A Period of time of Adjustment
Oops! That large hissing sound is the gaming balloon that had been expanding in excess of the years, slowly and gradually losing air. But, it has not been a tide that lowered all ships even so, as some rising and expanding gaming jurisdictions showed robust progress in 2008.
Total, the business and racetrack on line casino sectors (excluding Indian gaming), skilled a three.five percent drop in gaming revenues for 2008, producing a whole of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they showed a gain of virtually $one billion in 2008, thus bringing the Industrial sector market decrease to $1.eight billion, or six.seven percent. Nevada was the biggest loser in 2008, dropping almost $one.three billion, more than half of which stemmed from the Las Vegas Strip segment.
Hunkering Down
For the most portion, casino operators were caught fairly flat-footed by the extent of the 2008 earnings downturn, as it was not until finally the third and fourth quarters when it genuinely nosedived. Riding the crest of year more than yr marketplace development across the region and the availability of ample credit score and fairness cash, new construction and growth proliferated in modern several years. Today, faced with the realities of declining, or at ideal stagnant demand from customers, a lot of of these assignments are now regarded more than-leveraged and/or more than-sized. As a consequence several gaming companies are making an attempt to renegotiate their personal debt – created a lot more hard by decrease valuations – whilst also paring down operational charges. The latter has become a quite problematic conundrum when dealing with the competitiveness, especially in individuals jurisdictions that are now vying for marketplace shares with new rising casino assignments in neighboring locations. A topic we talk about more fully in the State by Condition examination part of this publication.
As a consequence of these situations the gaming market landscape is now strewn with impending fatalities. Between the much more noteworthy troubled companies are Station Casinos, Empire Resorts, Harrah’s Leisure, Greektown Holdings, Legends Gaming, Tropicana Leisure, Herbst Gaming and the listing grows every single 7 days.
“How prolonged will these economic conditions persist, and are we at the bottom however?” are queries no 1 seems to be answering nevertheless. What is very clear however is that most gaming jurisdictions will have to discover how to offer with a smaller pie.
Notice:
This evaluation involves only gaming revenues of certified casinos and pari-mutuel stores that offer casino video games, and not Indian gaming operations, card rooms, or little non-on line casino sort slot locations. The whole report, which includes income tables is accessible on our internet website page.
Input/Output Design
A crucial facet that appears to have arisen from the ashes of this recent craze is that several on line casino initiatives were just as well massive to help them selves. The enter, in phrases of expenditure dollars, was not proportional to the output, in phrases of net profit right after debt service, in contrast to previously reached benefits. Much more and/or bigger is not always greater. Viewing the rise in non-gaming income at the Las Vegas Strip resorts, gave impetus to the advancement of more extensive facilities in many other jurisdictions. The flaw in this approach nevertheless is that the costs linked with widening marketplace penetration and occasioned-use, are significantly higher than people incurred to entice the base industry.
As daytripper marketplaces grow to be more aggressive, casino venues will have to count much more and much more on their in-home resort patrons, and measurement their qualities (and anticipations) appropriately. While Steve Wynn began a major craze in producing up-market place mega-places, there simply was not adequate demand from customers on the Strip to warrant the many other equivalent assignments that followed that aimed at the exact same area of interest.
The trick is to strike a happy medium in task configurations which of course demand much less of a ‘seat-of-pants’ method, and a single that is far more studied. A shameless plug for improvement consultants like ourselves.
Other Gaming Actions
Though there are no printed thorough info of American Indian gaming revenues, anecdotal proof appears to recommend that this phase has been as difficult hit as the Business sector. The two Connecticut Indian gaming installations report slot earnings of $1.six billion in 2008, representing a fall of about 7 %, or practically $114 million, much more than doubling the three.five percent drop from the calendar year before. This market place is apparently nonetheless reeling from the ripple-influence of a casino enlargement in Rhode Island, and the opening of slot functions in New York and Pennsylvania.
The Arizona Office of Gaming reports that contributions based mostly on a gaming profits system from the state’s 23 Indian gaming casinos, have been declining each quarter in 2008 in comparison to the preceding 12 months lowering .eight percent in the very first quarter, 7.5 % in the second quarter, nine.5 p.c in the 3rd quarter, and 16.1 % in the fourth quarter.
Some SEC reporting Indian gaming properties report comparable decreases. Seneca Gaming, which operates three Class III casinos in upstate New York, studies that even though calendar year 2008 showed an virtually 2 p.c growth rate in gaming revenues, there was an eight.7 percent decline in the third quarter and an nearly ten per cent decrease in the fourth quarter of 2008, when compared with 2007. Gaming profits traits at nearby Niagara Falls, Ontario ended up down one.5% in 2008 compared with 2007.
