The price of gasoline could boost visitation at tribal casinos this summer and while inflation is a concern to tribal casinos, a bigger consideration is any potential recession caused by rising interest rates, a tribal-gaming consultant said Friday.
James Klas, founder and principal at KlasRobinson Q.E.D., gave his analysis on the sanctions on Russian oil on the closing day of the Indian Gaming Tradeshow & Convention. He spoke during a session on “The Effect of the Ukrainian Invasion on Gaming.”
“Rising gas prices will have an impact,” Klas said. “We’ve been through inflationary periods before, but it’s been a while. We’ve forgotten how some of that works. When fuel prices go up, travel costs go up, and when travel costs go up, people start to pull back from whatever they would normally do. If you’re the kind of person who would normally go for a vacation to Europe or Asia, maybe this year, because the prices have gone up so much, you take a step back or go to Disneyland or Disney World. You’re taking a vacation, but just not overseas.”
Klas said those who might typically go to Disneyland or Disney World may stay in their region instead and do something fun there.
“But if you’re the kind of folks who do that, you take one step further and maybe stay within your state,” Klas said. “The good news from an Indian gaming perspective is that Indian casino-resorts are well positioned to capitalize on that demand. What’s happening is, not only are you hanging onto your normal tourism demand, but you also have an opportunity, if you can market effectively, to pull in higher-end customers from farther away who would otherwise not be coming to you. You can market in the bigger cities at a little greater distance from you and say, ‘Hey, come here. It’s cheap. It’s close. It’s safe. Why not give us a try this summer, instead of what you would normally do?”
Conference Chairman Victor Rocha said tribes need to be more proactive in promoting even more staycations than they typically do.
Rocha asked Klas how inflation will impact tribal casinos, as patrons are spending more not only for gas, but also groceries and other items.
“From an inflation perspective, it’s going to get worse before it gets better,” Klas said. “The good news for the industry is that gaming does okay in inflationary periods in general, and inflation is not as big of a problem for casinos and resorts as recessions are. The danger is in attempting to control inflation, particularly with monetary policy, the Federal Reserve and other central banks in other parts of the world will overreact and tighten things up too quickly and too far. And that will spin us into a recession.”
What monetary policy can’t do is fix structural problems unrelated to overheated economies, Klas said. A structural problem, such as removing a significant percentage of the world’s oil supply from the market, has nothing to do with the amount of money circulating through the economy. That’s a production problem, he said.
“The answer to that is finding other sources for that fuel,” Klas said. “If the war ends and we can all get along again, Russian oil can flow. If it doesn’t, and it’s looking like it won’t happen anytime soon, then what needs to be done is not controlling the money supply, but opening up fuel supplies from other areas and improving the transportation infrastructure to get that fuel from point A to point B and now to point C overseas.”
OPEC hasn’t been cooperative in expanding oil production, but history suggests that won’t last and they’ll find it hard to resist the temptation of increased revenue by increasing production. For now, they’re showing discipline, which is making it harder to replace Russian oil and reduce that inflationary pressure, Klas said.
“There seems to be this disconnect between the reality of inflation and high prices and record revenue and numbers from the gaming industry,” Rocha told Klas. “I go to my casino and it’s packed. Is it exuberance from being out of the pandemic?”
Klas said people are anxious to get back to doing what they did before the pandemic, but reiterated that with the gaming industry, inflation doesn’t hurt it as much as a recession.
“Even though the value of the dollar is going down and the paycheck doesn’t buy as much as it used to, you don’t feel that right away,” Klas said. “What you feel right away is when you get a raise, and we’ve had a lot of raises. People feel like they have a little more money and they won’t feel the pain of having to spend more money on things right away. When you have people with more money in their pockets, they spend more money on fun. They play at the machines a little longer and feel better about it. That’s why the industry does reasonably well in inflationary periods. The fear is it’s going to tip us into a recession, because traditionally recessions are what get you out of inflationary periods.”
As for the impact of the situation in Ukraine, Ewa Bakun, Director of Industry Insight and Engagement for Clarion Gaming, which works with the Indian Gaming Association on putting on its trade show, told the audience she was born in Poland and is of Polish and Ukrainian descent and had relatives flee the war.
In August 2020, Bakun said, Ukraine legalized and regulated the gambling industry that opened the market to both land-based and online.
“Ukraine has been a very well-developed hub for innovation and development,” Bakun said. “A lot of content providers and operators, as well have tech development teams, are based there. The industry was excited about going in there, because it’s a big country with 40 million people. It’s the biggest after Spain in Europe and a promising market. The impact of the war has put a halt on those plans (of others to expand there).”