A Period of Adjustment
Oops! That huge hissing sound is the gaming balloon that experienced been increasing above the several years, gradually dropping air. But, it has not been a tide that reduced all ships nevertheless, as some emerging and expanding gaming jurisdictions showed powerful expansion in 2008.
All round, the commercial and racetrack casino sectors (excluding Indian gaming), skilled a three.five % drop in gaming revenues for 2008, creating a overall of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they showed a obtain of virtually $one billion in 2008, therefore bringing the Professional sector market decline to $1.eight billion, or six.seven %. Nevada was the most significant loser in 2008, dropping almost $1.3 billion, far more than 50 % of which stemmed from the Las Vegas Strip phase.
Hunkering Down
For the most element, on line casino operators had been caught comparatively flat-footed by the extent of the 2008 earnings downturn, as it was not until the third and fourth quarters when it actually nosedived. Driving the crest of year more than yr industry growth across the country and the availability of enough credit and equity funds, new construction and expansion proliferated in modern a long time. Nowadays, faced with the realities of declining, or at very best stagnant need, numerous of these initiatives are now regarded as more than-leveraged and/or over-sized. As a end result a lot of gaming businesses are making an attempt to renegotiate their debt – created more difficult by lower valuations – while also paring down operational costs. The latter has turn into a really problematic conundrum when dealing with the competitiveness, specially in people jurisdictions that are now vying for market place shares with new rising on line casino initiatives in neighboring places. A subject we go over a lot more totally in the Point out by Point out investigation area of this publication.
As a result of these conditions the gaming industry landscape is now strewn with impending fatalities. Amongst the a lot more notable troubled corporations are Station Casinos, Empire Resorts, Harrah’s Amusement, Greektown Holdings, Legends Gaming, Tropicana Amusement, Herbst Gaming and the checklist grows every 7 days.
“How long will these financial problems persist, and are we at the bottom nevertheless?” are inquiries no one appears to be answering but. What is distinct nonetheless is that most gaming jurisdictions will have to learn how to deal with a scaled-down pie.
Be aware:
This analysis includes only gaming revenues of certified casinos and pari-mutuel retailers that supply on line casino online games, and not Indian gaming operations, card rooms, or small non-on line casino type slot places. The complete report, which includes revenue tables is obtainable on our internet page.
Input/Output Model
A key element that appears to have arisen from the ashes of this present development is that many casino projects were just way too large to assistance on their own. The input, in conditions of expenditure bucks, was not proportional to the output, in terms of net revenue following credit card debt services, in contrast to earlier reached benefits. Far more and/or larger is not constantly greater. Seeing the rise in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the improvement of much more extensive amenities in a lot of other jurisdictions. The flaw in this strategy nevertheless is that the costs associated with widening industry penetration and occasioned-use, are substantially higher than individuals incurred to entice the base marketplace.
As daytripper marketplaces become much more competitive, on line casino venues will have to rely far more and much more on their in-home hotel patrons, and measurement their homes (and anticipations) accordingly. Although Steve Wynn started out a key pattern in generating up-marketplace mega-places, there just was not ample demand from customers on the Strip to warrant the numerous other related tasks that followed that aimed at the exact same market.
The trick is to strike a happy medium in task configurations which of system need significantly less of a ‘seat-of-pants’ method, and one particular that is a lot more examined. A shameless plug for growth consultants like ourselves.
Other Gaming Pursuits
Although there are no published in depth knowledge of American Indian gaming revenues, anecdotal evidence seems to recommend that this phase has been as tough strike as the Business sector. The two Connecticut Indian gaming installations report slot profits of $one.6 billion in 2008, representing a fall of about seven percent, or almost $114 million, a lot more than doubling the three.five p.c fall from the yr prior to. This market is apparently nonetheless reeling from the ripple-influence of a casino enlargement in Rhode Island, and the opening of slot operations in New York and Pennsylvania.
The Arizona Section of Gaming stories that contributions dependent on a gaming revenue system from the state’s 23 Indian gaming casinos, have been declining every single quarter in 2008 in comparison to the preceding year lowering .8 per cent in the 1st quarter, 7.five per cent in the 2nd quarter, 9.5 p.c in the 3rd quarter, and 16.one per cent in the fourth quarter.
Some SEC reporting Indian gaming houses report similar decreases. Seneca Gaming, which operates 3 Class III casinos in upstate New York, studies that even though calendar year 2008 showed an practically two percent development price in gaming revenues, there was an 8.seven p.c decrease in the 3rd quarter and an practically 10 p.c drop in the fourth quarter of 2008, in contrast with 2007. Gaming revenue tendencies at nearby Niagara Falls, Ontario were down one.five% in 2008 in comparison with 2007.
It’s been a blended-bag for state lotteries across the country. The North American Association of Point out & Provincial Lotteries stories that U.S. lotteries produced a overall of $sixty.6 billion in sales in fiscal 2008, up about three % from the prior 12 months yet some jurisdictions noted decreases, most notably California, which confirmed an 8 p.c drop. Inasmuch as some of these states are on various fiscal year ends, it would seem to be that the information does not reflect the affect of third and/or fourth quarter benefits.
