A Period of Adjustment
Oops! That big hissing seem is the gaming balloon that experienced been increasing over the many years, little by little dropping air. But, it has not been a tide that lowered all ships however, as some emerging and growing gaming jurisdictions showed powerful expansion in 2008.
Overall, the industrial and racetrack casino sectors (excluding Indian gaming), knowledgeable a three.5 percent decrease in gaming revenues for 2008, generating a whole of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they confirmed a acquire of almost $one billion in 2008, thus bringing the Industrial sector industry decrease to $one.8 billion, or six.7 percent. Nevada was the biggest loser in 2008, dropping practically $1.three billion, far more than half of which stemmed from the Las Vegas Strip phase.
Hunkering Down
For the most portion, casino operators had been caught relatively flat-footed by the extent of the 2008 profits downturn, as it was not until finally the 3rd and fourth quarters when it truly nosedived. Riding the crest of calendar year above 12 months market place development across the country and the availability of sufficient credit rating and fairness resources, new building and enlargement proliferated in current a long time. Right now, faced with the realities of declining, or at best stagnant demand from customers, many of these tasks are now regarded over-leveraged and/or more than-sized. As a end result several gaming firms are making an attempt to renegotiate their credit card debt – manufactured much more challenging by reduce valuations – while also paring down operational fees. The latter has grow to be a quite problematic conundrum when dealing with the competition, particularly in individuals jurisdictions that are now vying for marketplace shares with new emerging on line casino assignments in neighboring areas. A subject matter we discuss much more entirely in the Point out by State examination area of this publication.
As a end result of these circumstances the gaming sector landscape is now strewn with impending fatalities. Between the more notable troubled corporations are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Entertainment, Herbst Gaming and the record grows each week.
“How extended will these financial situations persist, and are we at the bottom but?” are inquiries no one seems to be answering yet. What is obvious however is that most gaming jurisdictions will have to discover how to offer with a smaller pie.
Note:
This analysis includes only gaming revenues of accredited casinos and pari-mutuel retailers that provide on line casino game titles, and not Indian gaming operations, card rooms, or modest non-on line casino kind slot locations. The complete write-up, like earnings tables is obtainable on our web web page.
Input/Output Design
A key aspect that would seem to have arisen from the ashes of this present pattern is that many on line casino initiatives ended up just too massive to assist by themselves. The input, in terms of investment pounds, was not proportional to the output, in phrases of net income soon after debt support, in comparison to earlier accomplished results. A lot more and/or even bigger is not often far better. Observing the rise in non-gaming income at the Las Vegas Strip resorts, gave impetus to the growth of more comprehensive facilities in a lot of other jurisdictions. The flaw in this approach nevertheless is that the fees linked with widening market penetration and occasioned-use, are considerably larger than people incurred to entice the foundation industry.
As daytripper marketplaces grow to be a lot more aggressive, on line casino venues will have to depend far more and much more on their in-home resort patrons, and dimension their qualities (and expectations) appropriately. Even though Steve Wynn began a main pattern in generating up-market mega-places, there simply was not sufficient need on the Strip to warrant the a lot of other equivalent tasks that adopted that aimed at the very same area of interest.
The trick is to strike a satisfied medium in project configurations which of training course demand significantly less of a ‘seat-of-pants’ strategy, and one particular that is a lot more researched. A shameless plug for improvement consultants like ourselves.
Other Gaming Pursuits
Though there are no revealed thorough knowledge of American Indian gaming revenues, anecdotal proof seems to propose that this phase has been as challenging hit as the Commercial sector. The two Connecticut Indian gaming installations report slot earnings of $1.6 billion in 2008, symbolizing a fall of about 7 p.c, or almost $114 million, far more than doubling the 3.five p.c fall from the 12 months just before. This marketplace is apparently still reeling from the ripple-result of a casino expansion in Rhode Island, and the opening of slot operations in New York and Pennsylvania.
The Arizona Office of Gaming reports that contributions based on a gaming income formulation from the state’s 23 Indian gaming casinos, have been declining every quarter in 2008 in comparison to the previous year decreasing .eight % in the 1st quarter, 7.five percent in the second quarter, nine.five % in the third quarter, and sixteen.one p.c in the fourth quarter.
Some SEC reporting Indian gaming houses report comparable decreases. Seneca Gaming, which operates a few Course III casinos in upstate New York, studies that even though calendar year 2008 showed an practically 2 per cent progress rate in gaming revenues, there was an eight.seven p.c decrease in the third quarter and an almost ten % decline in the fourth quarter of 2008, in comparison with 2007. Gaming profits tendencies at close by Niagara Falls, Ontario had been down one.five% in 2008 in comparison with 2007.
