A Time period of Adjustment

Oops! That large hissing sound is the gaming balloon that had been increasing more than the many years, slowly and gradually getting rid of air. But, it has not been a tide that lowered all ships however, as some rising and growing gaming jurisdictions showed strong progress in 2008.

Overall, the business and racetrack casino sectors (excluding Indian gaming), skilled a three.five per cent drop 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 drop, as they showed a achieve of nearly $one billion in 2008, thus bringing the Professional sector industry drop to $one.8 billion, or 6.seven %. Nevada was the biggest loser in 2008, dropping practically $one.three billion, far more than half of which stemmed from the Las Vegas Strip segment.

Hunkering Down

For the most component, on line casino operators ended up caught comparatively flat-footed by the extent of the 2008 revenue downturn, as it was not until the third and fourth quarters when it really nosedived. Using the crest of year over year market place development throughout the country and the availability of enough credit rating and fairness funds, new design and enlargement proliferated in modern many years. These days, faced with the realities of declining, or at greatest stagnant demand, many of these assignments are now considered above-leveraged and/or more than-sized. As a consequence numerous gaming businesses are trying to renegotiate their financial debt – made more difficult by reduced valuations – whilst also paring down operational costs. The latter has turn into a quite problematic conundrum when dealing with the competitiveness, specially in these jurisdictions that are now vying for industry shares with new emerging casino initiatives in neighboring places. A topic we talk about a lot more completely in the Condition by Condition examination area of this publication.

As a outcome of these problems the gaming sector landscape is now strewn with impending fatalities. Between the a lot more notable troubled companies are Station Casinos, Empire Resorts, Harrah’s Enjoyment, Greektown Holdings, Legends Gaming, Tropicana Amusement, Herbst Gaming and the record grows every 7 days.

“How lengthy will these economic circumstances persist, and are we at the base but?” are queries no one seems to be answering however. What is obvious nevertheless is that most gaming jurisdictions will have to learn how to deal with a smaller pie.

Be aware:
This investigation contains only gaming revenues of certified casinos and pari-mutuel shops that offer casino game titles, and not Indian gaming functions, card rooms, or tiny non-on line casino sort slot areas. The complete report, which includes revenue tables is accessible on our world wide web website page.

Input/Output Design

A crucial aspect that appears to have arisen from the ashes of this present pattern is that several casino assignments ended up just way too big to support them selves. The input, in phrases of expenditure dollars, was not proportional to the output, in terms of net earnings right after personal debt service, in comparison to beforehand achieved results. Much more and/or even bigger is not often far better. Looking at the increase in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the advancement of much more comprehensive features in several other jurisdictions. The flaw in this approach even so is that the costs linked with widening market place penetration and occasioned-use, are significantly increased than those incurred to appeal to the foundation marketplace.

As daytripper markets turn out to be more competitive, casino venues will have to depend much more and far more on their in-property resort patrons, and dimensions their houses (and expectations) accordingly. Even though Steve Wynn commenced a key craze in producing up-marketplace mega-places, there basically was not adequate demand on the Strip to warrant the numerous other related assignments that adopted that aimed at the very same area of interest.

The trick is to strike a content medium in undertaking configurations which of training course call for significantly less of a ‘seat-of-pants’ approach, and 1 that is a lot more analyzed. A shameless plug for advancement consultants like ourselves.

Other Gaming Pursuits

Though there are no released detailed data of American Indian gaming revenues, anecdotal proof seems to advise that this section has been as difficult hit as the Business sector. The two Connecticut Indian gaming installations report slot income of $1.six billion in 2008, representing a fall of about seven per cent, or almost $114 million, much more than doubling the three.five percent drop from the 12 months prior to. This market is evidently even now reeling from the ripple-influence of a casino expansion in Rhode Island, and the opening of slot operations in New York and Pennsylvania.

The Arizona Department of Gaming stories that contributions primarily based on a gaming revenue formulation from the state’s 23 Indian gaming casinos, have been declining each and every quarter in 2008 in comparison to the preceding year decreasing .eight per cent in the initial quarter, seven.5 per cent in the next quarter, 9.five p.c in the third quarter, and sixteen.1 per cent in the fourth quarter.

