A Period of time of Adjustment
Oops! That big hissing sound is the gaming balloon that experienced been growing over the a long time, slowly dropping air. But, it has not been a tide that lowered all ships even so, as some rising and expanding gaming jurisdictions showed strong expansion in 2008.
All round, the professional and racetrack casino sectors (excluding Indian gaming), seasoned a 3.five % drop in gaming revenues for 2008, producing a total of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they showed a obtain of virtually $1 billion in 2008, thereby bringing the Commercial sector marketplace decrease to $1.eight billion, or 6.7 per cent. Nevada was the biggest loser in 2008, dropping practically $one.three billion, more than 50 % of which stemmed from the Las Vegas Strip phase.
Hunkering Down
For the most portion, on line casino operators have been caught reasonably flat-footed by the extent of the 2008 revenue downturn, as it was not till the third and fourth quarters when it really nosedived. Using the crest of year above calendar year marketplace growth across the nation and the availability of ample credit rating and equity money, new development and expansion proliferated in recent a long time. Today, confronted with the realities of declining, or at greatest stagnant need, several of these projects are now deemed over-leveraged and/or above-sized. As a consequence a lot of gaming businesses are attempting to renegotiate their debt – manufactured far more difficult by decrease valuations – while also paring down operational charges. The latter has grow to be a extremely problematic conundrum when dealing with the opposition, specially in those jurisdictions that are now vying for marketplace shares with new rising on line casino tasks in neighboring areas. A subject we discuss far more entirely in the Condition by Point out analysis section of this publication.
As a consequence of these circumstances the gaming sector landscape is now strewn with impending fatalities. Between the more notable troubled firms are Station Casinos, Empire Resorts, Harrah’s Leisure, Greektown Holdings, Legends Gaming, Tropicana Entertainment, Herbst Gaming and the record grows each and every week.
“How lengthy will these economic situations persist, and are we at the bottom nevertheless?” are queries no one seems to be answering however. What is distinct even so is that most gaming jurisdictions will have to learn how to deal with a scaled-down pie.
Observe:
This examination includes only gaming revenues of licensed casinos and pari-mutuel stores that offer on line casino games, and not Indian gaming functions, card rooms, or modest non-casino variety slot spots. The complete report, including revenue tables is offered on our world wide web webpage.
Input/Output Model
A crucial factor that looks to have arisen from the ashes of this existing development is that numerous casino tasks have been just way too huge to support them selves. The input, in phrases of expenditure dollars, was not proportional to the output, in conditions of web profit following financial debt support, compared to earlier attained results. Far more and/or larger is not constantly greater. Viewing the rise in non-gaming earnings at the Las Vegas Strip resorts, gave impetus to the development of a lot more complete amenities in several other jurisdictions. The flaw in this strategy even so is that the expenses linked with widening marketplace penetration and occasioned-use, are considerably greater than these incurred to entice the base marketplace.
As daytripper marketplaces turn into far more aggressive, on line casino venues will have to rely more and far more on their in-property resort patrons, and dimension their homes (and anticipations) appropriately. Although Steve Wynn began a major craze in making up-marketplace mega-destinations, there just was not sufficient demand on the Strip to warrant the numerous other similar initiatives that adopted that aimed at the exact same market.
The trick is to strike a satisfied medium in venture configurations which of system demand significantly less of a ‘seat-of-pants’ technique, and 1 that is more analyzed. A shameless plug for improvement consultants like ourselves.
Other Gaming Routines
Although there are no printed in depth info of American Indian gaming revenues, anecdotal evidence appears to propose that this section has been as tough hit as the Industrial sector. The two Connecticut Indian gaming installations report slot revenue of $1.6 billion in 2008, symbolizing a fall of about seven %, or almost $114 million, more than doubling the three.five p.c drop from the yr prior to. This marketplace is evidently nevertheless reeling from the ripple-impact of a casino expansion in Rhode Island, and the opening of slot functions in New York and Pennsylvania.
The Arizona Section of Gaming reports that contributions dependent on a gaming earnings method from the state’s 23 Indian gaming casinos, have been declining each quarter in 2008 in comparison to the earlier 12 months decreasing .eight percent in the first quarter, 7.five % in the 2nd quarter, nine.5 percent in the 3rd quarter, and sixteen.1 per cent in the fourth quarter.
Some SEC reporting Indian gaming properties report related decreases. Seneca Gaming, which operates three Course III casinos in upstate New York, reviews that although calendar year 2008 confirmed an nearly two percent expansion rate in gaming revenues, there was an 8.seven percent decrease in the 3rd quarter and an virtually 10 percent drop in the fourth quarter of 2008, when compared with 2007. Gaming income traits at close by Niagara Falls, Ontario have been down one.five% in 2008 compared with 2007.