It truly is been a mixed-bag for state lotteries throughout the country. The North American Affiliation of Point out & Provincial Lotteries reviews that U.S. lotteries created a complete of $60.6 billion in product sales in fiscal 2008, up about three p.c from the preceding 12 months however some jurisdictions documented decreases, most notably California, which showed an eight per cent fall. Inasmuch as some of these states are on a variety of fiscal yr ends, it would seem to be that the info does not replicate the impact of third and/or fourth quarter results.
According to information provided by Equibase, horse racing pari-mutuel revenues proceed their downward spiral, falling seven per cent to $thirteen.seven billion in 2008, vs . $14.7 billion in 2007.
Planned & Proposed New Expansions
As previously observed, it has been new gaming jurisdictions that have spawned significantly of the development in yearly on line casino/racino revenues above the many years, and their influence is apt to continue into the near foreseeable future.
Florida
Miami Dade voters authorized a ballot problem that makes it possible for every of three pari-mutuels to have a on line casino facility of up to two,000 slot devices. The Flagler Canine Keep track of and Miami Jai-Alai are reportedly organizing opening in late 2009 or early 2010, even though the Calder set up in Miami Gardens has however to declared its ideas. There are several other proposals becoming deemed that would more increase on line casino development all through the state.
Illinois
The state finally obtained all around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Amusement, LLC for a 1,200+ game casino found in Des Plaines just east of O’Hare. The new facility is not likely to open till 2010. There has also been some dialogue about enabling an boost in for every area 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 system that permits for the advancement of 4 on line casino gaming zones and slots at present horse and puppy tracks appears mired, as only 1 facility is presently under design, even though a few other proposals have been rescinded. The only bidder on the Cherokee County agreement, claimed it could not contend with the new Quapaw tribal casino in Oklahoma, which is situated so close to the state line that its parking great deal is in Kansas. The Boot Hill Casino Resort in Dodge Town is planing a December 2009 opening with 575 slots and ten table game titles, together with a 2nd phase because of to open up in 2011 with 875 slots and twenty desk games. The state has prolonged the application procedure for the other 3 zones till April, 2009.
Kentucky
There is nevertheless a great deal of ‘jockeying’ likely on, but the prospect of as a lot of as eight slot parlors and racinos appears to be again on the front-burner, but likely not solved in the course of the present legislative session.
Las Vegas
There are about fourteen,000 rooms scheduled to arrive on line in 2009, with the most recent being the 390 area M Resort in Henderson. There are expansions underway at both Caesars Palace and Tough Rock and new resorts consist of two components of the City Centre task, and the Fountainebleau.
Louisiana
Pinnacle Entertainment’s new casino growth assignments in Baton Rouge and Lake Charles, whilst delayed, are documented to nevertheless be on-observe for opening this yr and/or early 2010.
Maine
There is a monthly bill below consideration that could more than double Penn National’s slot machines to 3,000, as effectively as a proposal that would eliminate the restriction that slots be positioned within five miles of the track. Scarborough Downs, which has been unsuccessful in convincing nearby residents to allow slots, may be considering moving to a a lot more hospitable town.
Maryland
A referendum was authorized in November, 2008 that enables for the advancement of five casinos with a complete of fifteen,000 slots, and now the bidding war is afoot although it is not as intense as the condition had predicted.
Mississippi
Grand Soleil Casino Resort in Natchez experienced been slated to open in 2008, but has operate into numerous financing troubles and although the lodge portion is open, the riverboat is reported to open up in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, while scaled again fairly, is nevertheless on monitor to open this year.
New England
Massachusetts, a sleeping-large in phrases of market place possible, is still maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but can’t appear to muster the political support. A current study finished by Dartmouth University estimates that Massachusetts resident invested much more than $920 million very last 12 months at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an alternative to build casinos, nevertheless the subject is most likely to be revisited, specifically if Massachusetts decides to go ahead. There are also makes an attempt in Maine to reconsider its options.
New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot machines at racetracks by just lately agreeing to proceed 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 enabling the tracks to have slot equipment especially at the Meadowlands. (See The Nor’easter Squeeze section)
New York
Just when it looked as if Aqueduct’s 4,five hundred VLT facility would lastly be produced, the winning bidder indicated an inability to make the required $370 million payment, citing the present lending climate, and throwing the task back again into the lap of the governor. Despite the fact that the marketplace demand in the spot could be regarded as very powerful, the prospect of further competitors from nearby Belmont could have an affect on Aqueduct’s underlining financial feasibility, specifically contemplating that marginally much less than 30% of the net acquire is retained by the operator.
Plans to relocate Monticello Raceway into a resort complicated are getting reconsidered possibly owing to each the probable opening of at minimum one particular or probably two racino functions in the NY metro area, and the resurfacing of initiatives to advancement a Course III Indian gaming facility in the Catskills.
