(Editor's Note: S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings.)
This report does not constitute a rating action.
Key Takeaways
- Despite the temporary pause and steep reduction on the highest tariff rates between China and the U.S. and the trade agreement with the U.K., sharply higher U.S. average effective tariffs on imported goods as well as the persistent unpredictability of policy have led us to lower our U.S. macroeconomic forecasts.
- Heightened macroeconomic uncertainty is likely to remain. Trade conflicts and market volatility may continue to weigh on consumer and business sentiment, and travel and entertainment spending decisions can be delayed or cancelled. This is already hurting hotel demand, particularly at the low end.
- The tariff impact on manufacturers may be more immediate, as discretionary spending on high-price leisure products such as boats, motorcycles, and powersports is already feeling the pressure from a strained consumer and high interest rates, and manufacturers will need to absorb higher costs.
- Several other leisure sectors including casinos, cruise, fitness, regional theme parks and live events will be sensitive to weakening consumer confidence. However, the impact of tariffs could be mitigated for some entertainment options if consumers choose to spend on value drive-to-entertainment options compared to expensive air travel and land-based vacations.
- Those ratings with sufficient cushion in credit measures will be able to withstand a temporary hit to earnings, and a majority of our ratings outlooks in the sector are stable. However, those issuers with limited cushion, or liquidity and refinancing needs, will face downward ratings pressure.
Despite the recent pause and steep reduction in the highest tariff rate between the U.S. and China, the jump in average effective U.S. import tariff rates, trading partner counter tariffs, ongoing concessions, and subsequent market turbulence constitute a shock to the system centered on confidence and market prices. Prior to the recent 90 day pause, we again lowered our baseline forecast for the U.S. economy to expand 1.5% and 1.7% on an annual average basis in 2025 and 2026, respectively, (down from 1.9% in our March forecast), with domestic demand (GDP excluding net exports) growing at a less than 1% annualized pace for the rest of this year. Although the recent pause, if it holds, could move our GDP growth expectation closer to our March forecast, it will not undo the near-term inflation impact. We forecast tariff-induced inflation will be higher and unemployment will also increase. This will likely weigh on leisure and entertainment spending, although we believe the impact will vary by sector depending upon price, and whether the purchase is discretionary and easily deferrable.
Retail sales of big-ticket discretionary products like boats, motorcycles, and powersports are easily deferred and retail sales will decline this year. On May 1, we lowered our rating on powersports manufacturer Polaris Inc. one notch to ‘BBB-’ and assigned a negative outlook based on prolonged higher anticipated leverage, a weak retail environment for powersports products, and sharply higher tariff related costs. Even with the temporary pause in the China tariff rate hike, Polaris’ credit measures will likely face heightened volatility. This is the only tariff-related downgrade we have taken so far in the leisure sector, but we are monitoring other issuers’ cushion in credit measures for the negative direct cost and possible sales volume impact. Harley-Davidson Inc. also pulled its guidance for the year amid weak retail heavyweight motorcycle sales, but ratings stability continues to benefit from very low adjusted leverage and strong liquidity. The boat and marine market remain under strain, pressuring a few manufacturers and suppliers. Specifically, our rating outlook on Brunswick Corp. remains positive because of significant fundamental business and operating improvements in recent years. However, the company faces the possibility it will be unable to reduce leverage below our upgrade threshold within the next year because of incremental net tariff impact on profitability, which could cause us to reassess our outlook. Additionally, we continue to believe that 2024 was the trough for recreational vehicle (RV) sales; however, declining consumer sentiment and still-high interest rates could result in a longer recovery and some issuers, primarily retailers, may not fully restore credit metrics if consumers delay purchases.
