Industry reps say bottom hit
By Paul Tash
Montana Tavern Times
With four quarters of statistics recorded since the statewide smoking ban's inception Oct. 1, industry representatives agree that the bottom has been reached.
However, the industry now is operating at revenue levels of those reached in 2005, and nobody expects a quick return to the high levels of 2008, before the statewide smoking ban and a historically poor economy ravaged the industry.
Levels of 2005, then, are the new reality today, industry representatives are saying.
“Are we at the bottom?” said Tim Carson, of Amusement Services, one of the state's largest machine vendors.“I think we are, but I don't think we will get back to pre-ban numbers for a couple years, if ever.”
Taxes collected in the first quarter of Fiscal Year ‘11 totaled $12,338,197, a drop of 18 percent over the first quarter of FY10 and down about 2 percent from last quarter. Totals and percentage drop in the previous three quarters are: FY10 2Q $12,438,476 (-18), FY10 3Q $12,282,222 (-21), FY10 4Q $12,626,522 (-18).
The magic number for next quarter may well be $12,438,476 – last year's second quarter total. If that number can be beat, it would mark the first quarter-over-quarter increase since 3Q FY 2009.
Though the bottom likely has been reached, the industry has paid a price, and many operators continue to suffer.
Carson said he's currently seeing another phase of bankruptcies as some operators have used up their capital “trying to stay afloat.”
Other operators, he said, have learned how to function in this new reality by “embracing change” and improving efficiencies.
Steve Arntzen, the head of Century Gaming, said, “We have established a clientele that can exist at this level, but we have a lot of accounts that are still struggling.”
Carson said the landscape has changed since 2005, as well. Diversified bars and taverns seem to be coping better than casinos, he said, especially the 20-machine operations.
So if the bottom has been hit, when can operators see a bounce?
Carson had some caution. He said his routes in the first three weeks of October hadn't experienced anything great, and in fact were tracking off some.
“I'd like to see three running quarters when we get an increase (in revenues),” Carson said, “to get people thinking that maybe that this is behind us, before people start feeling better about themselves.”
Maybe then the industry will “loosen up” a bit, and start spending on such items as new equipment and machine updates, to keep people employed, he said.
“Everybody is still scared,” Carson said. “I can't blame them.”
Both Carson and Blaine Bowman, of Spielo Gaming, said winning players back is won't be easy.
The smoking ban and the economy has been a terrible double-whammy, they said.
“People have adapted,” Bowman said. The former machine player who's now “in his basement in his underwear playing internet poker” is not coming back, he said.
Bowman said the behavior of many players who have stayed has changed. For example, he said smokers are playing shorter periods, “maybe 30-minute intervals if that,” and leave to go outside to smoke.
“About the second time they go out,” he said, “they say, hey I'm already out here, I should just leave.”
In addition, Bowman said, “People are less likely to leave money in the machines. That's a function of the economy. We're seeing a lot smaller cash-out tickets.”
Industry representatives agreed that it's virtually impossible to decide if the smoking ban or poor economy had more to do with the gambling downturn. There is no precedent for this.
And the decline in gaming isn't just a Montana problem, Bowman said, adding that Illinois gaming is down 20 percent and that state didn't have a smoking ban clouding the issue.
“If we didn't have double digit unemployment rates, where would we be?” Bowman said. “We're not just dealing with smoking. It's complicated.”
How long will it be before the industry begins to recover?
“I think the job picture has to improve,” he said. “Disposable income used for gambling is a pretty low-hanging fruit if you're looking to cut your budget.”
“I think you'll see those players come back,” he said, “but it could be years.”
Arntzen said it could take just as long to get back to 2008 levels as it took to fall to the current levels.
“I don't see a quick turnaround,” he said.