You know the casino industry is in trouble when relatively few equity analysts tout "buying opportunities" for stocks that have been crushed.

Share-price declines of 50% or more during the past 12 months are the rule, rather than the exception, for prominent casino operators. And there's little hope that the industry will stabilize -- let alone turn around -- until late this year or early next year.

Gambling's biggest names, including MGM Mirage (NYSE:MGM), Las Vegas Sands (NYSE:LVS), and Wynn Resorts (NASDAQ:WYNN), are a bust on Wall Street. Hold-plus-sell ratings outnumber buy ratings for each of these companies as well as for most major casino operator stocks, according to data compiled by Thomson Reuters.

Even companies most favored by equity analysts, Penn National Gaming (NASDAQ:PENN) and Pinnacle Entertainment (NYSE:PNK), have suffered sharp stock drops.

As for Trump Entertainment Resorts (NASDAQ:TRMP), if it were a contestant on the TV show The Apprentice, it would have been fired before the opening credits had concluded. The stock trades for less than a pack of chewing gum.

Deeper in debt
Shareholders are paying now for what bondholders knew months ago. In an industry where debt is a source of life, or at least expansion, it can hurt when interest and principal payments come due.

Seventeen casino operators are at a high risk of default, says Moody's Investors Service. The endangered species list contains mostly small, private companies. Trump Entertainment is on the list, too.

And those are just the worst of the bunch. No commercial casino operator followed by Moody's or Fitch Ratings has an investment-grade rating.

In boom times and in growing markets, debt financing is no problem. Ditto for new markets and markets with few competitors -- no problem. However, when consumer spending shrinks, credit markets tighten, and debt maturities loom, there is a problem. It's not just the size of the debt; it's the date of the maturity. Look for plenty of negotiations on debt that matures in 2009 and 2010, and expect more downgrades this year.

Casinos are taking many steps to patch up their finances. By the quarter ended Sept. 30, 2008, Las Vegas Sands had a debt-to-equity ratio of 4.5-to-1. In November, the company raised about $2.1 billion by issuing more stock and warrants.

Harrah's Entertainment, which was taken private in early 2008, saw its long-term debt nearly double to $24 billion by Sept. 30, compared to Dec. 31, 2007. In late December 2008, Harrah's won some breathing room by exchanging some existing debt for new debt, pushing back the maturity dates on obligations.

Consumers cut back
Part of the bust is due to the gambling industry's past successes. As more venues opened away from Las Vegas and Atlantic City, casino operators began offering more entertainment to attract a wider audience -- shows, restaurants, hotels. However, this strategy also made casinos more sensitive to consumer spending habits.

Even as casinos offer discounts and deals, consumers aren't spending. The Nevada Gaming Control Board says the casinos' "win" was down 12.9% for July-November 2008 versus the same period in 2007. "Win" is an industry term representing gross casino revenue, and excluding revenue from sources such as hotels, food, and drink. New Jersey's Casino Control Commission reported recently that the Atlantic City casinos' "win" dropped 7.6% in 2008 versus 2007.

Casino industry executives forecast a rebound when the economy recovers, but some analysts wonder how fast consumers will return to their old spending ways given the recession's length and depth.

Meanwhile, the financial health of casinos has become so skittish that factors other than consumer income and confidence can cause a tilt in revenue. The New Jersey Casino Control Commission blamed a partial smoking ban, as well as gambling competition from neighboring states, for Atlantic City's woes. Fitch Ratings says smoking bans affected casino revenues in Colorado and Illinois.

Build or delay
The recession has also raised questions about projects that had been started before the economy collapsed. Consumers can be fickle, and casinos try to outdo each other in creating must-see entertainment.

For accountants fretting over balance sheets, delays in new construction and expansion give companies more free cash flow. Delays mollify the concerns of analysts that casino operators will overbuild in certain markets.

In December, Isle of Capri Casinos said it wouldn't do any "new significant capital projects" until it was convinced of "sustained signs of economic improvement."

In August, Boyd Gaming (NYSE:BYD) said it would delay work on its Echelon casino-hotel project in Las Vegas for three to four quarters, "assuming credit market conditions and the economic outlook improves." It recently completed an expansion of its Blue Chip Casino in Michigan City, Ind.

But despite the Echelon delay, Las Vegas keeps building. Three casinos have opened since August. Three more, plus a big casino expansion, are due in the next 12 to 18 months.

However, in a city where nothing succeeds like excess, shareholders and bondholders are hedging their bets. And for investors in companies that own many casinos across the United States, unfortunately, what happens in Vegas is happening everywhere else.