According to info provided by Equibase, horse racing pari-mutuel revenues keep on their downward spiral, slipping seven per cent to $thirteen.seven billion in 2008, vs . $14.seven billion in 2007.
Prepared & Proposed New Expansions
As earlier noted, it has been new gaming jurisdictions that have spawned much of the growth in yearly casino/racino revenues more than the years, and their effect is apt to keep on into the close to future.
Florida
Miami Dade voters accepted a ballot situation that permits every of 3 pari-mutuels to have a casino facility of up to two,000 slot devices. The Flagler Puppy Track and Miami Jai-Alai are reportedly arranging opening in late 2009 or early 2010, even though the Calder set up in Miami Gardens has yet to declared its plans. There are quite a few other proposals becoming considered that would further expand on line casino growth throughout the condition.
Illinois
The condition last but not least got close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Enjoyment, LLC for a 1,two hundred+ match casino located in Des Plaines just east of O’Hare. The new facility is not very likely to open till 2010. There has also been some discussion about permitting an improve in per location gaming positions and slots at racetracks, even though neither initiative seems to have any traction at this time.
Kansas
The state’s expanded lottery software that permits for the growth of 4 casino gaming zones and slots at existing horse and pet tracks appears mired, as only one facility is presently under design, while a few other proposals were rescinded. The only bidder on the Cherokee County deal, claimed it could not contend with the new Quapaw tribal casino in Oklahoma, which is positioned so near to the condition line that its parking good deal is in Kansas. The Boot Hill Casino Vacation resort in Dodge City is planing a December 2009 opening with 575 slots and 10 table video games, alongside with a second stage due to open in 2011 with 875 slots and twenty table online games. The point out has extended the application method for the other three zones right up until April, 2009.
Kentucky
There is nevertheless a lot of ‘jockeying’ likely on, but the prospect of as a lot of as eight slot parlors and racinos appears to be back again on the front-burner, but probably not solved during the recent legislative session.
Las Vegas
There are about fourteen,000 rooms scheduled to come on line in 2009, with the most current becoming the 390 room M Resort in Henderson. There are expansions underway at each Caesars Palace and Difficult Rock and new hotels consist of two components of the Town Heart task, and the Fountainebleau.
Louisiana
Pinnacle Entertainment’s new on line casino growth initiatives in Baton Rouge and Lake Charles, whilst delayed, are described to even now be on-track for opening this yr and/or early 2010.
Maine
There is a invoice below thing to consider that could far more than double Penn National’s slot machines to three,000, as well as a proposal that would take away the restriction that slots be found within 5 miles of the track. Scarborough Downs, which has been unsuccessful in convincing neighborhood inhabitants to enable slots, may possibly be taking into consideration relocating to a far more hospitable city.
Maryland
A referendum was authorized in November, 2008 that allows for the improvement of 5 casinos with a overall of 15,000 slots, and now the bidding war is afoot despite the fact that it is not as intense as the condition had predicted.
Mississippi
Grand Soleil Casino Vacation resort in Natchez had been slated to open up in 2008, but has run into different funding troubles and even though the lodge portion is open up, the riverboat is described to open up in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, even though scaled back again relatively, is nevertheless on observe to open up this calendar year.
New England
Massachusetts, a sleeping-big in phrases of market prospective, is even now maneuvering to open up casinos/racinos, and/or a Class III Indian gaming facility, but cannot seem to muster the political assist. A modern study finished by Dartmouth University estimates that Massachusetts resident expended much more than $920 million final 12 months at Connecticut casinos and slot machine parlors in Rhode Island and Maine. Kakakjudi declined an selection to develop casinos, however the subject matter is very likely to be revisited, specifically if Massachusetts decides to go ahead. There are also attempts in Maine to rethink its options.
New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot machines at racetracks by not too long ago agreeing to keep on augmenting purses with an extra tax. The governor nevertheless, has appointed a new panel to examine the state’s sagging racing program which ironically, can only be preserved by making it possible for the tracks to have slot equipment particularly at the Meadowlands. (See The Nor’easter Squeeze area)
New York
Just when it looked as if Aqueduct’s four,five hundred VLT facility would last but not least be produced, the profitable bidder indicated an inability to make the necessary $370 million payment, citing the recent lending local weather, and throwing the venture back into the lap of the governor. Even though the market place demand in the area could be deemed quite powerful, the prospect of additional opposition from close by Belmont could have an effect on Aqueduct’s underlining economic feasibility, especially considering that a bit considerably less than thirty% of the internet earn is retained by the operator.
Programs to relocate Monticello Raceway into a vacation resort intricate are becoming reconsidered probably owing to the two the probable opening of at the very least 1 or possibly two racino operations in the NY metro area, and the resurfacing of initiatives to improvement a Course III Indian gaming facility in the Catskills.
Ohio
But yet another gaming proposal is being place forth in Ohio, right after previous year’s model was turned down by the voters. This strategy phone calls for one casino every in the state’s greatest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimum expenditure needed of $250 million, as effectively as an initial licensing payment of $fifty million, and a 33 p.c tax on gaming revenue.
