As more states look to fill their coffers with gaming revenue, many regional operators are facing increased pressure from the added competition from adjacent markets, according to Steve Epperly, Senior Director, CIT Corporate Finance, Gaming, a division of CIT Group Inc., a leading provider of commercial lending, leasing and advisory services. “An increasing number of states want to provide gaming options to their residents rather than see them head to adjacent states to gamble, leading to the recent expansion of the gaming industry,” says Epperly. These are some of the insights found in “Betting on the Commercial Gaming Sector,” the latest installment in the CIT Executive Spotlight series of in-depth executive Q&As.

“In the face of tightened budgets and revenue streams, gaming is becoming more and more important to states,” notes Epperly. “Traditional regional gaming markets are feeling the impact of this expansion, whereas before they enjoyed exclusivity within their markets, they now have to deal with new entrants in adjacent states.”

The Midwest is facing this particular situation, where Ohio’s recent casino openings are putting pressure on operators in Illinois and Michigan. Additionally, the rise of Pennsylvania’s casinos has put pressure on Connecticut’s gaming sector. Compounding the compression is the fact that middle class gamblers—the staple consumer for many regional markets—now game less frequently in the wake of the Great Recession.

Epperly offers additional insights into the U.S. gaming industry, including:

• The sector is looking for a mixed bag of financing options in an effort to reinvent itself: Gaming companies are using financing for expansion, greenfield project finance and acquisitions. Larger operators are shedding non-core properties which are creating opportunities for smaller, less diversified companies to pick up new businesses and diversify themselves.
• Potential borrowing cost increase on the horizon: Many gaming operators have maturities and obligations coming due in the next few years. Dependent upon the markets in which those companies operate, this situation could potentially lead to higher borrowing costs in markets that are under pressure or declining due to increased competition.
• Some U.S. regions offer bright spots: Newly created jurisdictions in Massachusetts, Ohio and Maryland have casinos in the pipeline to be built, or opening soon. Las Vegas is also on the rebound with increased investment in new openings and property expansions.
• Online gaming will benefit from more regulation: Online gaming will roll out slowly, on a state-by-state basis, likely under the regulatory framework already established in these states for traditional land-based gaming. Growth in online gaming will reach a tipping point when a critical mass of states approve the activity and then enter into interstate compacts that pool gamers in these states together, similar to those agreements that govern multistate lotteries such as Powerball.
• Opportunities in the market exist in commercial, Native American and abroad: Asia remains a growing international market. As a result of profitable investments in Macau that kept some operators afloat during the Great Recession, companies are looking toward Japan, South Korea, the Philippines, Singapore and Vietnam as prime real estate for the next gaming boom. Expect to see continued loan demand in the Native American gaming sector from expansions on better performing Native American casinos and on the commercial side, loan demand will be driven by M&A activity and refinancing.

CIT Corporate Finance provides lending, leasing and other financial and advisory services to the middle market with a focus on specific industries, including: Aerospace & Defense, Business Services, Communications, Energy, Entertainment, Gaming, Healthcare, Industrials, Information Services & Technology, Restaurants, Retail, and Sports & Media.

Founded in 1908, CIT is a financial holding company with more than $35 billion in financing and leasing assets. It provides financing, leasing and advisory services to its clients and their customers across more than 30 industries. CIT maintains leadership positions in middle market lending, factoring, retail and equipment finance, as well as aerospace, equipment and rail leasing.