane Heisler operate Big John s Casino and Classic 50s bar and casino in Great Falls. Tom is a past MTA president and Tom and Mary Jane were joint winners of the 2007 Montana Tavern Association Durkee Award for services to the tavern industry.
I ve been in business 39 years and I ve never been in anything like this, Tom commented. I don t know what will happen, but it won't be good, is his assessment of the general economic situation, adding that he blames the rush toward deregulation as the source of the current problems. It demonstrates the need for federal regulation on interstate commerce, he said.
[b]Spirits sales
Brett Wiensch of spirits and wine distributor Young s Market Company, based in Helena, takes a more cautious view of the turmoil.
Some things are up, some things are down, but overall we re still seeing good sales of high-end products, he said. Overall, it s still business as usual, though we ll see how the year ends.
Gaming machine play
Steve Arntzen, Billings, Chief Operating Officer of Century Gaming, a route vendor of gaming machines in both Montana and Nevada, has been studying the situation and believes that at this point things are still a matter of perception and attitudes.
Overall, traffic seems mostly unchanged, Arntzen said. Our customers still seem to be coming in at the same rate. Spending patterns seem to be changing, however, and customers seem to be changing their expectations.
Previously, a lot of players would come in with, for example, a $20 bill and hope to double their money and not worry if they lost it. Now it seems they tend to play with a goal of breaking even. The net result is a changing volume of play. As I see it, these changes started when gas hit $4 a gallon.
While Arntzen sees changes, he isn t hitting any panic buttons. I don t think of this as a long term thing. Montana doesn t have the big swings. There s no roller coaster ride.
He has a direct comparison when looking at their Nevada operations.
We have a big route in Nevada, Arntzen explained. In 2004 and 2005 we had 25 percent annual growth, which is phenomenal. This year we ve had a 50 percent drop. Our business in Montana is more consistent. In a good year we ll see 5 percent growth. In a bad year, growth will be flat. I expect that our current fiscal year will end up on a par with previous years.
Looking at the Montana economy, Arntzen said, I told our employees not to pay so much attention to all that s going on in the media. Our state s lenders are in great shape. They didn t get caught up in the sub-prime lending mess.
Four dollar gas hurt us in Montana, but I still see people driving their four wheel drive pickups.
Arntzen summarizes, I realistically think we ll have continued slow growth in our business. Other areas can look at us as a positive example. I think gaming is still a good form of entertainment and a social event.
An oil patch licensee
Mike Severson, who operates the Ranger Lounge in Sidney, says, We re doing pretty good here. We have a lot of oil-related people working here and it s all trickling down.
Severson has experienced ups and downs before when the oil patch has gone through periodic doldrums and doesn t like it when things go down.
Things sort of go to hell, he said. Still, he doesn t think the gyrations on Wall Street have that much of an effect on Main Street. It doesn t affect us much. Wall Street doesn t affect us as much as in bigger cities. We don t have many houses for sale, and there is building going on. We have people going to work every day.
The agricultural economy is a bigger local concern, in his view.
The sugar beet factory in Sidney is not sure whether they ll have enough farmers growing beets for the next season, Severson noted. Energy costs have far outpaced beet prices for farmers. The sugar beet factory employs about 80 people. There s a lot of uncertainty.
Hotels and motels
Stuart Doggett, Executive Director of the Montana Innkeepers Association, based in Helena, has been tracking the numbers on a regular basis and said that overall hotel occupancy in Montana in 2008 is down 3 percent through August.
Figures for September, normally a good travel month, were not yet available, though he had mixed reports from members, some reporting a good month and others thought travel was down. Overall, however, he doesn t see any big swings.
We re an optimistic industry, Doggett commented. We re looking at changes in travel patterns, and if long distance travel goes down, we think regional travel may go up. People might figure that they won't take long trips, but will stay in Montana, instead.
We re also looking at the Canadian economy. Our border city hotels have done well with Canadian travelers the last couple years as the Canadian dollar has strengthened compared to the U.S. dollar. So we re watching.
The hotel association is looking ahead to next year s legislative session.
When things are down, that s when we need to keep promoting, said Doggett. We want to make sure we keep the integrity of the accommodations tax and that Montana continues to use those funds to promote Montana travel.
Promotion and marketing are crucial to the hotel business. Doggett said, Our members really respect the marketing concept. If there have to be cutbacks, marketing will be the last thing to be cut back.
Restaurants and all the rest
Barb Morris of Jorgenson s, a facility that pretty well covers the hospitality business with a hotel, restaurant, bar and casino at one location, says business is good as far as they are concerned.
