America's wheel of fortune is spinning again

Trying to assess the health of the US economy based on economic indicators can be like spinning the wheel of fortune. Reports are released, usually monthly, on everything from gross domestic product to housing starts, the consumer price index to the unemployment rate. But those reports can often tell different stories about how well the economy is tracking, depending on which one you land on.

One rarely used indicator that was dusted off this week is gaming revenue and the amount of bad debt that casinos allow for every year.

Gone are the days where mobsters could break kneecaps as a way to encourage high rollers to pay their debts. Now, there is little recourse for them except to file lawsuits, which they do rarely. Casinos have to rely mainly on good faith, which is why so few of us have long lines of credit to call on at the blackjack table when the chips are down.

During the recession all four of the major casino companies increased the amount they expected to lose from debt that people can’t pay back – usually seen in tough economic times, but now those estimates are back to pre-recession rates.

In 2008, Wynn Resorts, founded in 2002 by casino tsar Steve Wynn, upped the amount of debt it believed people would skip out on by 40 per cent. The company felt that it would only recover about half of what it lent punters.

Sands had slightly more faith in its patrons, writing off just 25 per cent of the money it lent.

To put that into perspective, rental company Hertz said last year it expected to write off 1 per cent of the money it was owed and retailer Target estimated a 6 per cent loss from its credit card business.

For the big four casino chains, Sands believes about $US492 million ($518.5 million) of last year’s debt may be unrecoverable; Caesars Entertainment estimates a $US202 million loss; while Wynn and MGM Resorts had allowances of $US100 million. No need to feel too bad for these jilted casinos though – Sands’ gambling revenue last year was a reported $US9 billion, while Wynn’s revenue was about $US4 billion.

Pundits were quick to suggest that the lower levels of bad debt among high rollers indicated an uptick in the economy. But has spending also risen among fair-weather gamblers?

The latest report by the American Gaming Association suggests it has. The group, which covers the commercial casinos in the US, saw gaming revenue in 2008 and 2009 decline but it has nudged higher each year since then. In 2012, revenue from commercial casinos in the US hit $US37.34 billion, $US3 billion more than in 2009.

Holly Wetzel, spokeswoman for the AGA, said while gambling revenue as a measure of the economy tended to lag other indicators she was hopeful that the worst was over for the industry.

“Our industry is tied to consumer spending so we definitely suffered a downturn during the recession,” she said. “The numbers that we are seeing now are showing that Americans are generally starting to bet a little bit more than they did during the recession.”

Also propelling the industry’s increased revenue figures are the additional casinos that have opened across the country. In 2008 the US had 868 casinos while in 2012 that had risen to 930, with many more expected to open their doors in 2014 and 2015.

“The revenue story is very much a state by state picture,” Ms Wetzel said. “Ohio is set to open four new casinos; New York has a large casino opening in Queens and Maryland has just brought in legislation in the past few years to allow gaming.

“It does mean that for places like Atlantic City in New Jersey profits are down because it used to have an East Coast monopoly and now it doesn’t.”

With gamblers seemingly back in the game, states have this year started introducing online gambling. Nevada, naturally, kicked things off in April with Ultimate Poker. This week Delaware went even further by offering a greater range of online games to bet on, and New Jersey will become the third state to allow online gambling later this month.

While gaming revenue is just one sign to show Americans are spending again it may help fill out the picture for the US Federal Reserve, which is waiting for more positive economic indicators before it pulls back on its stimulus program.

Fed chairman Ben Bernanke has shown he is far too cautious to be a gambling man but moves to reduce the stimulus are increasingly looking like a safe bet.

Mathew Murphy is a Walkley Award winning journalist based in New York.