A Period of time of Adjustment
Oops! That giant hissing audio is the gaming balloon that had been growing above the years, little by little getting rid of air. But, it has not been a tide that lowered all ships even so, as some emerging and expanding gaming jurisdictions confirmed robust progress in 2008.
All round, the commercial and racetrack casino sectors (excluding Indian gaming), skilled a three.5 percent drop in gaming revenues for 2008, making a complete of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they confirmed a gain of almost $one billion in 2008, thereby bringing the Commercial sector market place decrease to $1.8 billion, or six.7 per cent. Nevada was the greatest loser in 2008, dropping practically $1.three billion, far more than 50 percent of which stemmed from the Las Vegas Strip segment.
Hunkering Down
For the most portion, on line casino operators were caught fairly flat-footed by the extent of the 2008 profits downturn, as it was not till the 3rd and fourth quarters when it actually nosedived. Riding the crest of yr in excess of yr marketplace development throughout the nation and the availability of ample credit history and fairness cash, new development and growth proliferated in latest several years. These days, confronted with the realities of declining, or at greatest stagnant desire, numerous of these initiatives are now regarded above-leveraged and/or in excess of-sized. As a result a lot of gaming companies are making an attempt to renegotiate their debt – produced more difficult by lower valuations – whilst also paring down operational charges. The latter has turn into a extremely problematic conundrum when dealing with the competition, specifically in individuals jurisdictions that are now vying for industry shares with new rising casino projects in neighboring locations. A matter we examine a lot more completely in the Point out by Condition examination section of this publication.
As a result of these conditions the gaming sector landscape is now strewn with impending fatalities. Amongst the much more noteworthy troubled corporations are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Entertainment, Herbst Gaming and the list grows every single week.
“How long will these economic situations persist, and are we at the base however?” are questions no 1 appears to be answering however. What is distinct however is that most gaming jurisdictions will have to understand how to deal with a scaled-down pie.
Observe:
This analysis involves only gaming revenues of licensed casinos and pari-mutuel shops that supply on line casino games, and not Indian gaming functions, card rooms, or small non-casino sort slot locations. The complete post, which includes income tables is accessible on our net web page.
Input/Output Model
A important aspect that would seem to have arisen from the ashes of this recent craze is that numerous on line casino tasks had been just way too huge to help by themselves. The input, in terms of expense bucks, was not proportional to the output, in conditions of net revenue right after debt service, in contrast to previously accomplished benefits. Far more and/or even bigger is not constantly much better. Observing the increase in non-gaming income at the Las Vegas Strip resorts, gave impetus to the growth of a lot more complete facilities in several other jurisdictions. The flaw in this approach nevertheless is that the costs associated with widening market penetration and occasioned-use, are substantially larger than these incurred to draw in the foundation market place.
As daytripper marketplaces turn out to be more aggressive, casino venues will have to count more and far more on their in-residence hotel patrons, and dimensions their homes (and anticipations) appropriately. Whilst Steve Wynn commenced a major trend in making up-marketplace mega-places, there merely was not sufficient demand from customers on the Strip to warrant the many other similar initiatives that followed that aimed at the identical niche.
The trick is to strike a happy medium in task configurations which of course need much less of a ‘seat-of-pants’ approach, and a single that is much more researched. A shameless plug for growth consultants like ourselves.
Other Gaming Activities
Even though there are no released thorough information of American Indian gaming revenues, anecdotal evidence seems to advise that this segment has been as challenging hit as the Business sector. The two Connecticut Indian gaming installations report slot profits of $one.6 billion in 2008, symbolizing a drop of about seven %, or virtually $114 million, a lot more than doubling the 3.5 p.c fall from the year ahead of. This market is seemingly nonetheless reeling from the ripple-effect of a on line casino enlargement in Rhode Island, and the opening of slot operations in New York and Pennsylvania.
The Arizona Department of Gaming studies that contributions primarily based on a gaming income system from the state’s 23 Indian gaming casinos, have been declining every quarter in 2008 in contrast to the earlier yr lowering .eight percent in the initial quarter, 7.five percent in the second quarter, nine.5 per cent in the 3rd quarter, and sixteen.one per cent in the fourth quarter.
Some SEC reporting Indian gaming properties report related decreases. Seneca Gaming, which operates a few Course III casinos in upstate New York, reviews that while calendar yr 2008 showed an nearly 2 per cent growth price in gaming revenues, there was an eight.seven per cent decline in the 3rd quarter and an practically ten per cent decline in the fourth quarter of 2008, when compared with 2007. Gaming earnings tendencies at close by Niagara Falls, Ontario had been down 1.5% in 2008 when compared with 2007.
It’s been a mixed-bag for point out lotteries across the nation. The North American Association of Point out & Provincial Lotteries reports that U.S. lotteries produced a overall of $60.six billion in income in fiscal 2008, up about three per cent from the prior year nevertheless some jurisdictions described decreases, most notably California, which showed an 8 per cent fall. Inasmuch as some of these states are on a variety of fiscal 12 months ends, it would seem to be that the info does not reflect the impact of third and/or fourth quarter outcomes.
