A Period of Adjustment
Oops! That giant hissing seem is the gaming balloon that had been growing above the several years, little by little getting rid of air. But, it has not been a tide that reduced all ships nevertheless, as some emerging and growing gaming jurisdictions confirmed powerful expansion in 2008.
Overall, the industrial and racetrack on line casino sectors (excluding Indian gaming), skilled a 3.five per cent decline in gaming revenues for 2008, creating a overall of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they confirmed a gain of nearly $1 billion in 2008, thereby bringing the Commercial sector marketplace decline to $one.eight billion, or 6.7 per cent. Nevada was the greatest loser in 2008, dropping almost $1.three billion, much more than 50 percent of which stemmed from the Las Vegas Strip segment.
For the most part, on line casino operators ended up caught reasonably flat-footed by the extent of the 2008 revenue downturn, as it was not right up until the 3rd and fourth quarters when it really nosedived. Riding the crest of calendar year more than 12 months marketplace development across the place and the availability of enough credit rating and equity funds, new building and growth proliferated in current a long time. Today, confronted with the realities of declining, or at very best stagnant need, numerous of these initiatives are now regarded as over-leveraged and/or more than-sized. As a consequence many gaming companies are trying to renegotiate their debt – made a lot more hard by reduce valuations – whilst also paring down operational fees. The latter has turn into a quite problematic conundrum when dealing with the opposition, specifically in people jurisdictions that are now vying for marketplace shares with new rising on line casino initiatives in neighboring regions. A matter we discuss much more fully in the Condition by Condition examination segment of this publication.
As a consequence of these problems the gaming industry landscape is now strewn with impending fatalities. Amongst the more noteworthy troubled corporations are Station Casinos, Empire Resorts, Harrah’s Leisure, Greektown Holdings, Legends Gaming, Tropicana Enjoyment, Herbst Gaming and the listing grows every week.
“How long will these financial situations persist, and are we at the bottom yet?” are questions no one seems to be answering yet. What is very clear however is that most gaming jurisdictions will have to understand how to deal with a more compact pie.
This evaluation contains only gaming revenues of accredited casinos and pari-mutuel retailers that offer on line casino games, and not Indian gaming functions, card rooms, or little non-on line casino kind slot spots. The complete report, such as profits tables is offered on our web website page.
A key aspect that looks to have arisen from the ashes of this existing pattern is that numerous casino initiatives ended up just as well massive to help them selves. The enter, in conditions of expenditure dollars, was not proportional to the output, in phrases of net revenue after debt support, in contrast to beforehand attained results. Much more and/or bigger is not often better. Looking at the increase in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the improvement of far more thorough facilities in several other jurisdictions. The flaw in this technique nonetheless is that the charges linked with widening marketplace penetration and occasioned-use, are substantially larger than individuals incurred to entice the foundation market place.
As daytripper marketplaces become a lot more competitive, on line casino venues will have to depend a lot more and far more on their in-residence resort patrons, and measurement their qualities (and anticipations) appropriately. Even though Steve Wynn started a major pattern in generating up-market place mega-destinations, there merely was not enough demand on the Strip to warrant the a lot of other related tasks that adopted that aimed at the very same specialized niche.
The trick is to strike a satisfied medium in project configurations which of system call for considerably less of a ‘seat-of-pants’ strategy, and one particular that is more researched. A shameless plug for growth consultants like ourselves.
Other Gaming Pursuits
Even though there are no released thorough knowledge of American Indian gaming revenues, anecdotal proof seems to propose that this phase has been as tough strike as the Professional sector. The two Connecticut Indian gaming installations report slot revenue of $1.six billion in 2008, symbolizing a fall of about 7 %, or practically $114 million, far more than doubling the three.five percent drop from the yr prior to. This market place is evidently nonetheless reeling from the ripple-effect of a on line casino expansion in Rhode Island, and the opening of slot operations in New York and Pennsylvania.
The Arizona Department of Gaming stories that contributions based on a gaming income system from the state’s 23 Indian gaming casinos, have been declining every quarter in 2008 compared to the previous year reducing .eight percent in the first quarter, 7.five p.c in the next quarter, nine.five percent in the third quarter, and sixteen.1 % 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, stories that while calendar yr 2008 showed an practically two % progress rate in gaming revenues, there was an 8.seven % decline in the 3rd quarter and an virtually 10 percent drop in the fourth quarter of 2008, compared with 2007. Gaming profits traits at close by Niagara Falls, Ontario have been down one.five% in 2008 when compared with 2007.
It really is been a blended-bag for condition lotteries across the place. The North American Affiliation of Point out & Provincial Lotteries reports that U.S. lotteries created a total of $60.six billion in income in fiscal 2008, up about three percent from the previous year yet some jurisdictions described decreases, most notably California, which showed an eight percent fall. Inasmuch as some of these states are on different fiscal yr ends, it would seem that the data does not replicate the impact of 3rd and/or fourth quarter final results.