We believe tariffs present a near to medium term indirect risk to the lodging industry related to potential incremental weakness in consumer and business demand primarily driving lower leisure and business travel volumes, and we are lowering our 2025 U.S. revenue per available room (RevPAR) forecast range by 100 basis points (bps), to flat to up 2%. In addition, to the extent businesses pause various forms of investments, including business-transient, and group travel volumes will likely slow, at least until there is less uncertainty around tariff policy and some recovery in consumer confidence. The recent slowing trend in international inbound travel demand could persist, although if dollar weakness persists it may ultimately attract international travelers during the summer travel season. After a good start at the beginning of the year, RevPAR growth in the U.S. lodging industry began to moderate in each subsequent month as consumer sentiment weakened. U.S. RevPAR grew approximately 2% in the first quarter, which is the midpoint of our previous full year 1% to 3% growth range we set at the beginning of the year. U.S. RevPAR turned negative in the 28 days ended April 19 and was negative for the full month of April, mostly due to lower occupancy. The timing of Easter had a negative impact on the period’s results as well.
Low-end leisure travel and government-related travel slowed the most, although the rate mostly held steady as operators learned during the pandemic that systematically dropping rates does not create demand if vacationers are otherwise unwilling to travel. However, further weakening in still relatively healthy occupancy may test operators’ willingness to hold rate as competition to fill rooms intensifies. Most U.S. lodging companies modestly lowered their full-year RevPAR guidance around 100 bps at the midpoint, concurrent with first quarter earnings, with a few exceptions. Host Hotels & Resorts Inc. held its RevPAR guidance mostly due to a stronger-than-expected first quarter and Wyndham Hotels & Resorts Inc. lowered its RevPAR guidance range 400 bps at the midpoint primarily due to more rapidly slowing low-end leisure travel. If there is a near-term resolution of global trade tensions, then our current 1% to 3% growth range may hold. But given the greater likelihood of prolonged uncertainty, and the increasing probability that still-resilient business and group travel could slow, we are lowering our U.S. RevPAR growth range to flat to up 2% in 2025. Further moderation in RevPAR growth would pressure EBITDA margin for hotel owners, but most rated lodging REITs have sufficient cushion in credit ratios compared to our downgrade thresholds. Projected rooms growth for lodging managers and franchisors was not reduced following first quarter earnings and should support RevPAR and margin stability. In addition, all rated lodging managers and franchisors have good forecasted cushion in credit measures compared to downgrade thresholds.
Tariffs could increase gaming equipment manufacturers’ costs to produce machines and hurt demand for new machines. In the gaming sector, direct tariff risk is highest among gaming equipment manufacturers who tend to source parts and manufacture in countries like China and Mexico to varying degrees. This could most acutely impact gaming-machine sales, which tend to be more volatile as they are reliant on new casino openings and expansions and consistent machine-replacement activity. Tariffs could increase the cost of manufacturing new gaming machines and gaming equipment manufacturers could try to pass on the increased costs to gaming operators. To the extent new machine costs rise because of tariffs and gaming activity declines at casinos, operators may choose to defer significant investments in new gaming machines. Nevertheless, we expect the largest gaming equipment manufacturers to utilize their global production base to try to mitigate the impact of tariffs by shifting machine production so that they can manufacture and ship products within regions or to take advantage of existing trade agreements like the U.S.-Mexico-Canada Agreement (USMCA).
A possible increase in the cost of construction materials as a result of tariffs is altering some gaming operators’ near-term investment plans. Some gaming operators have recently postponed planned investments given increasing uncertainty around the direct impact of tariffs on construction costs. Wynn Resorts Ltd. recently announced its decision to delay about $375 million of capital expenditures (capex), including the Encore Tower remodel. Churchill Downs Inc. is temporarily pausing a $900 million multiyear project at Churchill Downs Racetrack. Both operators cited the inability to quantify significant cost increases due to tariff-related uncertainties. The companies intend to pursue these projects once tariff rates settle and they can better determine any changes in the project costs, evaluate any changes to scope, timing, or sequencing, and potentially re-source materials. For some development projects, guaranteed maximum price contracts could mitigate the risk of increasing construction costs. In addition, a number of large development projects are underway in markets that are not affected by tariffs, including Singapore, Japan, and the United Arab Emirates. Projects in these locations would provide some cost flexibility for issuers investing in them, and support cushion in credit metrics.