In accordance to data presented by Equibase, horse racing pari-mutuel revenues continue their downward spiral, slipping 7 % to $13.seven billion in 2008, compared to $fourteen.seven billion in 2007.
Planned & Proposed New Expansions
As previously observed, it has been new gaming jurisdictions that have spawned considerably of the progress in annual on line casino/racino revenues in excess of the many years, and their effect is apt to continue into the near foreseeable future.
Florida
Miami Dade voters approved a ballot situation that makes it possible for each of three pari-mutuels to have a casino facility of up to two,000 slot machines. The Flagler Puppy Monitor and Miami Jai-Alai are reportedly arranging opening in late 2009 or early 2010, although the Calder installation in Miami Gardens has nevertheless to declared its plans. There are many other proposals currently being regarded that would further grow casino development during the state.
Illinois
The condition last but not least acquired close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Leisure, LLC for a one,two hundred+ recreation casino situated in Des Plaines just east of O’Hare. The new facility is not most likely to open until finally 2010. There has also been some discussion about making it possible for an increase in for each spot gaming positions and slots at racetracks, despite the fact that neither initiative seems to have any traction at this time.
Kansas
The state’s expanded lottery software that allows for the development of four on line casino gaming zones and slots at existing horse and pet tracks appears mired, as only 1 facility is presently beneath development, while 3 other proposals have been rescinded. The only bidder on the Cherokee County deal, claimed it could not compete with the new Quapaw tribal casino in Oklahoma, which is situated so near to the condition line that its parking good deal is in Kansas. The Boot Hill On line casino Vacation resort in Dodge Metropolis is planing a December 2009 opening with 575 slots and ten desk game titles, together with a second phase due to open up in 2011 with 875 slots and 20 desk online games. The state has prolonged the application approach for the other a few zones until April, 2009.
Kentucky
There is nevertheless a whole lot of ‘jockeying’ going on, but the prospect of as a lot of as eight slot parlors and racinos seems to be back on the front-burner, but likely not fixed in the course of the recent legislative session.
Las Vegas
There are about 14,000 rooms scheduled to appear on line in 2009, with the most modern currently being the 390 area M Vacation resort in Henderson. There are expansions underway at the two Caesars Palace and Hard Rock and new accommodations consist of two factors of the Metropolis Centre venture, and the Fountainebleau.
Louisiana
Pinnacle Entertainment’s new on line casino advancement initiatives in Baton Rouge and Lake Charles, whilst delayed, are noted to even now be on-track for opening this calendar year and/or early 2010.
Maine
There is a invoice underneath thought that could a lot more than double Penn National’s slot equipment to three,000, as well as a proposal that would get rid of the restriction that slots be located inside five miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing nearby people to allow slots, might be contemplating moving to a far more hospitable town.
Maryland
A referendum was approved in November, 2008 that makes it possible for for the development of 5 casinos with a total of 15,000 slots, and now the bidding war is afoot even though it is not as intense as the condition experienced expected.
Mississippi
Grand Soleil On line casino Vacation resort in Natchez experienced been slated to open in 2008, but has run into numerous financing issues and whilst the resort part is open up, the riverboat is reported to open in the Spring of ’09. Harrah’s toto-book.info in Biloxi, although scaled back somewhat, is nevertheless on keep track of to open this calendar year.
New England
Massachusetts, a sleeping-large in terms of market place potential, is nonetheless maneuvering to open up casinos/racinos, and/or a Class III Indian gaming facility, but can not seem to muster the political support. A current examine completed by Dartmouth College estimates that Massachusetts resident invested more than $920 million previous year at Connecticut casinos and slot equipment parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an alternative to develop casinos, nevertheless the subject matter is most likely to be revisited, specially if Massachusetts decides to go ahead. There are also tries in Maine to reconsider its choices.
New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot devices at racetracks by recently agreeing to keep on augmenting purses with an extra tax. The governor nonetheless, has appointed a new panel to review the state’s sagging racing software 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 part)
New York
Just when it appeared as if Aqueduct’s four,five hundred VLT facility would lastly be created, the successful bidder indicated an lack of ability to make the required $370 million payment, citing the current lending weather, and throwing the project again into the lap of the governor. Even though the industry demand in the area could be deemed quite sturdy, the prospect of additional opposition from close by Belmont could have an affect on Aqueduct’s underlining economic feasibility, particularly thinking about that a bit much less than thirty% of the internet get is retained by the operator.
Plans to relocate Monticello Raceway into a resort sophisticated are being reconsidered maybe owing to each the probable opening of at least 1 or maybe two racino operations in the NY metro area, and the resurfacing of initiatives to advancement a Course III Indian gaming facility in the Catskills.
Ohio
However another gaming proposal is becoming set forth in Ohio, right after previous year’s model was turned down by the voters. This prepare calls for one particular casino each and every in the state’s greatest towns: Cleveland, Columbus, Cincinnati and Toledo. There would be a least expenditure necessary of $250 million, as well as an initial licensing price of $50 million, and a 33 p.c tax on gaming income.