In accordance to data offered by Equibase, horse racing pari-mutuel revenues continue their downward spiral, falling seven percent to $thirteen.7 billion in 2008, compared to $14.7 billion in 2007.
Planned & Proposed New Expansions
As previously noted, it has been new gaming jurisdictions that have spawned considerably of the growth in once-a-year casino/racino revenues over the many years, and their impact is apt to keep on into the in close proximity to foreseeable future.
Miami Dade voters authorized a ballot concern that allows each of 3 pari-mutuels to have a casino facility of up to 2,000 slot machines. The Flagler Canine Track and Miami Jai-Alai are reportedly preparing opening in late 2009 or early 2010, whilst the Calder set up in Miami Gardens has however to declared its programs. There are numerous other proposals becoming regarded as that would more increase on line casino improvement during the state.
The condition finally got all around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Enjoyment, LLC for a 1,200+ match on line casino located in Des Plaines just east of O’Hare. The new facility is not most likely to open right up until 2010. There has also been some discussion about permitting an enhance in for every area gaming positions and slots at racetracks, though neither initiative seems to have any traction at this time.
The state’s expanded lottery program that makes it possible for for the improvement of 4 on line casino gaming zones and slots at present horse and canine tracks appears mired, as only one particular facility is presently below construction, although three other proposals have been rescinded. The only bidder on the Cherokee County contract, claimed it could not contend with the new Quapaw tribal casino in Oklahoma, which is found so shut to the point out line that its parking whole lot is in Kansas. The Boot Hill On line casino Resort in Dodge Metropolis is planing a December 2009 opening with 575 slots and 10 desk games, alongside with a second period owing to open up in 2011 with 875 slots and 20 table video games. The condition has prolonged the application procedure for the other 3 zones until April, 2009.
There is even now a good deal of ‘jockeying’ likely on, but the prospect of as numerous as 8 slot parlors and racinos seems to be back on the entrance-burner, but likely not solved in the course of the existing legislative session.
There are about 14,000 rooms scheduled to appear on line in 2009, with the most recent becoming the 390 space M Vacation resort in Henderson. There are expansions underway at both Caesars Palace and Tough Rock and new hotels contain two components of the Town Centre venture, and the Fountainebleau.
Pinnacle Entertainment’s new on line casino growth assignments in Baton Rouge and Lake Charles, while delayed, are reported to nevertheless be on-monitor for opening this calendar year and/or early 2010.
There is a monthly bill beneath consideration that could much more than double Penn National’s slot machines to 3,000, as properly as a proposal that would get rid of the restriction that slots be found in 5 miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing local people to enable slots, might be considering moving to a much more hospitable town.
A referendum was approved in November, 2008 that enables for the growth of five casinos with a total of 15,000 slots, and now the bidding war is afoot despite the fact that it is not as powerful as the point out experienced anticipated.
Grand Soleil Casino Resort in Natchez had been slated to open up in 2008, but has operate into different funding concerns and whilst the hotel portion is open, the riverboat is reported to open up in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, whilst scaled back somewhat, is nevertheless on keep track of to open up this year.
Massachusetts, a sleeping-giant in terms of market place likely, is even now maneuvering to open casinos/racinos, and/or a Course III Indian gaming facility, but can not seem to muster the political support. A modern examine finished by Dartmouth College estimates that Massachusetts resident expended a lot more than $920 million final yr at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an choice to produce casinos, nonetheless the topic is probably to be revisited, specifically if Massachusetts decides to go ahead. There are also tries in Maine to rethink its alternatives.
Atlantic City’s casinos have imposed their political will on staving off the addition of slot equipment at racetracks by just lately agreeing to proceed augmenting purses with an further tax. The governor nevertheless, has appointed a new panel to examine the state’s sagging racing plan which ironically, can only be preserved by enabling the tracks to have slot devices particularly at the Meadowlands. (See The Nor’easter Squeeze segment)
Just when it looked as if Aqueduct’s 4,500 VLT facility would finally be developed, the winning bidder indicated an lack of ability to make the needed $370 million price, citing the current lending weather, and throwing the task back into the lap of the governor. Even though the industry need in the spot could be considered fairly sturdy, the prospect of added competitiveness from close by Belmont could have an affect on Aqueduct’s underlining economic feasibility, specifically taking into consideration that slightly considerably less than 30% of the web get is retained by the operator.
Plans to relocate Monticello Raceway into a resort complicated are currently being reconsidered possibly owing to both the possible opening of at least 1 or perhaps two racino functions in the NY metro spot, and the resurfacing of initiatives to advancement a Class III Indian gaming facility in the Catskills.
