A Period of Adjustment
Oops! That big hissing sound is the gaming balloon that had been expanding in excess of the a long time, slowly and gradually getting rid of air. But, it has not been a tide that reduced all ships nonetheless, as some rising and increasing gaming jurisdictions showed strong progress in 2008.
All round, the business and racetrack casino sectors (excluding Indian gaming), experienced a 3.five % drop in gaming revenues for 2008, generating 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 acquire of virtually $1 billion in 2008, thus bringing the Commercial sector market decline to $1.8 billion, or 6.seven %. Nevada was the most significant loser in 2008, dropping virtually $1.3 billion, much more than half of which stemmed from the Las Vegas Strip section.
Hunkering Down
For the most portion, on line casino operators ended up caught relatively flat-footed by the extent of the 2008 earnings downturn, as it was not right up until the third and fourth quarters when it genuinely nosedived. Riding the crest of yr over yr marketplace development throughout the place and the availability of enough credit score and fairness funds, new design and growth proliferated in current a long time. Today, confronted with the realities of declining, or at ideal stagnant desire, several of these initiatives are now regarded more than-leveraged and/or above-sized. As a result a lot of gaming companies are attempting to renegotiate their debt – manufactured much more tough by lower valuations – although also paring down operational costs. The latter has grow to be a quite problematic conundrum when dealing with the opposition, specially in these jurisdictions that are now vying for market place shares with new rising on line casino projects in neighboring regions. A subject we go over far more fully in the Point out by Point out investigation section of this publication.
As a consequence of these problems the gaming business landscape is now strewn with impending fatalities. Amid the much more noteworthy troubled companies are Station Casinos, Empire Resorts, Harrah’s Amusement, Greektown Holdings, Legends Gaming, Tropicana Amusement, Herbst Gaming and the listing grows every single week.
“How long will these financial conditions persist, and are we at the bottom yet?” are questions no one particular appears to be answering yet. What is very clear even so is that most gaming jurisdictions will have to discover how to deal with a more compact pie.
Note:
This examination involves only gaming revenues of certified casinos and pari-mutuel retailers that supply on line casino games, and not Indian gaming functions, card rooms, or small non-on line casino kind slot places. The entire post, including earnings tables is available on our internet website page.
Enter/Output Design
A essential element that appears to have arisen from the ashes of this present trend is that numerous on line casino tasks had been just as well big to help them selves. The input, in terms of expense dollars, was not proportional to the output, in terms of net earnings right after financial debt service, compared to earlier achieved benefits. More and/or greater is not usually better. Looking at the rise in non-gaming income at the Las Vegas Strip resorts, gave impetus to the improvement of more complete facilities in many other jurisdictions. The flaw in this technique even so is that the costs associated with widening market penetration and occasioned-use, are substantially higher than people incurred to attract the base industry.
As daytripper markets turn into a lot more aggressive, casino venues will have to rely a lot more and a lot more on their in-home hotel patrons, and dimensions their homes (and expectations) accordingly. Whilst Steve Wynn commenced a significant development in making up-market mega-destinations, there just was not enough desire on the Strip to warrant the numerous other comparable tasks that followed that aimed at the same area of interest.
The trick is to strike a satisfied medium in venture configurations which of program demand much less of a ‘seat-of-pants’ technique, and 1 that is a lot more examined. A shameless plug for development consultants like ourselves.
Other Gaming Actions
Even though there are no printed thorough data of American Indian gaming revenues, anecdotal evidence appears to advise that this section has been as tough hit as the Commercial sector. The two Connecticut Indian gaming installations report slot revenue of $one.six billion in 2008, representing a drop of about seven %, or nearly $114 million, a lot more than doubling the 3.five percent fall from the year before. This market is apparently nonetheless reeling from the ripple-impact of a on line casino enlargement in Rhode Island, and the opening of slot functions in New York and Pennsylvania.
The Arizona Section of Gaming reviews that contributions primarily based on a gaming revenue system from the state’s 23 Indian gaming casinos, have been declining each and every quarter in 2008 in comparison to the earlier calendar year reducing .eight percent in the very first quarter, 7.five per cent in the next quarter, nine.five per cent in the 3rd quarter, and 16.one % in the fourth quarter.
Some SEC reporting Indian gaming qualities report related decreases. Seneca Gaming, which operates three Course III casinos in upstate New York, reports that while calendar yr 2008 confirmed an virtually 2 % expansion charge in gaming revenues, there was an eight.7 per cent decline in the 3rd quarter and an almost ten p.c decrease in the fourth quarter of 2008, in contrast with 2007. Gaming profits traits at close by Niagara Falls, Ontario had been down 1.five% in 2008 compared with 2007.
It’s been a combined-bag for condition lotteries across the region. The North American Affiliation of Point out & Provincial Lotteries reviews that U.S. lotteries produced a overall of $sixty.6 billion in sales in fiscal 2008, up about three p.c from the previous yr yet some jurisdictions noted decreases, most notably California, which showed an eight per cent fall. Inasmuch as some of these states are on various fiscal 12 months ends, it would look that the data does not mirror the affect of 3rd and/or fourth quarter final results.
