The high-flying gambling industry, long thought to be recession-proof, is having its wings clipped, and its woes may say as much about the economy as about the industry.

So far this year, a handful of debt-laden casino operators have filed for bankruptcy, and several others have shelved or slowed ambitious expansion plans as financing has become tougher to secure.

“Obviously, this is a time of great uncertainty within the gaming business,” said Jim Perry, chief executive of Isle of Capri Casinos, on a recent conference call with analysts. “A lot of it is caused by uncertainty regarding gas prices and the economic slowdown.”

The extent of the industry’s troubles is all the more shocking because casinos had performed moderately well during the recessions of 1990-91 and 2001.

That’s not proving to be the case this time around. Through June, gambling revenue in Las Vegas is down 5.6% year over year, according to data from Standard & Poor’s. Revenue in Atlantic City has dropped 6.1%. In both locations, sales had continued to grow through the prior two recessions.

Part of the problem may be that the industry’s revenue stream isn’t as tied to gambling as it used to be, particularly in Las Vegas. Since the 1990s, casino operators have shifted their focus to providing profitable goods and services such as Broadway-quality shows, luxury hotel suites and four-star restaurants. For instance, last year MGM Mirage booked USD 3.3 billion in gambling revenue and USD 8.4 billion in sales from entertainment, food and lodging, according to the company’s annual report. In 1997, it posted USD 482 million in gambling revenue, and about USD 378 million in sales from non-gaming sources.

While the shift away from gambling may have boosted profits during the economic expansion, it has made the industry more vulnerable to a downturn, as con-sumers curb spending on res-taurants and in retail businesses.

“Sometimes your strength is your weakness,” said Frank Fantini, who runs his own gaming research firm. “That’s the flip side, and that is what has happened with a lot of big, Vegas-oriented companies. They changed the business model. And it turns out that business model is much more susceptible to recession.”

Then again, the pain hasn’t been limited to resort destinations. Gambling itself is taking it on the chin, surprising some observers. Regional casinos, where gambling for the most part remains the top draw, are also taking a hit: Revenue from slot machines—a key metric of the industry’s health—fell 6.1% in West Virginia in the three months ended June 30, to USD 230 million, according to research firm Spectrum Gaming. Connecticut reported a 4.3% decline, to USD 407 million, and the drop from Delaware slots slipped 1.8%, to USD 152 million.

“Gamblers are simply not making as many trips,” said Joe Weinert, an analyst at Spectrum Gaming. “And those who are are spending less.”

The softness is proving especially perilous for casino operators that took on too much debt during the days of easy credit in 2006 and 2007. Many borrowed heavily to finance new developments and acquisitions. Now they’re finding it difficult to cover the interest payments on those loans.

At least three casino operators have filed for bankruptcy so far this year, after the toxic gaming environment exacerbated internal problems. Legends Gaming and Greektown Casino filed for bankruptcy protection when costly expansion plans that didn’t pan out resulted in liquidity problems. Both had defaulted on their loans. Tropicana Entertainment filed for bankruptcy in May after missing an interest payment on a USD 1.32 billion loan, after being dealt a fatal blow a few months earlier when New Jersey casino regulators stripped it of its local casino license.

Last Thursday, Bloomberg reported that Deutsche Bank will foreclose on the Cosmopolitan Resort & Casino in Las Vegas after its developer defaulted on a USD 760 million loan.

Increased competition, flooding in the Midwest that shuttered some casinos, and smoking bans that have taken a negative toll on sales are adding to the woes of the gambling industry. Industry experts say there are probably more gaming bankruptcies on the horizon.

For example, Las Vegas-based Herbst Gaming looks to be in trouble, having closed one of its Nevada casinos last month as it struggled to pay down mounting debt. It also missed two interest payments on its subordinated debt in May and June.

French Lick Resorts & Casino is still vulnerable after having narrowly avoided a bankruptcy filing in April by purchasing USD 128 million of its outstanding mortgage notes at a 20% discount to their par value.

Standard & Poor’s and Moody’s both say the gaming industry’s troubles will continue until at least the middle of next year, given that its health is now tied to that of the overall economy. Since the start of the year, Moody’s has downgraded the debt of 17 gaming companies, and 20% of the 55 companies it covers are on review for downgrade or have a negative rating outlook. Standard & Poor’s has assigned its lowest rating, D, to five casino operators this year. It has placed another six in its CCC category, suggesting a high probability of default. Of course, the downgrades will likely make it more expensive for those companies to refinance or raise new debt. A handful of casinos have delayed or scuttled development plans, citing the tight credit markets.

Last month, the Las Vegas Sands abandoned its effort to build a USD 500 million casino outside of Kansas City, Mo. Projects in the pipeline have also been delayed or even scrapped. Harrah’s said it was slowing the pace of construction at its USD 700 million Margarita-ville Casino in Biloxi, Miss., and Bloomberg News reported that MGM Mirage and Dubai World were late in arranging some USD 3.5 billion in financing from Deutsche Bank and Credit Suisse for the USD 11.2 billion CityCenter project in Las Vegas.

“Even though the credit markets over the last several years have absolutely loved the gaming industry, right now the money is not there,” said Spectrum Gaming’s Mr. Weinert.