Pennsylvania
The Sands in Bethlehem is due to open up in the Spring of ’09, and the new Rivers undertaking in Pittsburgh is predicted to be operational in August, ’09 whilst Philadelphia’s two slot services even now wallow in a political mire, but are predicted to start off design this 12 months.
South Dakota
The Lodge at Deadwood is slated to open up in the Slide of 2009, and include three hundred video games, 140 rooms and a vast assortment of facilities.
Texas
Legislators are proposing a voter referendum that would amend the state structure to permit on line casino gambling in designated places, as nicely as enable gambling on American Indian lands in Texas and at existing racetracks.
West Virginia
The Greenbriar, the state’s venerable resort facility has submitted for bankruptcy, but has a new suitor in Marriott Hotels, who have reportedly tendered an offer. State government has proffered the idea of permitting the resort to supply casino game titles, but this effort is in as well early a stage to have any traction a single way or yet another.
Indian Gaming
A latest Supreme Court ruling that restricts the getting of lands into have faith in on behalf of federally regarded American Indian tribes has more stymied some new Course III gaming assignments across the nation. Furthermore, there have been eleven Indian casino initiatives turned down by the DOI very last yr due to the fact of its new rule that casinos must be in close proximity to adequate to a reservation that tribal associates can operate at them. It has been advised that the new Obama administration may possibly be far more sympathetic to the growth of Indian gaming tasks, but this concern has but to be tackled.
Meanwhile, there are other Course III projects in the various stages of improvement. The Seneca casino undertaking in Buffalo, NY, whilst running a modest short term facility, has delayed an presently underneath building permanent facility until finally the market place rebounds. They have also expressed an interest in building a casino in the Catskills. The point out gaming compact with Seminoles in Florida is becoming challenged, and could impact their ideas for bigger assignments. There are new Indian gaming assignments established to open in Michigan and Oklahoma this 12 months, and other people are in the arranging phase. Texas might enable the reopening of Indian gaming facilities and let other location and there are programs afoot by the Navajos in Arizona to assemble added casinos. California is poised to open up two to a few new Class III casinos in 2009/ten.
The Nor’easter Squeeze
Total gaming earnings in Atlantic City has declined 7.six percent, from $4.9 billion in 2007 to $four.5 billion in 2008 with decreases continuing into 2009, as the metropolis is discovering by itself in an intense comp-war with the Pennsylvania venues. At a single time the only casinos in the Northeast had been situated in Atlantic City, in which it seemed as if it may well in fact even eclipse the Las Vegas Strip’s once-a-year gaming revenues.
Gradually however its marketplace share was being encroached upon, first by the advancement of a massive Course III gaming operation in Connecticut, and then another slots functions in Rhode Island, and then video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most recently Pennsylvania.
Now, with the planned opening of slot operations in Maryland, the impending opening of a new on line casino in Bethlehem, PA, and ultimately two functions in Philadelphia, the noose is tightening around Atlantic City’s long term prospective customers. It is reliance on day-trippers lulled it into a bogus feeling of safety, and it now finds itself possessing to redefine its mission statement to “location vacation resort.”
The only dilemma with this approach nonetheless is that it is sick-geared up to pull it off. For all intents and functions, Atlantic Town is below-roomed and/or above-gamed. There is merely not enough day-tripper marketplace to go close to, and their effective investing region is tightening, as the peripheral populations northward now/will have more prepared accessibility to a widened offer in New York (Yonkers, and before long at Aqueduct and potentially Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.
Other than the ocean accessibility, the city’s only real competitive rewards are its resort ability and the availability of table video games, despite the fact that the latter is probably to eventuate in Pennsylvania, and potentially Delaware. In purchase to adequately contend as a location vacation resort the metropolis demands to create extra visitor rooms and not always gaming capability. By comparison, the Las Vegas Strip houses – true gaming destinations, in that they do not have a lot of a working day-vacation market place, other than for the ‘locals’ – have an typical of .87 gaming positions for every guest room while Atlantic City’s typical is 2.74 positions for every guest room.
It is not a coincidence that Atlantic City’s two biggest hotels, the Borgata and Harrah’s Marina, the two of which extra new rooms in 2008, were the least impacted by the latest downturn. The Borgata experienced a gaming revenue fall of one.six per cent, although Harrah’s Marina noted a four.nine % increase in contrast to 2007. In addition, the toughest hit venues, specifically the AC Hilton, Resorts and the Trump Marina, also have the smallest variety of rooms. In the meantime some of the venues are teetering on viability, like the the Trump properties and Resorts with the hoped for sale of the Tropicana has been even more delayed, and getting rid of valuation.
With a continual rise in gaming revenues by way of 2006, the city seemed prime for further advancement, which precipitated organizing for 4 new resort projects, each of which have now been indefinitely delayed. Revel Amusement Group’s $2.5 billion project remains an iron skeleton, Pinnacle Enjoyment has declared it may well seek out to sell its razed Sands site, MGM Mirage has shelved its casino plans, and Penn Nationwide appears to have stopped its pursuit of the Bader Area airport internet site.