It is been a combined-bag for point out lotteries across the country. The North American Affiliation of Condition & Provincial Lotteries reports that U.S. lotteries generated a overall of $sixty.6 billion in product sales in fiscal 2008, up about three p.c from the prior 12 months yet some jurisdictions documented decreases, most notably California, which showed an 8 percent drop. Inasmuch as some of these states are on numerous fiscal year finishes, it would look that the information does not mirror the effect of 3rd and/or fourth quarter benefits.
In accordance to info supplied by Equibase, horse racing pari-mutuel revenues continue their downward spiral, slipping 7 p.c to $13.seven billion in 2008, compared to $14.seven billion in 2007.
Planned & Proposed New Expansions
As formerly famous, it has been new gaming jurisdictions that have spawned much of the expansion in once-a-year on line casino/racino revenues over the a long time, and their affect is apt to keep on into the close to foreseeable future.
Florida
Miami Dade voters accredited a ballot situation that enables every single of a few pari-mutuels to have a on line casino facility of up to 2,000 slot machines. The Flagler Pet 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 nevertheless to announced its programs. There are quite a few other proposals being regarded that would even more grow on line casino development all through the condition.
Illinois
The point out lastly received all around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a one,two hundred+ game casino located in Des Plaines just east of O’Hare. The new facility is not very likely to open up until 2010. There has also been some dialogue about allowing an increase in per area gaming positions and slots at racetracks, even though neither initiative appears to have any traction at this time.
Kansas
The state’s expanded lottery program that allows for the advancement of four on line casino gaming zones and slots at existing horse and puppy tracks seems mired, as only 1 facility is presently underneath development, even though a few other proposals ended up rescinded. The only bidder on the Cherokee County deal, claimed it could not compete with the new Quapaw tribal on line casino in Oklahoma, which is found so shut to the condition line that its parking great deal is in Kansas. The Boot Hill On line casino Resort in Dodge Metropolis is planing a December 2009 opening with 575 slots and ten table online games, together with a next period due to open up in 2011 with 875 slots and twenty table online games. The point out has extended the software procedure for the other three zones until April, 2009.
Kentucky
There is nonetheless a lot of ‘jockeying’ going on, but the prospect of as several as 8 slot parlors and racinos appears to be back on the entrance-burner, but probably not solved during the existing legislative session.
Las Vegas
There are about fourteen,000 rooms scheduled to occur on line in 2009, with the most current getting the 390 room M Vacation resort in Henderson. There are expansions underway at each Caesars Palace and Hard Rock and new resorts include two elements of the Metropolis Centre undertaking, and the Fountainebleau.
Louisiana
Pinnacle Entertainment’s new casino improvement initiatives in Baton Rouge and Lake Charles, even though delayed, are described to even now be on-observe for opening this yr and/or early 2010.
Maine
There is a monthly bill beneath consideration that could much more than double Penn National’s slot devices to three,000, as well as a proposal that would get rid of the restriction that slots be situated inside five miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing neighborhood people to let slots, may possibly be considering transferring to a much more hospitable city.
Maryland
A referendum was approved in November, 2008 that permits for the growth of 5 casinos with a overall of 15,000 slots, and now the bidding war is afoot although it is not as intensive as the point out had anticipated.
Mississippi
Grand Soleil Casino Vacation resort in Natchez had been slated to open in 2008, but has run into numerous financing problems and while the lodge part is open, the riverboat is described to open up in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, while scaled again considerably, is nonetheless on track to open this yr.
New England
Massachusetts, a sleeping-giant in conditions of marketplace prospective, is nonetheless maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but can’t seem to muster the political support. A modern examine accomplished by Dartmouth University estimates that Massachusetts resident put in a lot more than $920 million previous calendar year at Connecticut casinos and slot equipment parlors in Rhode Island and Maine. The New Hampshire legislature just lately declined an alternative to create casinos, nonetheless the subject is probably to be revisited, particularly if Massachusetts decides to go ahead. There are also tries in Maine to rethink its options.
New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot equipment at racetracks by not too long ago agreeing to continue augmenting purses with an added 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 making it possible for the tracks to have slot equipment especially at the Meadowlands. (See The Nor’easter Squeeze section)
New York
Just when it seemed as if Aqueduct’s four,500 VLT facility would last but not least be designed, the profitable bidder indicated an incapability to make the required $370 million charge, citing the present lending local climate, and throwing the undertaking back again into the lap of the governor. Although the market demand in the spot could be regarded very strong, the prospect of additional competition from close by Belmont could have an effect on Aqueduct’s underlining economic feasibility, particularly contemplating that slightly considerably less than 30% of the net win is retained by the operator.
Plans to relocate Monticello Raceway into a resort sophisticated are currently being reconsidered maybe owing to both the probable opening of at least one particular or perhaps two racino functions in the NY metro area, and the resurfacing of initiatives to advancement a Class III Indian gaming facility in the Catskills.
Ohio
Nevertheless an additional gaming proposal is currently being set forth in Ohio, soon after final year’s version was turned down by the voters. This prepare calls for a single casino every single in the state’s greatest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a bare minimum expense needed of $250 million, as well as an first licensing payment of $50 million, and a 33 percent tax on gaming profits.