According to data supplied by Equibase, horse racing pari-mutuel revenues carry on their downward spiral, falling seven p.c to $thirteen.7 billion in 2008, compared to $14.7 billion in 2007.
Planned & Proposed New Expansions
As beforehand mentioned, it has been new gaming jurisdictions that have spawned considerably of the development in yearly on line casino/racino revenues over the several years, and their influence is apt to proceed into the close to future.
Florida
Miami Dade voters accredited a ballot concern that permits every of 3 pari-mutuels to have a casino facility of up to 2,000 slot equipment. The Flagler Pet Track and Miami Jai-Alai are reportedly preparing opening in late 2009 or early 2010, although the Calder set up in Miami Gardens has but to declared its ideas. There are quite a few other proposals currently being regarded as that would even more grow casino development throughout the state.
Illinois
The point out lastly received all around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Enjoyment, LLC for a 1,200+ sport casino located in Des Plaines just east of O’Hare. The new facility is not most likely to open up right up until 2010. There has also been some dialogue about making it possible for an enhance in per location 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 plan that allows for the advancement of 4 casino gaming zones and slots at existing horse and puppy tracks seems mired, as only one particular facility is presently underneath building, whilst 3 other proposals ended up rescinded. The only bidder on the Cherokee County agreement, claimed it could not contend with the new Quapaw tribal on line casino in Oklahoma, which is located so shut to the condition line that its parking lot is in Kansas. The Boot Hill Casino Resort in Dodge Metropolis is planing a December 2009 opening with 575 slots and 10 desk games, alongside with a 2nd section thanks to open in 2011 with 875 slots and 20 table games. The state has prolonged the application procedure for the other a few zones until April, 2009.
Kentucky
There is still 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 most likely not settled in the course of the current legislative session.
Las Vegas
There are about fourteen,000 rooms scheduled to occur on line in 2009, with the most latest becoming the 390 space M Vacation resort in Henderson. There are expansions underway at equally Caesars Palace and Tough Rock and new hotels include two parts of the Metropolis Center project, and the Fountainebleau.
Louisiana
Pinnacle Entertainment’s new casino improvement tasks in Baton Rouge and Lake Charles, while delayed, are noted to even now be on-monitor for opening this calendar year and/or early 2010.
Maine
There is a monthly bill under thought that could more than double Penn National’s slot machines to three,000, as properly as a proposal that would take away the restriction that slots be situated inside 5 miles of the track. Scarborough Downs, which has been unsuccessful in convincing local inhabitants to permit slots, may possibly be contemplating relocating to a more hospitable city.
Maryland
A referendum was accredited in November, 2008 that permits for the growth of five casinos with a whole of fifteen,000 slots, and now the bidding war is afoot although it is not as extreme as the state had expected.
Mississippi
Grand Soleil Casino Vacation resort in Natchez experienced been slated to open up in 2008, but has run into different funding concerns and even though the lodge portion is open up, the riverboat is documented to open up in the Spring of ’09. Harrah’s Winbet On line casino in Biloxi, although scaled back again fairly, is nonetheless on observe to open this calendar year.
New England
Massachusetts, a sleeping-large in phrases of industry possible, is nevertheless maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but can’t appear to muster the political assist. A recent examine accomplished by Dartmouth College estimates that Massachusetts resident spent far more than $920 million final year at Connecticut casinos and slot equipment parlors in Rhode Island and Maine. The New Hampshire legislature not too long ago declined an alternative to develop casinos, nevertheless the matter is very likely to be revisited, particularly if Massachusetts decides to go ahead. There are also attempts in Maine to rethink its possibilities.
New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot machines at racetracks by recently agreeing to carry on augmenting purses with an extra tax. The governor even so, has appointed a new panel to review the state’s sagging racing system which ironically, can only be preserved by permitting the tracks to have slot machines specifically at the Meadowlands. (See The Nor’easter Squeeze part)
New York
Just when it looked as if Aqueduct’s 4,five hundred VLT facility would finally be developed, the profitable bidder indicated an incapability to make the necessary $370 million payment, citing the existing lending local weather, and throwing the undertaking back again into the lap of the governor. Although the market desire in the spot could be regarded very powerful, the prospect of added competition from close by Belmont could have an affect on Aqueduct’s underlining financial feasibility, particularly contemplating that marginally significantly less than 30% of the internet win is retained by the operator.
Ideas to relocate Monticello Raceway into a resort complicated are becoming reconsidered perhaps owing to the two the possible opening of at the very least a single or probably two racino functions in the NY metro location, and the resurfacing of initiatives to growth a Class III Indian gaming facility in the Catskills.
Ohio
Yet one more gaming proposal is currently being set forth in Ohio, following final year’s model was turned down by the voters. This program phone calls for one particular on line casino every single in the state’s premier towns: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimal expenditure needed of $250 million, as nicely as an initial licensing price of $fifty million, and a 33 percent tax on gaming revenue.