She notes that in capital city Helena, government is the base of the economy and that keeps things on an even keel. Looking past 2008, the next session of the legislature begins in January and Barb says, The legislature always makes me happy.
Brad Griffin, executive director of the Montana Restaurant Association, based in Billings, said, I have some anecdotal indications of customers holding back and watching their spending, but declined to comment further on the issue.
Other effects on high-end hospitality
On October 9, the Montana Standard of Butte reported on far-reaching ripples from the collapse of Wall Street s investment firm, Lehman Brothers.
Lehman Brothers Holding, Inc. was the main financier of Moonlight Basin, a ski and golf resort operating on Lone Peak Mountain at Big Sky. Moonlight Basin announced a large scale layoff of employees because of the Lehman Brothers bankruptcy.
In a press release, Moonlight Basin said, As a consequence of Lehman s bankruptcy, access to credit nationwide has been impaired. Like other companies in the same situation, Moonlight Basin has taken a number of steps to insure long-term strength. A temporary reduction in workforce is one of those steps.
The company did not give specifics as to how many employees were laid off or whether or when they would be rehired, though later news reports indicate about 100 employees were being laid off. An estimated 200 people work at the resort, and that number increases during the winter ski season.
At press time, the company s website, , gave no indication of any changes at the resort.
Sam Korsmoe, director of the Madison County Economic Development Council told the Standard that he was confident that Moonlight can find another financier so that it will be able to open up for ski operations this winter.
Another resort, Paws Up, on the Blackfoot River near Greenough, on October 14 announced seasonal lay-offs due to a big drop in luxury leisure travel.
The resort, which caters to wealthy travelers looking for a western style vacation, was going to close during the shoulder season, reopening during the Christmas/New Year s period and then remain closed until spring. According to an Associated Press article, approximately 70 of the resort s 100 employees would be laid off on November 1.
In an unrelated event, the Copper King Hotel and Convention Center, Butte s largest hotel and convention center, closed its doors on September 30, 2008.
In statements to the press, hotel owner Ken Burningham, Seattle, cited high energy costs and continuing operating losses as reasons for closing. The hotel is currently for sale, though the owner has said that if the property does not sell by spring he plans to liquidate the hotel s furnishings and convert the property to other uses.
The national gaming marketfeels the bite
Atlantic City casinos are being buffeted from all sides. A smoking ban due to take effect looks to have been delayed by one year, but discretionary spending on gambling appears to have already taken a hit nevertheless. High gas prices may be cutting into the action, too.
Gross gaming revenues are expected to decline for 2008, the first year ever to show a downturn since casino gambling was legalized there.
Meanwhile in Las Vegas, it has been reported that projects involving 10,000 new rooms worth $10 billion on The Strip alone have been delayed or cancelled.
Gambling expenditures there have dropped for eight straight months through August of this year. August 2008 was down 7.4 percent but May fell a whopping 16 percent. And all this was occurring before the Wall Street quakes.
Analysis
It s risky to draw too many conclusions from a few conversations with people involved with various aspects of the hospitality industry.
Still, we sense that people are cautiously optimistic that Montana will ride out the current economic storm. Montana financial institutions, from what we know so far, did not get caught up in the frenzy of sub-prime lending and gimmickry that brought about the downfall of some of the giants on Wall Street.
This is not to say that we won't feel the effects. Paws Up is an example of a hospitality business that is based almost entirely on wealthy out-of-staters willing to pay premium prices for a luxury vacation in Montana. In a stock market crash scenario, that customer base would be at ground zero.
Similarly, in that same scenario, real estate developers promoting the sale of Montana ranches for second and third homes for wealthy non-residents may also be affected. From the standpoint of a hunter and angler concerned about Montana s landscape and the subdivision of fish and wildlife habitat, that s not all bad.
Montana s agricultural economy may actually have a greater impact on the hospitality business.
After last year s dizzy prices for wheat, durum, livestock and other commodities, the bottom has dropped out of the markets. Farmers and ranchers suffered through a year with skyrocketing energy prices and are approaching winter wondering how they re going to pay off their operating loans.
It s not a happy situation. In those areas where agriculture is important and that includes most of Montana a tough year for farmers and ranchers is of more immediate concern on Main Street than failures on Wall Street.
Whatever the ultimate outcome, the disastrous deregulation of the financial markets that occurred over the last couple of administrations may finally quiet the clamor of those calling for deregulation of the alcohol manufacturing, wholesaling and retailing sectors across the nation and even in Montana.
Source: The Montana Tavern Times, November, 2008, published monthly by Continental Communications, 125 W. Granite St., Suite 102, Butte, MT 59701.