A Period of Adjustment
Oops! That huge hissing sound is the gaming balloon that had been growing more than the a long time, little by little shedding air. But, it has not been a tide that decreased all ships even so, as some emerging and growing gaming jurisdictions showed strong progress in 2008.
Total, the commercial and racetrack casino sectors (excluding Indian gaming), experienced a 3.five % decrease in gaming revenues for 2008, creating a total of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they confirmed a achieve of nearly $1 billion in 2008, thus bringing the Professional sector market decline to $one.8 billion, or 6.seven %. Nevada was the most significant loser in 2008, dropping virtually $1.three billion, much more than 50 % of which stemmed from the Las Vegas Strip phase.
Hunkering Down
For the most portion, 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 genuinely nosedived. Using the crest of year above calendar year marketplace development across the place and the availability of enough credit and equity funds, new construction and expansion proliferated in recent many years. These days, faced with the realities of declining, or at greatest stagnant demand, numerous of these tasks are now considered more than-leveraged and/or more than-sized. As a outcome numerous gaming firms are making an attempt to renegotiate their debt – created a lot more tough by lower valuations – while also paring down operational expenses. The latter has turn out to be a very problematic conundrum when working with the competitors, specifically in those jurisdictions that are now vying for market shares with new emerging on line casino initiatives in neighboring areas. A subject we discuss much more totally in the Condition by Point out investigation section of this publication.
As a end result of these problems the gaming industry landscape is now strewn with impending fatalities. Amongst the far more noteworthy troubled corporations are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Amusement, Herbst Gaming and the record grows each week.
“How extended will these economic problems persist, and are we at the base but?” are questions no one particular seems to be answering yet. What is clear nevertheless is that most gaming jurisdictions will have to learn how to deal with a scaled-down pie.
Notice:
This examination contains only gaming revenues of licensed casinos and pari-mutuel retailers that supply on line casino online games, and not Indian gaming functions, card rooms, or tiny non-casino kind slot locations. The complete article, such as income tables is obtainable on our internet web page.
Enter/Output Model
A key factor that appears to have arisen from the ashes of this recent development is that many casino projects ended up just way too large to help on their own. The enter, in terms of investment dollars, was not proportional to the output, in phrases of web profit right after credit card debt services, when compared to previously accomplished benefits. Far more and/or greater is not always better. Looking at the increase in non-gaming profits at the Las Vegas Strip resorts, gave impetus to the advancement of more comprehensive facilities in several other jurisdictions. The flaw in this strategy nevertheless is that the fees related with widening industry penetration and occasioned-use, are drastically higher than those incurred to draw in the foundation industry.
As daytripper markets turn out to be far more aggressive, on line casino venues will have to count more and far more on their in-home hotel patrons, and dimensions their properties (and anticipations) accordingly. Even though Steve Wynn started out a major development in generating up-market mega-destinations, there basically was not enough desire on the Strip to warrant the several other related projects that followed that aimed at the very same specialized niche.
The trick is to strike a content medium in task configurations which of system call for considerably less of a ‘seat-of-pants’ approach, and a single that is much more analyzed. A shameless plug for development consultants like ourselves.
Other Gaming Actions
Although there are no released thorough information of American Indian gaming revenues, anecdotal proof appears to propose that this segment has been as challenging strike as the Business sector. The two Connecticut Indian gaming installations report slot revenue of $1.six billion in 2008, representing a drop of about seven %, or nearly $114 million, much more than doubling the three.5 percent fall from the year ahead of. This marketplace is evidently nonetheless reeling from the ripple-impact of a on line casino expansion in Rhode Island, and the opening of slot functions in New York and Pennsylvania.
The Arizona Office of Gaming studies that contributions based on a gaming profits formula from the state’s 23 Indian gaming casinos, have been declining each and every quarter in 2008 compared to the prior 12 months decreasing .8 p.c in the initial quarter, 7.five p.c in the 2nd quarter, nine.five per cent in the 3rd quarter, and sixteen.one p.c in the fourth quarter.
Some SEC reporting Indian gaming qualities report related decreases. Seneca Gaming, which operates a few Class III casinos in upstate New York, reviews that whilst calendar 12 months 2008 showed an practically two % progress charge in gaming revenues, there was an 8.7 percent drop in the third quarter and an virtually 10 per cent decrease in the fourth quarter of 2008, when compared with 2007. Gaming profits tendencies at close by Niagara Falls, Ontario ended up down 1.5% in 2008 in comparison with 2007.