Softening consumer demand because of tariffs may result in a pullback in gaming activity. If tariffs cause consumers to reduce discretionary spending, we expect destination gaming markets would face greater declines. Operators with properties in Las Vegas could be exposed to a pullback in business travel and convention activity as well as decreased domestic and international air travel. Macao gaming operators could see a pullback in visitation and spending from mainland China, a significant feeder market, if tariffs constrain regional consumer spending, absent additional stimulus measures. Regional gaming impacts could be more moderate, given the relative ease of access due to significant drive-to traffic. However, some markets that are already facing significant competitive pressures from new property openings or expansions of online casino gaming could face more significant volatility in a downturn. Online gaming operations could potentially provide an offset, but this has not been tested in a downturn.
Significant 2025 forward bookings limit indirect tariff risks to cruise operators for now. At this point in the year, cruise operators have over 80% of their 2025 inventory booked, providing significant revenue visibility for the year. In addition, the industry doesn’t usually see spikes in cancellations if the economy weakens modestly. Therefore, even if unemployment rises in 2025, consumers are unlikely to cancel their previously booked trips, though onboard spending could decline if consumers tighten their budgets. A more prolonged decline in consumer spending resulting from the tariffs could decrease future bookings for 2026. However, in our view, consumers’ desire to vacation would likely lead them to search for deals rather than cut travel spending altogether. Cruise lines could benefit because the value gap between a cruise vacation and a comparable land-based vacation remains wider than historical levels. Cruise operators also have substantial capacity positioned in drive-to markets and offer shorter cruse itineraries, which could appeal to a value-conscious customer because it lowers the cost of travel.
Near-term demand patterns for fitness memberships, regional theme parks attendance, and live events appear undisturbed for now, but prolonged lower consumer confidence may limit spending. It is also plausible that perceived value entertainment options at lower price points may temporarily benefit if consumers trade higher-price air travel and land-based vacations for local value entertainment options. Even though the cost of sports and concert tickets have reached record heights, consumers appear to still value these experiences and continue to make room in the household budget. Additionally, live events continue to benefit from robust touring volumes with more shows scheduled in 2025 than 2024. However, prolonged lower consumer confidence and elevated credit card balances to fund discretionary experiences may limit spending and test the growth trend of recent years. Additionally, we would expect the delta in ticket prices between the primary and secondary markets, as well as onsite per capita spending, to compress in the event of macroeconomic weakness. Regional theme parks typically benefit, at least a little, from moderate economic weakness as consumers trade down to cheaper entertainment options, but a strained consumer may reduce in-park spending. Fitness memberships will likely continue to increase from perceived health benefits, but the mid-tier could get pressured if gymgoers trade to down to budget options.
U.S. Leisure And Entertainment Sector: Ratings And Outlook Distributions
As of May 19, 2025
Lodging
Chart 1
Chart 2
Gaming
Chart 3
Chart 4
Cruise
Chart 5
Chart 6
Leisure (includes outdoor recreation, leisure manufacturers, fitness, regional theme parks, ski companies, toys, and other leisure and entertainment issuers)
Chart 7
Chart 8
Related Research
- Global Credit Conditions Special Update: U.S.-China Tariff De-Escalation Brings Some Temporary Relief, May 15, 2025
- Bulletin: Mattel Inc. Faces Potentially Higher Costs Due To Tariffs But Benefits From Good Headroom At The Current Rating, May 12, 2025
- Bulletin: Hasbro Inc. Faces Higher Input Costs From Tariffs But Benefits From Strength In Its Wizards Of The Coast Segment And Its Scale, May 9, 2025
- Bulletin: Harley-Davidson Inc.’s Evaluation Of Investment Into Finance Subsidiary Does Not Affect Credit Quality, May 8, 2025
- Research Update: Polaris Rating Lowered To 'BBB-' On Higher Anticipated Leverage, Outlook Remains Negative, May 1, 2025
- Industry Credit Outlook 2025: Hotels, Gaming and Leisure, Jan. 14, 2025
| Primary Contacts: | Emile J Courtney, CFA, New York 1-212-438-7824; emile.courtney@spglobal.com |
| Melissa A Long, New York 1-212-438-3886; melissa.long@spglobal.com | |
| Dan Daley, CFA, New York 1-212-438-0020; dan.daley@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.