A Time period of Adjustment
Oops! That giant hissing audio is the gaming balloon that had been developing over the several years, slowly and gradually dropping air. But, it has not been a tide that reduced all ships however, as some rising and growing gaming jurisdictions showed robust expansion in 2008.
All round, the industrial and racetrack casino sectors (excluding Indian gaming), experienced a 3.five per cent decrease in gaming revenues for 2008, making a complete of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they confirmed a achieve of virtually $one billion in 2008, thereby bringing the Professional sector industry decrease to $1.eight billion, or six.7 percent. Nevada was the largest loser in 2008, dropping almost $one.3 billion, more than 50 % of which stemmed from the Las Vegas Strip section.
For the most portion, casino operators were caught comparatively flat-footed by the extent of the 2008 earnings downturn, as it was not until finally the third and fourth quarters when it really nosedived. Driving the crest of calendar year over year industry expansion throughout the place and the availability of ample credit score and equity money, new construction and expansion proliferated in recent several years. These days, confronted with the realities of declining, or at greatest stagnant demand, a lot of of these assignments are now regarded as above-leveraged and/or in excess of-sized. As a consequence numerous gaming firms are attempting to renegotiate their credit card debt – made much more tough by reduced valuations – although also paring down operational fees. The latter has turn into a quite problematic conundrum when working with the opposition, specially in people jurisdictions that are now vying for marketplace shares with new emerging casino tasks in neighboring locations. A subject we examine a lot more completely in the Condition by State examination area of this publication.
As a outcome of these circumstances the gaming business landscape is now strewn with impending fatalities. Amid the far more noteworthy troubled companies are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Leisure, Herbst Gaming and the checklist grows each 7 days.
“How lengthy will these financial problems persist, and are we at the base but?” are concerns no one particular appears to be answering nevertheless. What is distinct however is that most gaming jurisdictions will have to understand how to offer with a scaled-down pie.
This analysis consists of only gaming revenues of accredited casinos and pari-mutuel retailers that offer you casino video games, and not Indian gaming operations, card rooms, or small non-casino kind slot places. The total write-up, such as income tables is available on our net page.
A crucial factor that appears to have arisen from the ashes of this existing trend is that numerous casino tasks had been just as well large to assist themselves. The enter, in terms of expense bucks, was not proportional to the output, in conditions of net income right after debt service, in comparison to earlier achieved results. Much more and/or greater is not constantly much better. Viewing the increase in non-gaming profits at the Las Vegas Strip resorts, gave impetus to the advancement of far more comprehensive amenities in numerous other jurisdictions. The flaw in this approach even so is that the costs connected with widening market penetration and occasioned-use, are considerably greater than these incurred to attract the base industry.
As daytripper markets turn out to be more aggressive, on line casino venues will have to depend a lot more and far more on their in-house lodge patrons, and size their properties (and expectations) appropriately. Although Steve Wynn started a main craze in creating up-marketplace mega-locations, there simply was not sufficient demand on the Strip to warrant the many other similar tasks that adopted that aimed at the very same market.
The trick is to strike a content medium in undertaking configurations which of program require significantly less of a ‘seat-of-pants’ strategy, and a single that is far more analyzed. A shameless plug for growth consultants like ourselves.
Other Gaming Pursuits
Even though there are no released in depth data of American Indian gaming revenues, anecdotal proof seems to recommend that this section has been as challenging strike as the Commercial sector. The two Connecticut Indian gaming installations report slot earnings of $one.6 billion in 2008, representing a fall of about seven p.c, or practically $114 million, much more than doubling the 3.5 per cent drop from the yr just before. This market is evidently even now reeling from the ripple-result of a on line casino growth in Rhode Island, and the opening of slot functions in New York and Pennsylvania.
The Arizona Section of Gaming reports that contributions based mostly on a gaming revenue system from the state’s 23 Indian gaming casinos, have been declining every single quarter in 2008 when compared to the preceding year reducing .8 percent in the first quarter, 7.five p.c in the next quarter, 9.five p.c in the third quarter, and sixteen.1 p.c in the fourth quarter.
Some SEC reporting Indian gaming properties report similar decreases. Seneca Gaming, which operates 3 Class III casinos in upstate New York, reports that while calendar calendar year 2008 showed an practically two p.c development fee in gaming revenues, there was an 8.7 percent drop in the 3rd quarter and an nearly 10 per cent drop in the fourth quarter of 2008, in comparison with 2007. Gaming profits trends at nearby Niagara Falls, Ontario had been down one.5% in 2008 compared with 2007.