It truly is been a blended-bag for point out lotteries throughout the country. The North American Affiliation of State & Provincial Lotteries reports that U.S. lotteries created a whole of $sixty.six billion in revenue in fiscal 2008, up about three % from the preceding 12 months nevertheless some jurisdictions reported decreases, most notably California, which showed an eight % drop. Inasmuch as some of these states are on various fiscal year finishes, it would look that the knowledge does not replicate the influence of third and/or fourth quarter final results.
In accordance to data offered by Equibase, horse racing pari-mutuel revenues proceed their downward spiral, falling 7 % to $13.seven billion in 2008, compared to $14.seven billion in 2007.
Prepared & Proposed New Expansions
As beforehand observed, it has been new gaming jurisdictions that have spawned much of the development in yearly casino/racino revenues over the years, and their impact is apt to proceed into the in close proximity to long term.
Florida
Miami Dade voters accredited a ballot situation that makes it possible for each and every of three pari-mutuels to have a on line casino facility of up to two,000 slot machines. The Flagler Pet Keep track of and Miami Jai-Alai are reportedly preparing opening in late 2009 or early 2010, whilst the Calder set up in Miami Gardens has but to introduced its ideas. There are several other proposals becoming regarded as that would even more increase casino growth throughout the point out.
Illinois
The state finally got around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a 1,200+ game casino situated in Des Plaines just east of O’Hare. The new facility is not likely to open up until finally 2010. There has also been some dialogue about enabling an boost in for each location gaming positions and slots at racetracks, even though neither initiative seems to have any traction at this time.
Kansas
The state’s expanded lottery software that makes it possible for for the advancement of 4 on line casino gaming zones and slots at present horse and dog tracks seems mired, as only one particular facility is presently underneath building, while three other proposals ended up rescinded. The only bidder on the Cherokee County agreement, claimed it could not compete with the new Quapaw tribal on line casino in Oklahoma, which is situated so close to the state line that its parking great deal is in Kansas. The Boot Hill On line casino Resort in Dodge City is planing a December 2009 opening with 575 slots and ten table game titles, alongside with a second period due to open in 2011 with 875 slots and twenty table games. The point out has prolonged the application approach for the other three zones until finally April, 2009.
Kentucky
There is still a lot of ‘jockeying’ likely on, but the prospect of as several as 8 slot parlors and racinos seems to be again on the front-burner, but probably not settled in the course of the existing legislative session.
Las Vegas
There are about fourteen,000 rooms scheduled to appear on line in 2009, with the most modern becoming the 390 area M Resort in Henderson. There are expansions underway at both Caesars Palace and Hard Rock and new lodges incorporate two parts of the City Center project, and the Fountainebleau.
Louisiana
Pinnacle Entertainment’s new on line casino advancement initiatives in Baton Rouge and Lake Charles, while delayed, are reported to nonetheless be on-keep track of for opening this 12 months and/or early 2010.
Maine
There is a invoice under consideration that could more than double Penn National’s slot equipment to three,000, as effectively as a proposal that would take away the restriction that slots be positioned in 5 miles of the keep track of. www.aw8.casino , which has been unsuccessful in convincing local inhabitants to permit slots, may possibly be thinking about transferring to a much more hospitable town.
Maryland
A referendum was accredited in November, 2008 that enables for the growth of 5 casinos with a overall of fifteen,000 slots, and now the bidding war is afoot even though it is not as extreme as the state had predicted.
Mississippi
Grand Soleil Casino Resort in Natchez experienced been slated to open up in 2008, but has operate into a variety of funding problems and whilst the hotel part is open, the riverboat is reported to open up in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, whilst scaled again fairly, is nevertheless on track to open this calendar year.
New England
Massachusetts, a sleeping-huge in phrases of market possible, is still maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but cannot seem to muster the political assistance. A modern review concluded by Dartmouth College estimates that Massachusetts resident invested far more than $920 million last yr at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature not too long ago declined an choice to create casinos, even so the matter is likely to be revisited, specially if Massachusetts decides to go forward. There are also tries in Maine to reconsider its alternatives.
New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot equipment at racetracks by lately 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 plan which ironically, can only be preserved by permitting the tracks to have slot machines especially at the Meadowlands. (See The Nor’easter Squeeze section)
New York
Just when it seemed as if Aqueduct’s 4,five hundred VLT facility would ultimately be produced, the successful bidder indicated an inability to make the essential $370 million fee, citing the existing lending local weather, and throwing the project back into the lap of the governor. Though the industry demand from customers in the location could be regarded as very robust, the prospect of additional competition from close by Belmont could have an impact on Aqueduct’s underlining financial feasibility, especially thinking about that marginally much less than thirty% of the internet acquire is retained by the operator.
Ideas to relocate Monticello Raceway into a resort complex are being reconsidered perhaps owing to each the probable opening of at the very least one or maybe two racino operations in the NY metro spot, and the resurfacing of initiatives to development a Class III Indian gaming facility in the Catskills.
