A Interval of Adjustment
Oops! That huge hissing seem is the gaming balloon that experienced been expanding over the years, slowly shedding air. But, it has not been a tide that reduced all ships nevertheless, as some emerging and growing gaming jurisdictions confirmed sturdy progress in 2008.
General, the commercial and racetrack on line casino sectors (excluding Indian gaming), skilled a three.5 p.c 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 fall, as they confirmed a achieve of practically $one billion in 2008, thereby bringing the Commercial sector market place decline to $one.8 billion, or six.seven per cent. Nevada was the greatest loser in 2008, dropping almost $1.3 billion, much more than half of which stemmed from the Las Vegas Strip segment.
For the most element, on line casino operators had been caught relatively flat-footed by the extent of the 2008 income downturn, as it was not till the 3rd and fourth quarters when it really nosedived. Riding the crest of year over calendar year industry development across the region and the availability of sufficient credit history and equity money, new design and expansion proliferated in recent several years. Right now, confronted with the realities of declining, or at ideal stagnant demand from customers, several of these projects are now considered above-leveraged and/or more than-sized. As a result many gaming companies are trying to renegotiate their financial debt – produced much more tough by reduced valuations – even though also paring down operational costs. The latter has turn out to be a extremely problematic conundrum when working with the competitiveness, specifically in those jurisdictions that are now vying for industry shares with new emerging casino assignments in neighboring places. A subject we discuss more fully in the Point out by Condition evaluation part of this publication.
As a result of these situations the gaming industry landscape is now strewn with impending fatalities. Among the a lot more notable troubled firms are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Leisure, Herbst Gaming and the record grows each and every week.
“How lengthy will these financial situations persist, and are we at the base yet?” are queries no a single appears to be answering however. What is very clear nevertheless is that most gaming jurisdictions will have to learn how to deal with a smaller pie.
This examination contains only gaming revenues of licensed casinos and pari-mutuel retailers that offer you casino game titles, and not Indian gaming operations, card rooms, or small non-casino sort slot places. The total write-up, such as earnings tables is offered on our internet page.
A essential element that looks to have arisen from the ashes of this recent trend is that several casino initiatives have been just as well large to support by themselves. The input, in conditions of expense pounds, was not proportional to the output, in terms of net revenue after financial debt support, compared to earlier accomplished benefits. Much more and/or greater is not usually better. Looking at the rise in non-gaming earnings at the Las Vegas Strip resorts, gave impetus to the growth of much more extensive features in several other jurisdictions. The flaw in this approach nevertheless is that the fees associated with widening industry penetration and occasioned-use, are considerably larger than these incurred to entice the foundation market.
As daytripper marketplaces turn into a lot more aggressive, casino venues will have to depend much more and much more on their in-house resort patrons, and dimensions their properties (and expectations) appropriately. Although Steve Wynn started out a major craze in making up-marketplace mega-destinations, there basically was not sufficient demand from customers on the Strip to warrant the numerous other related initiatives that followed that aimed at the exact same market.
The trick is to strike a satisfied medium in venture configurations which of training course demand much less of a ‘seat-of-pants’ strategy, and one that is far more studied. A shameless plug for advancement consultants like ourselves.
Other Gaming Activities
Though there are no released thorough info of American Indian gaming revenues, anecdotal evidence appears to advise that this segment has been as difficult strike as the Commercial sector. The two Connecticut Indian gaming installations report slot revenue of $one.6 billion in 2008, representing a drop of about seven %, or practically $114 million, much more than doubling the three.five percent drop from the yr just before. This market place is seemingly even now reeling from the ripple-influence of a on line casino growth in Rhode Island, and the opening of slot operations in New York and Pennsylvania.
The Arizona Section of Gaming reports that contributions primarily based on a gaming profits formulation from the state’s 23 Indian gaming casinos, have been declining every single quarter in 2008 when compared to the earlier year reducing .eight per cent in the 1st quarter, seven.five percent in the next quarter, nine.5 per cent in the 3rd quarter, and 16.1 percent in the fourth quarter.
Some SEC reporting Indian gaming properties report comparable decreases. Seneca Gaming, which operates three Class III casinos in upstate New York, reports that although calendar year 2008 showed an almost 2 percent development fee in gaming revenues, there was an eight.seven % decline in the third quarter and an virtually 10 per cent decline in the fourth quarter of 2008, in contrast with 2007. Gaming earnings developments at close by Niagara Falls, Ontario had been down one.5% in 2008 when compared with 2007.