However another gaming proposal is becoming set forth in Ohio, following very last year’s version was turned down by the voters. This program phone calls for 1 casino every single in the state’s greatest towns: Cleveland, Columbus, Cincinnati and Toledo. There would be a bare minimum investment essential of $250 million, as well as an original licensing charge of $50 million, and a 33 p.c tax on gaming earnings.
The Sands in Bethlehem is because of to open in the Spring of ’09, and the new Rivers task in Pittsburgh is envisioned to be operational in August, ’09 whilst Philadelphia’s two slot facilities nonetheless wallow in a political mire, but are anticipated to start off building this year.
The Lodge at Deadwood is slated to open in the Slide of 2009, and include three hundred games, one hundred forty rooms and a wide variety of features.
Legislators are proposing a voter referendum that would amend the condition constitution to enable casino gambling in selected locations, as nicely as enable gambling on American Indian lands in Texas and at existing racetracks.
The Greenbriar, the state’s venerable vacation resort facility has filed for personal bankruptcy, but has a new suitor in Marriott Resorts, who have reportedly tendered an offer. Point out federal government has proffered the notion of allowing the vacation resort to offer on line casino games, but this hard work is in way too early a phase to have any traction one particular way or another.
A latest Supreme Court docket ruling that restricts the using of lands into have faith in on behalf of federally recognized American Indian tribes has even more stymied some new Class III gaming initiatives throughout the place. Additionally, there were eleven Indian on line casino assignments turned down by the DOI previous yr simply because of its new rule that casinos must 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 development of Indian gaming initiatives, but this concern has but to be resolved.
Meanwhile, there are other Class III assignments in the different phases of development. yehyeh in Buffalo, NY, whilst functioning a small momentary facility, has delayed an previously beneath design long term facility until the marketplace rebounds. They have also expressed an interest in establishing a on line casino in the Catskills. The condition gaming compact with Seminoles in Florida is becoming challenged, and could affect their strategies for more substantial tasks. There are new Indian gaming projects established to open in Michigan and Oklahoma this year, and others are in the planning phase. Texas may possibly permit the reopening of Indian gaming services and allow other venue and there are programs afoot by the Navajos in Arizona to build further casinos. California is poised to open up two to three new Course III casinos in 2009/10.
The Nor’easter Squeeze
Overall gaming income in Atlantic City has declined 7.six percent, from $4.nine billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the city is locating itself in an powerful comp-war with the Pennsylvania venues. At 1 time the only casinos in the Northeast were positioned in Atlantic Town, in which it seemed as if it might really even eclipse the Las Vegas Strip’s annual gaming revenues.
Slowly nonetheless its market share was being encroached on, first by the development of a huge Course III gaming operation in Connecticut, and then an additional slots functions in Rhode Island, and then video clip lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most lately Pennsylvania.
Now, with the prepared opening of slot operations in Maryland, the impending opening of a new casino in Bethlehem, PA, and at some point two functions in Philadelphia, the noose is tightening about Atlantic City’s foreseeable future potential customers. It really is reliance on day-trippers lulled it into a fake sense of stability, and it now finds itself possessing to redefine its mission statement to “vacation spot resort.”
The only difficulty with this approach however is that it is unwell-outfitted to pull it off. For all intents and needs, Atlantic Metropolis is under-roomed and/or over-gamed. There is basically not enough working day-tripper market place to go around, and their powerful buying and selling area is tightening, as the peripheral populations northward now/will have far more prepared access to a widened offer in New York (Yonkers, and quickly at Aqueduct and probably Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.
Other than the ocean access, the city’s only real aggressive benefits are its resort potential and the availability of desk online games, even though the latter is probably to eventuate in Pennsylvania, and perhaps Delaware. In purchase to sufficiently contend as a spot resort the town wants to create extra visitor rooms and not essentially gaming capacity. By comparison, the Las Vegas Strip homes – accurate gaming places, in that they do not have considerably of a day-trip industry, apart from for the ‘locals’ – have an regular of .87 gaming positions per visitor area whilst Atlantic City’s regular is two.74 positions for every visitor room.
It is not a coincidence that Atlantic City’s two greatest accommodations, the Borgata and Harrah’s Marina, the two of which included new rooms in 2008, ended up the minimum impacted by the most current downturn. The Borgata skilled a gaming earnings fall of one.six p.c, although Harrah’s Marina reported a four.nine % enhance compared to 2007. Furthermore, the hardest strike venues, namely 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 dropping valuation.
With a steady rise in gaming revenues via 2006, the metropolis appeared primary for more development, which precipitated preparing for 4 new vacation resort initiatives, every of which have now been indefinitely delayed. Revel Entertainment Group’s $two.5 billion undertaking continues to be an iron skeleton, Pinnacle Entertainment has introduced it may well find to offer its razed Sands website, MGM Mirage has shelved its casino ideas, and Penn National seems to have stopped its pursuit of the Bader Subject airport website.
2008 Countrywide Professional Casino and Racino Online games Revenue Examination
A Period of Adjustment