It really is been a combined-bag for condition lotteries across the place. The North American Affiliation of Point out & Provincial Lotteries reports that U.S. lotteries generated a total of $60.6 billion in revenue in fiscal 2008, up about 3 percent from the preceding yr nevertheless some jurisdictions described decreases, most notably California, which showed an eight percent drop. Inasmuch as some of these states are on various fiscal calendar year finishes, it would appear that the data does not reflect the effect of 3rd and/or fourth quarter results.
In accordance to data offered by Equibase, horse racing pari-mutuel revenues carry on their downward spiral, falling seven percent to $thirteen.7 billion in 2008, vs . $14.7 billion in 2007.
Prepared & Proposed New Expansions
As formerly noted, it has been new gaming jurisdictions that have spawned much of the growth in yearly 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 approved a ballot concern that allows every of 3 pari-mutuels to have a casino facility of up to two,000 slot machines. The Flagler Puppy Monitor and Miami Jai-Alai are reportedly preparing opening in late 2009 or early 2010, whilst the Calder set up in Miami Gardens has yet to announced its strategies. There are quite a few other proposals becoming considered that would further broaden casino development during the point out.
The condition lastly acquired around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Amusement, LLC for a one,two hundred+ recreation on line casino positioned in Des Plaines just east of O’Hare. The new facility is not likely to open till 2010. There has also been some discussion about permitting an improve in per place 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 software that allows for the growth of 4 on line casino gaming zones and slots at current horse and dog tracks appears mired, as only one facility is presently below design, even though three other proposals had been rescinded. The only bidder on the Cherokee County contract, claimed it could not compete with the new Quapaw tribal casino in Oklahoma, which is situated so close to the point out line that its parking good deal is in Kansas. The Boot Hill Casino Resort in Dodge Town is planing a December 2009 opening with 575 slots and ten desk game titles, along with a 2nd section thanks to open in 2011 with 875 slots and twenty table online games. The condition has prolonged the software method for the other a few zones till April, 2009.
There is even now a whole lot of ‘jockeying’ heading on, but the prospect of as a lot of as 8 slot parlors and racinos seems to be again on the front-burner, but very likely not solved throughout the present legislative session.
There are about 14,000 rooms scheduled to occur on line in 2009, with the most modern getting the 390 place M Resort in Henderson. There are expansions underway at equally Caesars Palace and Tough Rock and new accommodations consist of two components of the Metropolis Heart venture, and the Fountainebleau.
Pinnacle Entertainment’s new casino development tasks in Baton Rouge and Lake Charles, while delayed, are noted to nevertheless be on-track for opening this calendar year and/or early 2010.
There is a invoice underneath thing to consider that could much more than double Penn National’s slot machines to three,000, as properly as a proposal that would eliminate the restriction that slots be found in five miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing nearby residents to allow slots, may be contemplating shifting to a far more hospitable city.
A referendum was authorized 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 extreme as the point out had predicted.
Grand Soleil On line casino Resort in Natchez had been slated to open in 2008, but has operate into a variety of financing issues and even though the resort part is open, the riverboat is described to open up in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, whilst scaled back fairly, is even now on monitor to open this calendar year.
Massachusetts, a sleeping-huge in conditions of market potential, is nonetheless maneuvering to open up casinos/racinos, and/or a Course III Indian gaming facility, but can not look to muster the political support. A current review completed by Dartmouth College estimates that Massachusetts resident expended more than $920 million final 12 months at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an alternative to build casinos, nonetheless the matter is likely to be revisited, especially if Massachusetts decides to go ahead. There are also tries in Maine to reconsider its options.
Atlantic City’s casinos have imposed their political will on staving off the addition of slot equipment at racetracks by just lately agreeing to continue augmenting purses with an added tax. The governor however, has appointed a new panel to research the state’s sagging racing system which ironically, can only be preserved by allowing the tracks to have slot equipment specifically at the Meadowlands. (See The Nor’easter Squeeze area)
Just when it appeared as if Aqueduct’s four,five hundred VLT facility would lastly be produced, the profitable bidder indicated an incapability to make the required $370 million fee, citing the recent lending local weather, and throwing the project back into the lap of the governor. Though the market demand from customers in the location could be deemed really robust, the prospect of additional opposition from close by Belmont could have an effect on Aqueduct’s underlining financial feasibility, specifically considering that marginally considerably less than 30% of the net win is retained by the operator.
Plans to relocate Monticello Raceway into a vacation resort intricate are becoming reconsidered perhaps owing to both the probable opening of at least one particular or maybe two racino functions in the NY metro location, and the resurfacing of initiatives to advancement a Class III Indian gaming facility in the Catskills.
However one more gaming proposal is becoming set forth in Ohio, after final year’s edition was turned down by the voters. This plan calls for a single on line casino each in the state’s biggest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a least expense needed of $250 million, as well as an original licensing fee of $fifty million, and a 33 percent tax on gaming profits.
