2008 Countrywide Professional On line casino & Racino Gaming Earnings Examination

A Period of Adjustment

Oops! That big hissing seem is the gaming balloon that experienced been expanding in excess of the years, little by little dropping air. But, it has not been a tide that reduced all ships however, as some emerging and growing gaming jurisdictions confirmed strong progress in 2008.

Total, the professional and racetrack on line casino sectors (excluding Indian gaming), knowledgeable a three.5 percent drop 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 gain of virtually $1 billion in 2008, thereby bringing the Professional sector marketplace decline to $1.8 billion, or six.seven percent. Nevada was the most significant loser in 2008, dropping virtually $1.three billion, much more than fifty percent of which stemmed from the Las Vegas Strip section.

Hunkering Down

For the most part, on line casino operators had been caught fairly flat-footed by the extent of the 2008 earnings downturn, as it was not right up until the third and fourth quarters when it actually nosedived. Driving the crest of 12 months more than calendar year market place expansion across the nation and the availability of ample credit rating and equity funds, new development and enlargement proliferated in latest a long time. Right now, faced with the realities of declining, or at greatest stagnant need, a lot of of these projects are now regarded as more than-leveraged and/or above-sized. As a end result many gaming companies are making an attempt to renegotiate their personal debt – made more difficult by decrease valuations – while also paring down operational fees. The latter has turn into a quite problematic conundrum when dealing with the competition, specially in those jurisdictions that are now vying for marketplace shares with new rising on line casino projects in neighboring places. A matter we talk about much more totally in the State by State examination segment of this publication.

As a result of these problems the gaming industry landscape is now strewn with impending fatalities. Among the far more notable troubled corporations are Station Casinos, Empire Resorts, Harrah’s Amusement, Greektown Holdings, Legends Gaming, Tropicana Amusement, Herbst Gaming and the list grows each and every week.

“How lengthy will these financial problems persist, and are we at the base however?” are questions no a single appears to be answering but. What is obvious however is that most gaming jurisdictions will have to learn how to offer with a scaled-down pie.

This evaluation involves only gaming revenues of certified casinos and pari-mutuel outlets that provide on line casino video games, and not Indian gaming functions, card rooms, or small non-on line casino variety slot spots. The total post, which includes revenue tables is offered on our internet website page.

Input/Output Model

A key aspect that appears to have arisen from the ashes of this existing development is that several on line casino tasks have been just as well large to help on their own. The enter, in phrases of investment decision pounds, was not proportional to the output, in conditions of net profit after financial debt services, compared to formerly reached results. Much more and/or even bigger is not usually better. Looking at the increase in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the growth of much more thorough features in numerous other jurisdictions. The flaw in this method nonetheless is that the charges related with widening industry penetration and occasioned-use, are considerably greater than those incurred to draw in the foundation industry.

As daytripper markets grow to be far more aggressive, on line casino venues will have to rely more and a lot more on their in-home lodge patrons, and dimensions their properties (and expectations) appropriately. Although Steve Wynn started a main craze in producing up-marketplace mega-destinations, there merely was not sufficient demand from customers on the Strip to warrant the numerous other similar tasks that followed that aimed at the identical market.

The trick is to strike a content medium in task configurations which of system call for considerably less of a ‘seat-of-pants’ strategy, and one that is more researched. A shameless plug for development consultants like ourselves.

Other Gaming Actions

Although there are no revealed in depth information of American Indian gaming revenues, anecdotal proof appears to suggest that this phase has been as difficult strike as the Commercial sector. The two Connecticut Indian gaming installations report slot profits of $one.six billion in 2008, symbolizing a fall of about 7 p.c, or nearly $114 million, far more than doubling the 3.5 % drop from the year prior to. This industry is seemingly nonetheless reeling from the ripple-influence of a on line casino enlargement in Rhode Island, and the opening of slot operations in New York and Pennsylvania.

The Arizona Division of Gaming stories that contributions based on a gaming income formulation from the state’s 23 Indian gaming casinos, have been declining each and every quarter in 2008 in comparison to the prior 12 months decreasing .eight percent in the first quarter, seven.5 % in the 2nd quarter, 9.five % in the 3rd quarter, and sixteen.one percent in the fourth quarter.

Some SEC reporting Indian gaming homes report related decreases. Seneca Gaming, which operates a few Class III casinos in upstate New York, reviews that whilst calendar yr 2008 showed an practically 2 per cent development price in gaming revenues, there was an 8.seven per cent drop in the third quarter and an virtually ten percent decrease in the fourth quarter of 2008, when compared with 2007. Gaming income trends at nearby Niagara Falls, Ontario ended up down one.5% in 2008 in comparison with 2007.