It’s been a blended-bag for point out lotteries across the place. The North American Association of Condition & Provincial Lotteries reports that U.S. lotteries generated a total of $sixty.six billion in income in fiscal 2008, up about 3 % from the previous yr yet some jurisdictions documented decreases, most notably California, which showed an 8 percent drop. Inasmuch as some of these states are on numerous fiscal calendar year finishes, it would seem to be that the knowledge does not mirror the influence of third and/or fourth quarter benefits.
According to knowledge provided by Equibase, horse racing pari-mutuel revenues keep on their downward spiral, slipping 7 percent to $13.7 billion in 2008, versus $fourteen.7 billion in 2007.
Planned & Proposed New Expansions
As previously noted, it has been new gaming jurisdictions that have spawned significantly of the development in once-a-year on line casino/racino revenues more than the several years, and their effect is apt to carry on into the around foreseeable future.
Miami Dade voters accredited a ballot problem that allows each and every of three pari-mutuels to have a on line casino facility of up to two,000 slot equipment. The Flagler Canine Track and Miami Jai-Alai are reportedly preparing opening in late 2009 or early 2010, even though the Calder installation in Miami Gardens has yet to declared its ideas. There are numerous other proposals being considered that would further grow on line casino growth during the state.
The state last but not least obtained about to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Amusement, LLC for a one,200+ game casino located in Des Plaines just east of O’Hare. The new facility is not most likely to open up till 2010. There has also been some dialogue about allowing an boost in for every area 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 enables for the growth of 4 casino gaming zones and slots at existing horse and puppy tracks seems mired, as only one particular facility is presently beneath design, although 3 other proposals ended up rescinded. The only bidder on the Cherokee County contract, claimed it could not contend with the new Quapaw tribal casino in Oklahoma, which is positioned so shut to the state 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 10 desk games, along with a next stage because of to open up in 2011 with 875 slots and 20 desk online games. The state has prolonged the software procedure for the other a few zones until April, 2009.
There is nevertheless a lot of ‘jockeying’ going on, but the prospect of as a lot of as eight slot parlors and racinos appears to be again on the entrance-burner, but probably not settled during the recent legislative session.
There are about 14,000 rooms scheduled to appear on line in 2009, with the most modern getting the 390 space M Resort in Henderson. There are expansions underway at each Caesars Palace and Tough Rock and new hotels include two elements of the City Middle venture, and the Fountainebleau.
Pinnacle Entertainment’s new on line casino improvement assignments in Baton Rouge and Lake Charles, even though delayed, are documented to still be on-observe for opening this yr and/or early 2010.
There is a bill underneath consideration that could far more than double Penn National’s slot equipment to three,000, as well as a proposal that would take away the restriction that slots be positioned in 5 miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing regional residents to enable slots, may possibly be contemplating transferring to a far more hospitable city.
A referendum was approved in November, 2008 that permits for the development of five casinos with a complete of fifteen,000 slots, and now the bidding war is afoot even though it is not as intensive as the point out had predicted.
Grand Soleil On line casino Vacation resort in Natchez had been slated to open in 2008, but has operate into a variety of financing issues and although the resort part is open, the riverboat is documented to open up in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, whilst scaled again fairly, is nonetheless on observe to open this year.
Massachusetts, a sleeping-giant in terms of market place likely, is still maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but cannot look to muster the political help. A modern study concluded by Dartmouth University estimates that Massachusetts resident expended more than $920 million last calendar year at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature recently declined an alternative to build casinos, nevertheless the subject matter is likely to be revisited, especially if Massachusetts decides to go forward. There are also attempts in Maine to rethink its choices.
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 keep on augmenting purses with an added tax. The governor even so, has appointed a new panel to examine the state’s sagging racing plan which ironically, can only be preserved by allowing the tracks to have slot devices especially at the Meadowlands. (See The Nor’easter Squeeze part)
Just when it looked as if Aqueduct’s 4,500 VLT facility would last but not least be designed, the successful bidder indicated an lack of ability to make the necessary $370 million payment, citing the current lending local weather, and throwing the undertaking again into the lap of the governor. Despite the fact that the market demand from customers in the area could be considered fairly powerful, the prospect of extra competitiveness from nearby Belmont could have an affect on Aqueduct’s underlining economic feasibility, particularly contemplating that marginally significantly less than thirty% of the web acquire is retained by the operator.
Strategies to relocate Monticello Raceway into a vacation resort complex are currently being reconsidered possibly owing to equally the probable opening of at the very least one particular or probably two racino operations in the NY metro region, and the resurfacing of initiatives to development a Class III Indian gaming facility in the Catskills.