The Sands in Bethlehem is thanks to open up in the Spring of ’09, and the new Rivers task in Pittsburgh is predicted to be operational in August, ’09 even though Philadelphia’s two slot amenities nevertheless wallow in a political mire, but are anticipated to start off development this 12 months.
The Lodge at Deadwood is slated to open in the Tumble of 2009, and include 300 online games, 140 rooms and a broad assortment of amenities.
Legislators are proposing a voter referendum that would amend the state structure to permit on line casino gambling in selected areas, as well as allow gambling on American Indian lands in Texas and at current racetracks.
The Greenbriar, the state’s venerable resort facility has filed for individual bankruptcy, but has a new suitor in Marriott Resorts, who have reportedly tendered an offer you. Point out federal government has proffered the idea of allowing the vacation resort to supply on line casino game titles, but this effort is in as well early a phase to have any traction a single way or yet another.
A latest Supreme Court docket ruling that restricts the using of lands into believe in on behalf of federally recognized American Indian tribes has additional stymied some new Class III gaming tasks throughout the country. Moreover, there ended up eleven Indian casino projects rejected by the DOI previous 12 months simply because of its new rule that casinos need to be close to ample to a reservation that tribal users can function at them. It has been proposed that the new Obama administration might be more sympathetic to the development of Indian gaming assignments, but this problem has however to be dealt with.
Meanwhile, there are joker in the different phases of development. The Seneca casino project in Buffalo, NY, although working a little momentary facility, has delayed an previously under construction long term facility right up until the market rebounds. They have also expressed an curiosity in developing a on line casino in the Catskills. The point out gaming compact with Seminoles in Florida is being challenged, and could effect their ideas for bigger projects. There are new Indian gaming initiatives set to open in Michigan and Oklahoma this yr, and other people are in the arranging phase. Texas could allow the reopening of Indian gaming services and enable other location and there are strategies afoot by the Navajos in Arizona to construct extra casinos. California is poised to open up two to 3 new Class III casinos in 2009/ten.
The Nor’easter Squeeze
Total gaming income in Atlantic Town has declined 7.six percent, from $four.9 billion in 2007 to $four.five billion in 2008 with decreases continuing into 2009, as the metropolis is finding itself in an extreme comp-war with the Pennsylvania venues. At 1 time the only casinos in the Northeast were positioned in Atlantic Metropolis, exactly where it appeared as if it may actually even eclipse the Las Vegas Strip’s yearly gaming revenues.
Slowly and gradually nonetheless its market place share was being encroached upon, 1st by the development of a massive Class III gaming operation in Connecticut, and then another slots functions in Rhode Island, and then online video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most recently Pennsylvania.
Now, with the prepared opening of slot functions in Maryland, the impending opening of a new casino in Bethlehem, PA, and eventually two operations in Philadelphia, the noose is tightening all around Atlantic City’s long term prospects. It is reliance on day-trippers lulled it into a fake perception of safety, and it now finds itself having to redefine its mission statement to “vacation spot resort.”
The only issue with this approach nevertheless is that it is sick-outfitted to pull it off. For all intents and functions, Atlantic Metropolis is below-roomed and/or above-gamed. There is basically not sufficient working day-tripper marketplace to go close to, and their powerful investing area is tightening, as the peripheral populations northward now/will have far more completely ready access 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 obtain, the city’s only true aggressive benefits are its lodge ability and the availability of table games, even though the latter is most likely to eventuate in Pennsylvania, and probably Delaware. In purchase to adequately compete as a location resort the metropolis needs to develop added guest rooms and not automatically gaming potential. By comparison, the Las Vegas Strip qualities – correct gaming destinations, in that they do not have considerably of a working day-excursion market place, except for the ‘locals’ – have an regular of .87 gaming positions per visitor space even though Atlantic City’s typical is 2.74 positions per guest room.
It is not a coincidence that Atlantic City’s two biggest hotels, the Borgata and Harrah’s Marina, equally of which added new rooms in 2008, have been the minimum impacted by the most recent downturn. The Borgata experienced a gaming profits drop of one.6 per cent, even though Harrah’s Marina noted a four.nine percent boost when compared to 2007. Moreover, the most difficult hit 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, which includes the the Trump qualities and Resorts with the hoped for sale of the Tropicana has been even more delayed, and dropping valuation.
With a regular increase in gaming revenues via 2006, the town seemed key for more development, which precipitated organizing for four new resort assignments, each and every of which have now been indefinitely delayed. Revel Leisure Group’s $two.five billion undertaking stays an iron skeleton, Pinnacle Enjoyment has declared it may possibly look for to offer its razed Sands internet site, MGM Mirage has shelved its on line casino ideas, and Penn Nationwide appears to have stopped its pursuit of the Bader Subject airport internet site.