The economic downturn in the United States has had its impact on the casino industry there. Las Vegasand Atlantic City, traditionally the leaders in the US market, have taken big hits financially. Stalled expansion plans, job cuts and even bankruptcy proceedings have proven that the US gambling industry is not nearly as recession-proof as had always been thought.

There have been several factors that have contributed to the financial slump, according to industry analysts. Soaring gasoline prices, airline cutbacks, increased local competition, smoking bans and even natural disasters like Hurricane Katrina have all played a part in the decline.

“Currently we are in the middle of a perfect storm: gas prices cutting automobile travel to regional casino markets and substantial air capacity cutbacks to Las Vegas combined with job losses from our current recession,” said H. Steven Norton of Las Vegas. Norton is a former executive at the Sands Hotel and Casino and is now a partner in Northeast Resorts, which is hoping to develop a casino in New Bedford, MA.

Unfortunately, expansion plans made in the earlier bull market has many companies deep in debt with funding sources drying up fast. Many casinos had planned or started ambitions plans for new resorts, casinos and hotels before the downturn and as revenues continue to fall, more are burdened by heavy debt loads without the means of paying it off. Projects have been postponed and some are sitting half-finished as banks have tightened lending policies.

Several gambling companies have been forced to file bankruptcy as the debts have become too heavy to carry. The first one was the famous Tropicana Entertainment LLC which filed for Chapter 11 protection after defaulting on more than $2 billion US dollars in bond and bank debt. Tropicana was followed by Greektown Holdings LLC and Legends Gaming. The companies have casinos in Atlantic City, Michigan, Louisiana and Mississippi.

Stock prices had already tumbled to record lows for many of the gambling concerns before the latest blow to the already reeling industry. MGM Mirage stocks are trading more than 60% less compared to this time last year and the Las Vegas-based Boyd Gaming Corp. has dropped to the lowest price in five years. To top this all off, now the credit-rating agencies are downgrading casino companies in the dozens.

Moody’s Investors Service downgraded 17 companies this year and are reviewing at least 11 more for possible downgrade. The lower bond ratings mean that it is a lot more expensive for companies to borrow money which will hurt the companies that were planning expansion or upgrade activities over the next few years. Analysts say the end result is not to expect much in the way of new development at least on the Las Vegas strip for several years.

Keith Foley reviews casinos for Moody’s and tracks 55 companies that have a combined revenue of approximately $52 billion US dollars. He says that casinos are “more susceptible than ever to economic downturns” and seems pessimistic about the future.

“The casino industry is in the midst of what could be its most severe downturn ever,” Foley said. “After 9/11, everyone thought Vegas was immune to just about anything, and its suddenly obvious and maybe kind of scary that it is not.”