It’s been a blended-bag for point out lotteries throughout the region. The North American Association of State & Provincial Lotteries reports that U.S. lotteries produced a complete of $sixty.6 billion in sales in fiscal 2008, up about 3 % from the preceding 12 months but some jurisdictions described decreases, most notably California, which showed an eight p.c fall. Inasmuch as some of these states are on various fiscal year ends, it would look that the knowledge does not replicate the influence of third and/or fourth quarter benefits.
In accordance to info provided by Equibase, horse racing pari-mutuel revenues keep on their downward spiral, slipping 7 percent to $13.seven billion in 2008, compared to $14.7 billion in 2007.
Prepared & Proposed New Expansions
As previously noted, it has been new gaming jurisdictions that have spawned much of the expansion in annual casino/racino revenues above the many years, and their impact is apt to continue into the in close proximity to future.
Florida
Miami Dade voters authorized a ballot issue that makes it possible for each of three pari-mutuels to have a on line casino facility of up to 2,000 slot machines. The Flagler Dog Keep track of and Miami Jai-Alai are reportedly arranging opening in late 2009 or early 2010, although the Calder installation in Miami Gardens has however to introduced its plans. There are quite a few other proposals becoming regarded as that would even more broaden on line casino growth all through the point out.
ufa out finally obtained close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Leisure, LLC for a 1,200+ recreation on line casino positioned in Des Plaines just east of O’Hare. The new facility is not likely to open right up until 2010. There has also been some dialogue about permitting an increase in per place 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 growth of four casino gaming zones and slots at existing horse and dog tracks seems mired, as only a single facility is presently below design, although three other proposals were rescinded. The only bidder on the Cherokee County agreement, claimed it could not compete with the new Quapaw tribal casino in Oklahoma, which is located so shut to the state line that its parking great deal is in Kansas. The Boot Hill Casino Resort in Dodge City is planing a December 2009 opening with 575 slots and ten table online games, together with a next phase owing to open in 2011 with 875 slots and twenty table game titles. The state has prolonged the application method for the other a few zones until finally April, 2009.
Kentucky
There is nevertheless a great deal of ‘jockeying’ likely on, but the prospect of as many as 8 slot parlors and racinos appears to be again on the front-burner, but probably not fixed during the recent legislative session.
Las Vegas
There are about 14,000 rooms scheduled to appear on line in 2009, with the most latest getting the 390 area M Vacation resort in Henderson. There are expansions underway at both Caesars Palace and Difficult Rock and new hotels contain two components of the City Centre undertaking, and the Fountainebleau.
Louisiana
Pinnacle Entertainment’s new on line casino improvement projects in Baton Rouge and Lake Charles, even though delayed, are documented to even now be on-observe for opening this yr and/or early 2010.
Maine
There is a monthly bill underneath consideration that could far more than double Penn National’s slot machines to three,000, as properly as a proposal that would remove the restriction that slots be found inside of five miles of the observe. Scarborough Downs, which has been unsuccessful in convincing local people to permit slots, might be considering moving to a more hospitable city.
Maryland
A referendum was authorized in November, 2008 that enables for the improvement of 5 casinos with a total of fifteen,000 slots, and now the bidding war is afoot though it is not as extreme as the state had anticipated.
Mississippi
Grand Soleil Casino Vacation resort in Natchez experienced been slated to open up in 2008, but has operate into numerous funding problems and even though the resort part is open up, the riverboat is described to open up in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, although scaled again considerably, is nonetheless on track to open up this year.
New England
Massachusetts, a sleeping-big in phrases of industry potential, is still maneuvering to open up casinos/racinos, and/or a Course III Indian gaming facility, but can’t seem to be to muster the political help. A current examine finished by Dartmouth College estimates that Massachusetts resident spent far more than $920 million previous 12 months at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an alternative to create casinos, however the matter is likely to be revisited, especially if Massachusetts decides to go forward. There are also makes an attempt in Maine to rethink 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 however, has appointed a new panel to research the state’s sagging racing software which ironically, can only be preserved by making it possible for the tracks to have slot machines specifically at the Meadowlands. (See The Nor’easter Squeeze segment)
New York
Just when it seemed as if Aqueduct’s four,five hundred VLT facility would ultimately be designed, the profitable bidder indicated an inability to make the necessary $370 million charge, citing the present lending local climate, and throwing the project again into the lap of the governor. Even though the marketplace demand from customers in the region could be considered very robust, the prospect of added opposition from nearby Belmont could have an affect on Aqueduct’s underlining economic feasibility, particularly thinking about that marginally significantly less than thirty% of the web get is retained by the operator.
Programs to relocate Monticello Raceway into a resort sophisticated are currently being reconsidered probably owing to each the probable opening of at minimum one particular 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
Nevertheless yet another gaming proposal is getting put forth in Ohio, soon after previous year’s model was turned down by the voters. This program phone calls for one casino each and every in the state’s premier metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a bare minimum investment needed of $250 million, as well as an first licensing fee of $50 million, and a 33 per cent tax on gaming profits.