Pennsylvania
The Sands in Bethlehem is due to open up in the Spring of ’09, and the new Rivers undertaking in Pittsburgh is expected to be operational in August, ’09 whilst Philadelphia’s two slot facilities still wallow in a political mire, but are predicted to commence design this year.
South Dakota
The Lodge at Deadwood is slated to open up in the Slide of 2009, and include three hundred online games, one hundred forty rooms and a broad range of features.
Texas
Legislators are proposing a voter referendum that would amend the condition constitution to permit on line casino gambling in specified places, as effectively as allow gambling on American Indian lands in Texas and at existing racetracks.
West Virginia
The Greenbriar, the state’s venerable resort facility has submitted for individual bankruptcy, but has a new suitor in Marriott Resorts, who have reportedly tendered an supply. Point out govt has proffered the idea of allowing the vacation resort to supply casino online games, but this work is in way too early a phase to have any traction one particular way or an additional.
Indian Gaming
A modern Supreme Court docket ruling that restricts the getting of lands into trust on behalf of federally recognized American Indian tribes has more stymied some new Class III gaming assignments throughout the nation. In addition, there had been eleven Indian on line casino initiatives turned down by the DOI final calendar year simply because of its new rule that casinos should be near ample to a reservation that tribal customers can operate at them. It has been proposed that the new Obama administration may well be more sympathetic to the improvement of Indian gaming assignments, but this situation has however to be resolved.
In the meantime, there are other Course III tasks in the different phases of growth. The Seneca casino venture in Buffalo, NY, whilst operating a small temporary facility, has delayed an currently underneath design long term facility till the marketplace rebounds. They have also expressed an desire in building a casino in the Catskills. The condition gaming compact with Seminoles in Florida is getting challenged, and could influence their strategies for more substantial projects. There are new Indian gaming initiatives set to open up in Michigan and Oklahoma this year, and others are in the arranging phase. Texas might let the reopening of Indian gaming facilities and enable other location and there are strategies afoot by the Navajos in Arizona to assemble additional casinos. California is poised to open up two to a few new Class III casinos in 2009/10.
The Nor’easter Squeeze
Overall gaming revenue in Atlantic Town has declined seven.six %, from $four.9 billion in 2007 to $four.5 billion in 2008 with decreases continuing into 2009, as the city is finding alone in an extreme comp-war with the Pennsylvania venues. At a single time the only casinos in the Northeast have been located in Atlantic City, where it appeared as if it may actually even eclipse the Las Vegas Strip’s once-a-year gaming revenues.
Little by little even so its market share was being encroached on, 1st by the advancement of a massive Class III gaming operation in Connecticut, and then yet another slots operations in Rhode Island, and then movie lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most just lately 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 functions in Philadelphia, the noose is tightening close to Atlantic City’s foreseeable future potential clients. It truly is reliance on day-trippers lulled it into a fake perception of security, and it now finds alone having to redefine its mission assertion to “destination vacation resort.”
The only difficulty with this strategy nonetheless is that it is sick-outfitted to pull it off. For all intents and purposes, Atlantic Town is underneath-roomed and/or over-gamed. There is merely not adequate day-tripper market place to go all around, and their successful buying and selling location is tightening, as the peripheral populations northward now/will have a lot more completely ready obtain to a widened source in New York (Yonkers, and soon at Aqueduct and probably 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 potential and the availability of desk games, despite the fact that the latter is most likely to eventuate in Pennsylvania, and probably Delaware. In get to sufficiently contend as a vacation spot resort the town wants to build further guest rooms and not automatically gaming ability. By comparison, the Las Vegas Strip homes – accurate gaming destinations, in that they do not have much of a day-excursion market, other than for the ‘locals’ – have an typical of .87 gaming positions per visitor area whilst Atlantic City’s typical is two.seventy four positions per visitor area.
It is not a coincidence that Atlantic City’s two biggest resorts, the Borgata and Harrah’s Marina, each of which extra new rooms in 2008, have been the minimum impacted by the most recent downturn. The Borgata skilled a gaming profits drop of one.6 p.c, although Harrah’s Marina documented a four.9 percent improve compared to 2007. Moreover, the hardest strike venues, particularly 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, which includes the the Trump homes and Resorts with the hoped for sale of the Tropicana has been additional delayed, and dropping valuation.
With a continual increase in gaming revenues by means of 2006, the city seemed prime for even more improvement, which precipitated arranging for 4 new vacation resort initiatives, each and every of which have now been indefinitely delayed. Betflix ‘s $two.5 billion venture remains an iron skeleton, Pinnacle Entertainment has declared it may look for to offer its razed Sands web site, MGM Mirage has shelved its on line casino strategies, and Penn Nationwide seems to have stopped its pursuit of the Bader Area airport internet site.