But an additional gaming proposal is being set forth in Ohio, after last year’s model was turned down by the voters. This strategy calls for a single on line casino every single in the state’s greatest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimal investment decision essential of $250 million, as effectively as an first licensing price of $fifty million, and a 33 p.c tax on gaming profits.
The Sands in Bethlehem is owing to open in the Spring of ’09, and the new Rivers undertaking in Pittsburgh is envisioned to be operational in August, ’09 although Philadelphia’s two slot facilities still wallow in a political mire, but are predicted to start off development this 12 months.
The Lodge at Deadwood is slated to open up in the Slide of 2009, and incorporate 300 game titles, one hundred forty rooms and a wide assortment of amenities.
Legislators are proposing a voter referendum that would amend the point out constitution to enable casino gambling in specified locations, as properly as let gambling on American Indian lands in Texas and at current racetracks.
The Greenbriar, the state’s venerable resort facility has submitted for personal bankruptcy, but has a new suitor in Marriott Resorts, who have reportedly tendered an offer. Condition govt has proffered the notion of allowing the resort to offer you on line casino online games, but this work is in also early a phase to have any traction 1 way or yet another.
A recent Supreme Court docket ruling that restricts the using of lands into believe in on behalf of federally recognized American Indian tribes has further stymied some new Class III gaming projects across the nation. Moreover, there ended up eleven Indian casino initiatives rejected by the DOI previous year because of its new rule that casinos must be near sufficient to a reservation that tribal customers can function at them. It has been suggested that the new Obama administration may well be far more sympathetic to the advancement of Indian gaming projects, but this problem has yet to be addressed.
In the meantime, there are other Course III initiatives in the numerous phases of advancement. The Seneca casino project in Buffalo, NY, even though running a modest temporary facility, has delayed an previously beneath construction long term facility right up until the market rebounds. They have also expressed an curiosity in building a casino in the Catskills. The state gaming compact with Seminoles in Florida is getting challenged, and could impact their plans for greater assignments. There are new Indian gaming assignments set to open in Michigan and Oklahoma this year, and others are in the arranging phase. Texas could permit the reopening of Indian gaming facilities and allow other location and there are plans afoot by the Navajos in Arizona to construct added casinos. California is poised to open two to a few new Course III casinos in 2009/ten.
The Nor’easter Squeeze
Complete gaming revenue in Atlantic Town has declined 7.6 p.c, from $four.nine billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the city is obtaining by itself in an intensive comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast were found in Atlantic City, in which it looked as if it may possibly really even eclipse the Las Vegas Strip’s annual gaming revenues.
Slowly and gradually even so its industry share was being encroached on, first by the growth of a massive Class III gaming operation in Connecticut, and then another slots functions in Rhode Island, and then 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 sooner or later two operations in Philadelphia, the noose is tightening about Atlantic City’s long term prospective customers. It’s reliance on day-trippers lulled it into a bogus sense of security, and it now finds alone obtaining to redefine its mission assertion to “spot vacation resort.”
The only dilemma with this strategy even so is that it is ill-outfitted to pull it off. For all intents and purposes, Atlantic Town is below-roomed and/or more than-gamed. There is basically not ample day-tripper industry to go close to, and their successful buying and selling location is tightening, as the peripheral populations northward now/will have more all set entry to a widened provide 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 access, the city’s only real competitive benefits are its lodge capacity and the availability of desk game titles, though the latter is likely to eventuate in Pennsylvania, and probably Delaware. In purchase to adequately contend as a vacation spot resort the city demands to create further guest rooms and not necessarily gaming capacity. By comparison, the Las Vegas Strip qualities – accurate gaming destinations, in that they do not have much of a working day-journey industry, apart from for the ‘locals’ – have an average of .87 gaming positions for each visitor area whilst Atlantic City’s regular is two.seventy four positions for every visitor space.
It is not a coincidence that Atlantic City’s two biggest resorts, the Borgata and Harrah’s Marina, equally of which additional new rooms in 2008, were the minimum impacted by the newest downturn. The Borgata experienced a gaming earnings fall of one.6 per cent, whilst Harrah’s Marina noted a four.9 percent enhance in contrast to 2007. Furthermore, the hardest strike venues, namely 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 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 way of 2006, the city seemed primary for further advancement, which precipitated arranging for four new resort assignments, each and every of which have now been indefinitely delayed. Revel Entertainment Group’s $2.five billion task stays an iron skeleton, Pinnacle Enjoyment has introduced it may seek to promote its razed Sands internet site, MGM Mirage has shelved its on line casino plans, and Penn National appears to have stopped its pursuit of the Bader Area airport internet site.