Ohio
Nevertheless yet another gaming proposal is being set forth in Ohio, following previous year’s variation was turned down by the voters. WINBET calls for a single on line casino each and every in the state’s largest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a least expenditure essential of $250 million, as nicely as an first licensing payment of $50 million, and a 33 percent tax on gaming revenue.
Pennsylvania
The Sands in Bethlehem is due to open up in the Spring of ’09, and the new Rivers task in Pittsburgh is predicted to be operational in August, ’09 while Philadelphia’s two slot services even now wallow in a political mire, but are anticipated to start building this 12 months.
South Dakota
The Lodge at Deadwood is slated to open in the Slide of 2009, and consist of 300 online games, 140 rooms and a wide selection of amenities.
Texas
Legislators are proposing a voter referendum that would amend the state constitution to permit casino gambling in specified locations, as well as allow gambling on American Indian lands in Texas and at present racetracks.
West Virginia
The Greenbriar, the state’s venerable resort facility has filed for bankruptcy, but has a new suitor in Marriott Hotels, who have reportedly tendered an supply. Condition government has proffered the idea of allowing the resort to offer you casino game titles, but this effort is in too early a stage to have any traction one way or another.
Indian Gaming
A modern Supreme Court docket ruling that restricts the using of lands into believe in on behalf of federally recognized American Indian tribes has more stymied some new Class III gaming initiatives throughout the country. Moreover, there had been eleven Indian casino assignments turned down by the DOI last calendar year since of its new rule that casinos must be near enough to a reservation that tribal members can function at them. It has been recommended that the new Obama administration may well be much more sympathetic to the development of Indian gaming tasks, but this issue has nevertheless to be resolved.
Meanwhile, there are other Class III assignments in the various levels of advancement. The Seneca casino venture in Buffalo, NY, whilst operating a small temporary facility, has delayed an currently underneath design permanent facility till the market rebounds. They have also expressed an fascination in developing a casino in the Catskills. The point out gaming compact with Seminoles in Florida is becoming challenged, and could influence their plans for greater initiatives. There are new Indian gaming initiatives established to open in Michigan and Oklahoma this year, and others are in the arranging stage. Texas might let the reopening of Indian gaming services and permit other location and there are plans afoot by the Navajos in Arizona to construct extra casinos. California is poised to open two to 3 new Class III casinos in 2009/ten.
The Nor’easter Squeeze
Overall gaming revenue in Atlantic Town has declined seven.6 percent, from $4.9 billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the town is obtaining by itself in an powerful comp-war with the Pennsylvania venues. At one time the only casinos in the Northeast had been situated in Atlantic City, where it appeared as if it may well truly even eclipse the Las Vegas Strip’s annual gaming revenues.
Slowly and gradually even so its industry share was getting encroached upon, very first by the advancement of a large Course III gaming operation in Connecticut, and then one more slots operations in Rhode Island, and then online video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most not too long ago Pennsylvania.
Now, with the planned opening of slot operations in Maryland, the impending opening of a new 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 is reliance on day-trippers lulled it into a false feeling of safety, and it now finds by itself obtaining to redefine its mission assertion to “spot vacation resort.”
The only dilemma with this technique nonetheless is that it is ill-equipped to pull it off. For all intents and needs, Atlantic City is underneath-roomed and/or above-gamed. There is basically not ample day-tripper market to go close to, and their efficient trading region is tightening, as the peripheral populations northward now/will have a lot more ready entry to a widened source in New York (Yonkers, and shortly at Aqueduct and possibly Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.
Other than the ocean entry, the city’s only true competitive advantages are its resort potential and the availability of desk games, though the latter is likely to eventuate in Pennsylvania, and probably Delaware. In get to adequately contend as a spot resort the city demands to build further guest rooms and not necessarily gaming capability. By comparison, the Las Vegas Strip homes – accurate gaming locations, in that they do not have much of a working day-excursion market, apart from for the ‘locals’ – have an average of .87 gaming positions for each visitor area whilst Atlantic City’s typical is two.seventy four positions for each visitor place.
It is not a coincidence that Atlantic City’s two biggest resorts, the Borgata and Harrah’s Marina, each of which additional new rooms in 2008, ended up the least impacted by the newest downturn. The Borgata knowledgeable a gaming income drop of one.6 percent, even though Harrah’s Marina described a four.9 % improve in contrast to 2007. Additionally, the most difficult strike venues, namely 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 qualities 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 town appeared key for more improvement, which precipitated preparing for 4 new resort initiatives, each and every of which have now been indefinitely delayed. Revel Amusement Group’s $two.five billion venture continues to be an iron skeleton, Pinnacle Leisure has declared it may possibly find to promote its razed Sands site, MGM Mirage has shelved its casino programs, and Penn National appears to have stopped its pursuit of the Bader Area airport website.