It really is been a blended-bag for state lotteries across the place. The North American Affiliation of Point out & Provincial Lotteries reports that U.S. lotteries generated a overall of $60.6 billion in revenue in fiscal 2008, up about three p.c from the earlier year however some jurisdictions described decreases, most notably California, which showed an eight per cent fall. Inasmuch as some of these states are on different fiscal yr finishes, it would appear that the info does not mirror the influence of 3rd and/or fourth quarter outcomes.

In accordance to knowledge provided by Equibase, horse racing pari-mutuel revenues carry on their downward spiral, falling seven per cent to $thirteen.7 billion in 2008, as opposed to $fourteen.7 billion in 2007.

Planned & Proposed New Expansions

As beforehand famous, it has been new gaming jurisdictions that have spawned considerably of the expansion in once-a-year on line casino/racino revenues over the many years, and their affect is apt to keep on into the around long term.

Miami Dade voters approved a ballot issue that makes it possible for every single of three pari-mutuels to have a on line casino facility of up to 2,000 slot machines. The Flagler Canine Observe and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, while the Calder installation in Miami Gardens has yet to introduced its plans. There are several other proposals getting deemed that would additional expand on line casino development throughout the state.

The point out lastly obtained about to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Enjoyment, LLC for a one,200+ recreation on line casino found in Des Plaines just east of O’Hare. The new facility is not very likely to open until finally 2010. There has also been some dialogue about enabling an increase in for every location gaming positions and slots at racetracks, despite the fact that neither initiative appears to have any traction at this time.

The state’s expanded lottery plan that permits for the development of 4 on line casino gaming zones and slots at existing horse and dog tracks seems mired, as only 1 facility is presently underneath building, while a few other proposals have been 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 found so near to the condition line that its parking great deal is in Kansas. The Boot Hill Casino Vacation resort in Dodge City is planing a December 2009 opening with 575 slots and ten table video games, along with a second phase because of to open up in 2011 with 875 slots and 20 desk games. The point out has extended the software approach for the other 3 zones right up until April, 2009.

There is even now a good deal of ‘jockeying’ likely on, but the prospect of as several as eight slot parlors and racinos appears to be again on the front-burner, but most likely not resolved in the course of the existing legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to come on line in 2009, with the most current getting the 390 space M Resort in Henderson. There are expansions underway at the two Caesars Palace and Tough Rock and new hotels incorporate two elements of the Town Centre task, and the Fountainebleau.

Pinnacle Entertainment’s new on line casino growth tasks in Baton Rouge and Lake Charles, while delayed, are documented to still be on-keep track of for opening this year and/or early 2010.

There is a invoice beneath thing to consider that could far more than double Penn National’s slot machines to three,000, as effectively as a proposal that would eliminate the restriction that slots be found inside of 5 miles of the monitor. Scarborough Downs, which has been unsuccessful in convincing nearby residents to enable slots, could be contemplating transferring to a more hospitable town.

A referendum was accepted in November, 2008 that enables for the growth of 5 casinos with a complete of 15,000 slots, and now the bidding war is afoot though it is not as intensive as the condition had predicted.

Grand Soleil On line casino Vacation resort in Natchez experienced been slated to open in 2008, but has run into numerous funding troubles and whilst the hotel portion is open up, the riverboat is described to open in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, while scaled back somewhat, is nevertheless on track to open up this year.

New England
Massachusetts, a sleeping-big in phrases of market place prospective, is nevertheless maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but are not able to seem to be to muster the political assistance. A recent study concluded by Dartmouth College estimates that Massachusetts resident invested more than $920 million very last calendar year at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an alternative to build casinos, however the subject is very likely to be revisited, especially if Massachusetts decides to go ahead. 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 devices at racetracks by not too long ago agreeing to continue augmenting purses with an extra tax. The governor even so, has appointed a new panel to examine the state’s sagging racing software which ironically, can only be preserved by permitting the tracks to have slot equipment particularly at the Meadowlands. (See The Nor’easter Squeeze section)

New York
Just when it appeared as if Aqueduct’s 4,500 VLT facility would finally be produced, the successful bidder indicated an lack of ability to make the necessary $370 million fee, citing the current lending climate, and throwing the task again into the lap of the governor. Though the market place demand from customers in the location could be deemed really powerful, the prospect of added competitors from nearby Belmont could have an affect on Aqueduct’s underlining economic feasibility, specifically thinking about that slightly considerably less than thirty% of the net win is retained by the operator.

Strategies to relocate Monticello Raceway into a resort intricate are currently being reconsidered probably owing to each the probable opening of at least one or probably two racino functions in the NY metro region, and the resurfacing of initiatives to growth a Class III Indian gaming facility in the Catskills.

However another gaming proposal is getting place forth in Ohio, following final year’s version was turned down by the voters. This prepare phone calls for one casino each in the state’s greatest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a bare minimum investment necessary of $250 million, as properly as an first licensing payment of $50 million, and a 33 percent tax on gaming revenue.

