Nevada’s casino industry is on track for 2021 to produce its fourth-ever $12 billion revenue year. Nationwide, gaming revenues have already surpassed 2019’s record total.

One gaming analyst, however, believes as the year draws to a close, it might be wise to take a deep breath and evaluate where the casino sector is headed in 2022.

Deutsche Bank gaming analyst Carlo Santarelli took a comprehensive look at the overall casino industry in an extensive research report released last week.

A day after the American Gaming Association said commercial casinos had all but equaled through October its 2019 full-year record of $43.65 billion in gaming revenues, Santarelli said comparisons for domestic gaming – regional markets and Las Vegas – will “stiffen” in the second quarter of 2022 and beyond.

“We think the setup for the year is actually somewhat challenging,” Santarelli wrote of the regional gaming markets in the summary of his 195-page report. In addition to gaming revenue comparisons toughening, expectations measured by cash flow forecasts will leave “limited room for error.”

Santarelli has been covering the gaming industry from a Wall Street perspective since the early 2000s and his research is often highlighted by financial networks.

His takeaway for the Las Vegas Strip was the recovery experienced during 2021 could face a “modest contraction” during 2022.

Through October, Strip gaming revenues are 3.5 percent ahead of the 2019 total by nearly $6.59 billion. The nation’s casino capital is on pace to surpass that figure. In 2020, casino shutdowns and operating restrictions caused by the pandemic sent Strip gaming revenues tumbling to $3.73 billion, a 43.3 percent drop compared to 2019 and the lowest annual total since 1996.

“The 2021 recovery in Las Vegas Strip gaming revenue surpassed even the most bullish predictions, driven primarily by a consolidation of travel domestically and elevated spending levels,” Santarelli wrote. The analyst noted Strip gaming revenues between April and October are up 19 percent.

Statewide, Nevada casinos have reported eight straight $1 billion gaming revenue months, tying a 14-year-old record. The total is 9.2 percent above 2019’s $12 billion figure.

Santarelli said the Las Vegas recovery has been fueled by a variety of trends, including a consolidation of travel to domestic markets because of COVID-19 restrictions associated with international travel. But he said the “single-most important factor” has been the spending habits of casino customers. Strip gaming revenue from slot machine play is up 13 percent this year compared to 2019. Slot wagering has also increased 12 percent.

The void in group meetings and convention businesses caused by the ongoing pandemic has been filled by casino patrons, who through October have averaged $218 per customer in gaming spend, which Santarelli said is up roughly 45 percent from spend-per-visitor levels between 2015 and 2019 and is up roughly 26 percent from the 2007 peak spending total.

But he doesn’t believe the figure is sustainable.

Santarelli said Las Vegas Strip operators “were largely bullish” around a return of group business in the upcoming year, according to comments made at a recent Deutsche Bank-hosted conference.

“Operators continue to believe a resurgence in group [business] is a key for the Strip, as it is likely, in our view, that the leisure strength and casino customer spend levels will struggle to maintain current run rates,” Santarelli said. “Operators believe the medium-to-longer-term health of the market remains tied to the resumption of convention and group business.”

Santarelli wrote it’s “difficult to assume” that casino spending will continue to see elevated levels in 2022, especially as other travel options emerge.

For now, the gaming industry is basking in the record-setting pace of 2021.

The Washington D.C.-based AGA said combined revenue from slots and table games, sports betting and internet gaming was $4.75 billion in October, the second highest monthly total ever behind $4.93 billion generated in July 2021 and the eighth consecutive month commercial casinos have surpassed $4 billion.

According to the AGA, 24 of the 25 commercial gaming states that were operational in October 2019 saw a revenue increase, with New Mexico down less than 1 percent.

Meanwhile, Santarelli noted real estate investment trusts, notably VICI Properties and Gaming and Leisure Properties, will remain “a relative safe haven” for investors “in a volatile gaming landscape.”

He said $31.6 billion in “outsized” mergers and acquisitions announced this year accounted for roughly 54 percent of all REIT deals since the first gaming REIT was formed in 2013. Highlighted by the $4 billion VICI Properties is spending as part of the overall $6.25 billion purchase of Las Vegas Sands’ resorts on the Strip, and its $17.2 billion buyout of rival REIT MGM Growth Properties, Santarelli said 2022’s deals won’t be as action packed.

“While we expect 2022 to be a slower year,” although Santarelli wouldn’t be surprised to see “less volatile, solid return stories to augment their portfolios.”

Updated at 8:02 a.m. on 12/12/2021 with information about Santarelli.