Pennsylvania
The Sands in Bethlehem is because of to open in the Spring of ’09, and the new Rivers project in Pittsburgh is predicted to be operational in August, ’09 while Philadelphia’s two slot services still wallow in a political mire, but are anticipated to commence construction this yr.
South Dakota
The Lodge at Deadwood is slated to open up in the Slide of 2009, and consist of three hundred online games, one hundred forty rooms and a broad variety of amenities.
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 submitted for bankruptcy, but has a new suitor in Marriott Accommodations, who have reportedly tendered an provide. Point out federal government has proffered the notion of allowing the vacation resort to supply casino game titles, but this hard work is in also early a stage to have any traction one particular way or another.
Indian Gaming
A recent Supreme Court ruling that restricts the getting of lands into believe in on behalf of federally regarded American Indian tribes has further stymied some new Class III gaming tasks across the place. Furthermore, there had been eleven Indian casino tasks rejected by the DOI last 12 months since of its new rule that casinos must be around sufficient to a reservation that tribal users 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 situation has however to be addressed.
Meanwhile, there are other Class III projects in the different phases of advancement. The Seneca on line casino project in Buffalo, NY, although functioning a modest short-term facility, has delayed an previously beneath building long term facility right up until the marketplace rebounds. They have also expressed an interest in building a on line casino in the Catskills. The state gaming compact with Seminoles in Florida is being challenged, and could impact their ideas for bigger tasks. There are new Indian gaming projects established to open up in Michigan and Oklahoma this 12 months, and others are in the preparing stage. Texas may enable the reopening of Indian gaming amenities and allow other venue and there are plans afoot by the Navajos in Arizona to build extra casinos. California is poised to open up two to a few new Course III casinos in 2009/ten.
The Nor’easter Squeeze
Overall gaming earnings in Atlantic Town has declined 7.six %, from $4.nine billion in 2007 to $4.five billion in 2008 with decreases continuing into 2009, as the metropolis is locating alone in an intense comp-war with the Pennsylvania venues. At a single time the only casinos in the Northeast had been found in Atlantic Metropolis, where it looked as if it may well truly even eclipse the Las Vegas Strip’s annual gaming revenues.
Little by little nevertheless its market share was being encroached on, 1st by the growth of a big Class III gaming operation in Connecticut, and then one more slots functions in Rhode Island, and then video clip lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most not too long ago Pennsylvania.
Now, with the prepared opening of slot operations in Maryland, the impending opening of a new casino in Bethlehem, PA, and ultimately two operations in Philadelphia, the noose is tightening about Atlantic City’s long term prospective customers. It really is reliance on working day-trippers lulled it into a untrue sense of protection, and it now finds by itself obtaining to redefine its mission statement to “vacation spot vacation resort.”
The only issue with this method nonetheless is that it is ill-equipped to pull it off. For all intents and purposes, Atlantic Town is below-roomed and/or over-gamed. There is simply not ample working day-tripper marketplace to go all around, and their successful buying and selling spot is tightening, as the peripheral populations northward now/will have much more completely ready access to a widened offer in New York (Yonkers, and quickly 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 genuine aggressive benefits are its resort capacity and the availability of table online games, despite the fact that the latter is most likely to eventuate in Pennsylvania, and possibly Delaware. In order to sufficiently contend as a location vacation resort the metropolis requirements to create further visitor rooms and not always gaming ability. By comparison, the Las Vegas Strip houses – correct gaming places, in that they do not have much of a day-journey market place, besides for the ‘locals’ – have an common of .87 gaming positions per guest space while Atlantic City’s typical is 2.74 positions for each guest room.
It is not a coincidence that Atlantic City’s two largest hotels, the Borgata and Harrah’s Marina, each of which included new rooms in 2008, ended up the minimum impacted by the latest downturn. The Borgata knowledgeable a gaming earnings fall of 1.6 %, while Harrah’s Marina noted a four.9 % enhance when compared to 2007. Furthermore, the toughest strike venues, particularly the AC Hilton, Resorts and the Trump Marina, also have the smallest quantity of rooms. In the meantime some of the venues are teetering on viability, such as the the Trump properties and Resorts with the hoped for sale of the Tropicana has been additional delayed, and losing valuation.
With a steady rise in gaming revenues by means of 2006, the city appeared key for additional improvement, which precipitated arranging for 4 new resort projects, every single of which have now been indefinitely delayed. Revel Entertainment Group’s $two.5 billion project stays an iron skeleton, Pinnacle Leisure has announced it may well find to sell its razed Sands site, MGM Mirage has shelved its on line casino programs, and Penn Nationwide appears to have stopped its pursuit of the Bader Field airport website.