The Sands in Bethlehem is because of to open in the Spring of ’09, and the new Rivers undertaking in Pittsburgh is expected to be operational in August, ’09 while Philadelphia’s two slot facilities still wallow in a political mire, but are expected to commence construction this calendar year.

South Dakota
The Lodge at Deadwood is slated to open up in the Fall of 2009, and include three hundred game titles, a hundred and forty rooms and a vast range of amenities.

Legislators are proposing a voter referendum that would amend the state structure to let on line casino gambling in specified locations, as effectively as permit gambling on American Indian lands in Texas and at current racetracks.

West Virginia
The Greenbriar, the state’s venerable resort facility has submitted for individual bankruptcy, but has a new suitor in Marriott Lodges, who have reportedly tendered an offer you. Point out govt has proffered the idea of permitting the resort to offer you on line casino games, but this energy is in also early a stage to have any traction one way or an additional.

Indian Gaming
A latest Supreme Court ruling that restricts the taking of lands into trust on behalf of federally regarded American Indian tribes has further stymied some new Class III gaming projects across the country. Moreover, there had been eleven Indian on line casino assignments rejected by the DOI very last calendar year because of its new rule that casinos should be around ample to a reservation that tribal users can perform at them. It has been recommended that the new Obama administration might be far more sympathetic to the development of Indian gaming tasks, but this situation has however to be addressed.

Meanwhile, there are other Course III projects in the numerous stages of development. The Seneca casino venture in Buffalo, NY, while functioning a small momentary facility, has delayed an already under development long term facility until finally the marketplace rebounds. They have also expressed an interest in developing a casino in the Catskills. The point out gaming compact with Seminoles in Florida is becoming challenged, and could impact their strategies for larger projects. There are new Indian gaming initiatives established to open in Michigan and Oklahoma this 12 months, and other individuals are in the preparing stage. Texas could enable the reopening of Indian gaming services and permit other location and there are plans afoot by the Navajos in Arizona to assemble additional casinos. California is poised to open up two to three new Class III casinos in 2009/10.

The Nor’easter Squeeze

Overall gaming earnings in Atlantic Metropolis has declined seven.six p.c, from $4.9 billion in 2007 to $four.five billion in 2008 with decreases continuing into 2009, as the metropolis is finding alone in an intense comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast ended up positioned in Atlantic City, in which it seemed as if it might actually even eclipse the Las Vegas Strip’s once-a-year gaming revenues.

Slowly and gradually even so its industry share was getting encroached upon, initial by the growth of a big Class III gaming procedure in Connecticut, and then another 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 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 close to Atlantic City’s long term prospective customers. It really is reliance on working day-trippers lulled it into a bogus sense of safety, and it now finds alone possessing to redefine its mission statement to “destination resort.”

The only problem with this strategy however is that it is unwell-geared up to pull it off. For all intents and reasons, Atlantic Metropolis is below-roomed and/or above-gamed. There is just not enough working day-tripper marketplace to go all around, and their effective investing spot is tightening, as the peripheral populations northward now/will have a lot more ready obtain to a widened source in New York (Yonkers, and shortly at Aqueduct and probably Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Woori Casinoda than the ocean entry, the city’s only actual aggressive advantages are its lodge potential and the availability of table online games, though the latter is most likely to eventuate in Pennsylvania, and probably Delaware. In order to adequately compete as a location vacation resort the metropolis wants to create further guest rooms and not always gaming capacity. By comparison, the Las Vegas Strip homes – true gaming destinations, in that they do not have significantly of a working day-trip market, apart from for the ‘locals’ – have an average of .87 gaming positions for each visitor room whilst Atlantic City’s average is two.74 positions for every guest space.

It is not a coincidence that Atlantic City’s two greatest accommodations, the Borgata and Harrah’s Marina, each of which additional new rooms in 2008, had been the minimum impacted by the newest downturn. The Borgata knowledgeable a gaming revenue drop of one.6 %, although Harrah’s Marina described a 4.9 p.c enhance in comparison to 2007. Additionally, the hardest hit venues, specifically 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, which includes the the Trump qualities and Resorts with the hoped for sale of the Tropicana has been more delayed, and shedding valuation.

With a constant increase in gaming revenues by way of 2006, the metropolis appeared primary for even more development, which precipitated organizing for 4 new vacation resort initiatives, each and every of which have now been indefinitely delayed. Revel Amusement Group’s $2.five billion venture stays an iron skeleton, Pinnacle Enjoyment has announced it might seek to sell its razed Sands internet site, MGM Mirage has shelved its casino plans, and Penn Nationwide appears to have stopped its pursuit of the Bader Discipline airport website.

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