Ohio
Nevertheless another gaming proposal is becoming place forth in Ohio, after previous year’s edition was turned down by the voters. This plan calls for one particular casino each and every in the state’s biggest towns: Cleveland, Columbus, Cincinnati and Toledo. There would be a bare minimum expenditure needed of $250 million, as effectively as an first licensing payment of $fifty million, and a 33 % tax on gaming profits.
Pennsylvania
The Sands in Bethlehem is thanks to open up in the Spring of ’09, and the new Rivers task in Pittsburgh is anticipated to be operational in August, ’09 although Philadelphia’s two slot facilities still wallow in a political mire, but are anticipated to begin construction this calendar year.
South Dakota
The Lodge at Deadwood is slated to open in the Drop of 2009, and include 300 games, one hundred forty rooms and a wide selection of features.
Texas
Legislators are proposing a voter referendum that would amend the state constitution to enable on line casino gambling in selected areas, as effectively as let gambling on American Indian lands in Texas and at existing racetracks.
West Virginia
The Greenbriar, the state’s venerable vacation resort facility has submitted for bankruptcy, but has a new suitor in Marriott Lodges, who have reportedly tendered an provide. Condition federal government has proffered the idea of permitting the resort to provide on line casino games, but this work is in as well early a phase to have any traction a single way or another.
Indian Gaming
A recent Supreme Court ruling that restricts the taking of lands into believe in on behalf of federally regarded American Indian tribes has further stymied some new Course III gaming tasks throughout the place. Moreover, there have been eleven Indian on line casino projects turned down by the DOI last 12 months simply because of its new rule that casinos need to be close to enough to a reservation that tribal users can work at them. It has been suggested that the new Obama administration may be far more sympathetic to the improvement of Indian gaming assignments, but this concern has nevertheless to be tackled.
Meanwhile, there are other Course III assignments in the various phases of improvement. The Seneca casino venture in Buffalo, NY, while working a modest temporary facility, has delayed an previously under development long lasting facility till the marketplace rebounds. They have also expressed an fascination in building a on line casino in the Catskills. The state gaming compact with Seminoles in Florida is being challenged, and could impact 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 arranging phase. Texas may let the reopening of Indian gaming facilities and enable other location and there are ideas 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
Complete gaming profits in Atlantic City has declined 7.six p.c, from $four.9 billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the city is locating by itself in an intensive comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast ended up situated in Atlantic Town, the place it appeared as if it may possibly actually even eclipse the Las Vegas Strip’s annual gaming revenues.
Gradually nonetheless its market place share was becoming encroached upon, 1st by the development of a large Class III gaming procedure 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 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 customers. It is reliance on working day-trippers lulled it into a false sense of safety, and it now finds by itself obtaining to redefine its mission statement to “location vacation resort.”
The only issue with this strategy nevertheless is that it is ill-equipped to pull it off. For all intents and reasons, Atlantic Metropolis is beneath-roomed and/or over-gamed. There is merely not enough working day-tripper industry to go close to, and their effective buying and selling region is tightening, as the peripheral populations northward now/will have a lot more all set accessibility to a widened supply in New York (Yonkers, and before long 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 real aggressive rewards are its hotel capacity and the availability of desk online games, even though the latter is very likely to eventuate in Pennsylvania, and probably Delaware. In purchase to adequately compete as a vacation spot resort the metropolis wants to produce further guest rooms and not essentially gaming capability. By comparison, the Las Vegas Strip homes – true gaming destinations, in that they do not have significantly of a working day-excursion marketplace, except for the ‘locals’ – have an average of .87 gaming positions for every guest room whilst Atlantic City’s average is two.74 positions for every visitor place.
It is not a coincidence that Atlantic City’s two biggest resorts, the Borgata and Harrah’s Marina, equally of which added new rooms in 2008, were the least impacted by the most recent downturn. The Borgata knowledgeable a gaming income drop of one.six percent, whilst Harrah’s Marina documented a 4.9 percent increase in comparison to 2007. Furthermore, the most difficult hit 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, like the the Trump houses and Resorts with the hoped for sale of the Tropicana has been additional delayed, and losing valuation.
With a constant increase in gaming revenues by way of 2006, the metropolis appeared prime for even more improvement, which precipitated arranging for four new vacation resort initiatives, every of which have now been indefinitely delayed. Revel Entertainment Group’s $2.five billion project stays an iron skeleton, Pinnacle Entertainment has introduced it might seek out to offer its razed Sands website, MGM Mirage has shelved its on line casino plans, and Penn National appears to have stopped its pursuit of the Bader Field airport web site.