Pennsylvania
The Sands in Bethlehem is because of to open up in the Spring of ’09, and the new Rivers venture in Pittsburgh is anticipated to be operational in August, ’09 even though Philadelphia’s two slot services nevertheless wallow in a political mire, but are predicted to start off construction this yr.
South Dakota
The Lodge at Deadwood is slated to open in the Tumble of 2009, and consist of three hundred online games, one hundred forty rooms and a vast assortment of features.
Texas
Legislators are proposing a voter referendum that would amend the condition constitution to allow casino gambling in selected locations, as effectively as permit gambling on American Indian lands in Texas and at current racetracks.
West Virginia
The Greenbriar, the state’s venerable vacation resort facility has submitted for personal bankruptcy, but has a new suitor in Marriott Resorts, who have reportedly tendered an provide. State govt has proffered the notion of enabling the vacation resort to offer on line casino video games, but this hard work is in too early a phase to have any traction a single way or another.
Indian Gaming
A modern Supreme Courtroom ruling that restricts the taking of lands into believe in on behalf of federally recognized American Indian tribes has additional stymied some new Course III gaming initiatives throughout the nation. Additionally, there had been eleven Indian on line casino tasks rejected by the DOI last year simply because of its new rule that casinos need to be in close proximity to sufficient to a reservation that tribal members can work at them. It has been suggested that the new Obama administration may well be a lot more sympathetic to the improvement of Indian gaming assignments, but this issue has however to be resolved.
In the meantime, there are other Course III assignments in the numerous levels of advancement. The Seneca on line casino task in Buffalo, NY, whilst running a modest short-term facility, has delayed an previously below design long lasting facility until the industry rebounds. They have also expressed an desire in developing a on line casino in the Catskills. The point out gaming compact with Seminoles in Florida is being challenged, and could affect their plans for bigger assignments. There are new Indian gaming tasks established to open in Michigan and Oklahoma this calendar year, and other individuals are in the preparing stage. Texas may possibly permit the reopening of Indian gaming facilities and enable other venue and there are strategies afoot by the Navajos in Arizona to build further casinos. California is poised to open two to 3 new Class III casinos in 2009/10.
The Nor’easter Squeeze
Total gaming profits in Atlantic City has declined seven.6 %, from $four.9 billion in 2007 to $four.5 billion in 2008 with decreases continuing into 2009, as the town is locating alone in an intense comp-war with the Pennsylvania venues. At a single time the only casinos in the Northeast have been found in Atlantic Metropolis, exactly where it looked as if it may really even eclipse the Las Vegas Strip’s yearly gaming revenues.
Slowly nevertheless its industry share was getting encroached on, initial by the growth of a big Class III gaming procedure in Connecticut, and then one more slots operations in Rhode Island, and then movie lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most recently Pennsylvania.
Now, with the planned opening of slot functions in Maryland, the impending opening of a new casino in Bethlehem, PA, and sooner or later two operations in Philadelphia, the noose is tightening all around Atlantic City’s future prospective customers. It is reliance on day-trippers lulled it into a fake sense of security, and it now finds alone getting to redefine its mission assertion to “spot vacation resort.”
The only problem with this approach nevertheless is that it is ill-outfitted to pull it off. For all intents and needs, Atlantic Metropolis is below-roomed and/or over-gamed. There is just not ample working day-tripper market to go around, and their efficient investing location is tightening, as the peripheral populations northward now/will have much more completely ready access to a widened provide in New York (Yonkers, and soon at Aqueduct and perhaps Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.
Other than the ocean entry, the city’s only real competitive advantages are its hotel ability and the availability of table games, even though the latter is likely to eventuate in Pennsylvania, and probably Delaware. In buy to adequately contend as a location resort the metropolis demands to develop additional visitor rooms and not always gaming capability. By comparison, the Las Vegas Strip qualities – real gaming places, in that they do not have much of a working day-vacation marketplace, except for the ‘locals’ – have an typical of .87 gaming positions for every guest room while Atlantic City’s typical is two.74 positions per visitor area.
It is not a coincidence that Atlantic City’s two greatest lodges, the Borgata and Harrah’s Marina, both of which extra new rooms in 2008, were the minimum impacted by the most recent downturn. The Borgata skilled a gaming revenue drop of one.six p.c, while Harrah’s Marina documented a 4.nine percent boost compared to 2007. Additionally, the hardest strike venues, particularly the AC Hilton, Resorts and the Trump Marina, also have the smallest amount 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 dropping valuation.
With a steady rise in gaming revenues through 2006, the metropolis seemed key for further improvement, which precipitated organizing for 4 new vacation resort assignments, every of which have now been indefinitely delayed. Revel Amusement Group’s $two.five billion task stays an iron skeleton, Pinnacle Enjoyment has announced it may well seek out to market its razed Sands web site, MGM Mirage has shelved its casino programs, and Penn National appears to have stopped its pursuit of the Bader Discipline airport internet site.