Pennsylvania
The Sands in Bethlehem is owing to open in the Spring of ’09, and the new Rivers venture in Pittsburgh is predicted to be operational in August, ’09 although Philadelphia’s two slot amenities nonetheless wallow in a political mire, but are anticipated to start off development this calendar year.
South Dakota
The Lodge at Deadwood is slated to open in the Drop of 2009, and consist of 300 games, a hundred and forty rooms and a broad range of features.
Texas
Legislators are proposing a voter referendum that would amend the point out structure to let casino gambling in selected regions, as nicely as allow gambling on American Indian lands in Texas and at current racetracks.
West Virginia
The Greenbriar, the state’s venerable vacation resort facility has filed for personal bankruptcy, but has a new suitor in Marriott Hotels, who have reportedly tendered an offer. Condition government has proffered the idea of making it possible for the vacation resort to supply casino game titles, but this work is in way too early a phase to have any traction one particular way or one more.
Indian Gaming
A modern Supreme Court ruling that restricts the using of lands into trust on behalf of federally identified American Indian tribes has additional stymied some new Course III gaming initiatives throughout the place. In addition, there have been eleven Indian casino projects turned down by the DOI final calendar year due to the fact of its new rule that casinos need to be around adequate to a reservation that tribal associates can work at them. It has been suggested that the new Obama administration may possibly be far more sympathetic to the growth of Indian gaming projects, but this issue has nevertheless to be resolved.
In the meantime, there are other Course III initiatives in the a variety of phases of growth. The Seneca casino task in Buffalo, NY, although functioning a small short term facility, has delayed an currently under building permanent facility until the market place rebounds. They have also expressed an interest in developing a on line casino in the Catskills. The state gaming compact with Seminoles in Florida is getting challenged, and could influence their plans for larger initiatives. There are new Indian gaming assignments set to open up in Michigan and Oklahoma this year, and other individuals are in the preparing phase. Texas could permit the reopening of Indian gaming amenities and let other venue and there are strategies afoot by the Navajos in Arizona to build extra casinos. California is poised to open up two to 3 new Course III casinos in 2009/ten.
The Nor’easter Squeeze
Overall gaming income in Atlantic Metropolis has declined 7.6 percent, from $4.nine billion in 2007 to $four.5 billion in 2008 with decreases continuing into 2009, as the town is obtaining alone in an extreme comp-war with the Pennsylvania venues. At a single time the only casinos in the Northeast ended up situated in Atlantic City, where it appeared as if it may possibly actually even eclipse the Las Vegas Strip’s yearly gaming revenues.
Gradually however its market place share was getting encroached upon, initial by the development of a massive Class III gaming operation in Connecticut, and then one more slots operations in Rhode Island, and then video clip lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most lately Pennsylvania.
Now, with the prepared opening of slot operations in Maryland, the impending opening of a new on line casino in Bethlehem, PA, and sooner or later two functions in Philadelphia, the noose is tightening close to Atlantic City’s potential potential customers. It truly is reliance on working day-trippers lulled it into a untrue feeling of safety, and it now finds alone getting to redefine its mission assertion to “destination resort.”
The only problem with this strategy nevertheless is that it is sick-geared up to pull it off. For all intents and reasons, Atlantic Town is underneath-roomed and/or in excess of-gamed. There is simply not ample day-tripper industry to go close to, and their powerful investing location is tightening, as the peripheral populations northward now/will have far more ready entry to a widened offer in New York (Yonkers, and soon at Aqueduct and possibly Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.
Other than the ocean access, the city’s only actual aggressive positive aspects are its lodge ability and the availability of desk games, despite the fact that the latter is most likely to eventuate in Pennsylvania, and probably Delaware. In buy to sufficiently compete as a destination vacation resort the city needs to develop further guest rooms and not always gaming ability. By comparison, the Las Vegas Strip houses – real gaming places, in that they do not have considerably of a working day-vacation market place, except for the ‘locals’ – have an common of .87 gaming positions for every guest area while Atlantic City’s typical is two.seventy four positions for each visitor area.
It is not a coincidence that Atlantic City’s two biggest hotels, the Borgata and Harrah’s Marina, both of which extra new rooms in 2008, were the least impacted by the most recent downturn. The Borgata skilled a gaming revenue drop of 1.6 per cent, whilst Harrah’s Marina noted a four.9 p.c increase in comparison to 2007. Additionally, the toughest hit venues, particularly the AC Hilton, Resorts and the Trump Marina, also have the smallest number of rooms. In the meantime some of the venues are teetering on viability, such as the the Trump homes and Resorts with the hoped for sale of the Tropicana has been additional delayed, and shedding valuation.
With a constant increase in gaming revenues via 2006, the city seemed prime for more development, which precipitated arranging for 4 new vacation resort assignments, each and every of which have now been indefinitely delayed. Revel Amusement Group’s $2.5 billion venture continues to be an iron skeleton, Pinnacle Enjoyment has announced it may well seek to promote its razed Sands internet site, MGM Mirage has shelved its casino plans, and Penn National seems to have stopped its pursuit of the Bader Subject airport site.