Some SEC reporting Indian gaming properties report related decreases. Seneca Gaming, which operates 3 Class III casinos in upstate New York, reports that while calendar calendar year 2008 showed an practically 2 p.c growth rate in gaming revenues, there was an eight.seven per cent decline in the 3rd quarter and an almost ten p.c drop in the fourth quarter of 2008, in comparison with 2007. Gaming profits developments at close by Niagara Falls, Ontario had been down one.five% in 2008 in contrast with 2007.

It truly is been a mixed-bag for condition lotteries across the country. The North American Association of Point out & Provincial Lotteries stories that U.S. lotteries produced a overall of $sixty.six billion in income in fiscal 2008, up about three percent from the preceding calendar year however some jurisdictions reported decreases, most notably California, which showed an eight p.c drop. Inasmuch as some of these states are on a variety of fiscal yr finishes, it would appear that the info does not mirror the impact of 3rd and/or fourth quarter final results.

In accordance to data offered by Equibase, horse racing pari-mutuel revenues keep on their downward spiral, falling 7 percent to $thirteen.seven billion in 2008, vs . $fourteen.seven billion in 2007.

Prepared & Proposed New Expansions

As formerly famous, it has been new gaming jurisdictions that have spawned much of the growth in annual casino/racino revenues in excess of the many years, and their effect is apt to carry on into the near future.

Florida
Miami Dade voters approved a ballot concern that enables every single of 3 pari-mutuels to have a casino facility of up to two,000 slot equipment. The Flagler Puppy Observe and Miami Jai-Alai are reportedly organizing opening in late 2009 or early 2010, although the Calder installation in Miami Gardens has yet to introduced its strategies. There are numerous other proposals currently being deemed that would even more increase on line casino growth throughout the point out.

Illinois
The point out ultimately got around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Amusement, LLC for a 1,200+ match casino positioned in Des Plaines just east of O’Hare. The new facility is not very likely to open up until 2010. There has also been some discussion about enabling an boost in per area gaming positions and slots at racetracks, even though neither initiative seems to have any traction at this time.

Kansas
The state’s expanded lottery program that enables for the improvement of 4 casino gaming zones and slots at present horse and canine tracks appears mired, as only 1 facility is presently under building, although a few 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 located so near to the state line that its parking whole lot is in Kansas. www.kubet.sale in Dodge City is planing a December 2009 opening with 575 slots and ten table online games, along with a second phase owing to open in 2011 with 875 slots and 20 desk video games. The point out has extended the application procedure for the other a few zones until finally April, 2009.

Kentucky
There is nevertheless a great deal of ‘jockeying’ heading on, but the prospect of as several as 8 slot parlors and racinos seems to be back on the entrance-burner, but very likely not solved in the course of the present legislative session.

Las Vegas
There are about 14,000 rooms scheduled to occur on line in 2009, with the most latest becoming the 390 space M Resort in Henderson. There are expansions underway at the two Caesars Palace and Tough Rock and new accommodations contain two factors of the Town Middle project, and the Fountainebleau.

Louisiana
Pinnacle Entertainment’s new on line casino development tasks in Baton Rouge and Lake Charles, even though delayed, are noted to nevertheless be on-keep track of for opening this yr and/or early 2010.

Maine
There is a monthly bill under thing to consider 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 found within 5 miles of the observe. Scarborough Downs, which has been unsuccessful in convincing local citizens to let slots, may possibly be taking into consideration shifting to a much more hospitable town.

Maryland
A referendum was authorized in November, 2008 that allows for the advancement of five casinos with a complete of 15,000 slots, and now the bidding war is afoot even though it is not as intensive as the state had predicted.

Mississippi
Grand Soleil Casino Resort in Natchez experienced been slated to open up in 2008, but has run into different financing troubles and although the resort part is open, the riverboat is noted to open up in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, although scaled again considerably, is still on track to open up this 12 months.

New England
Massachusetts, a sleeping-giant in conditions of market place prospective, is nevertheless maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but can not appear to muster the political support. A current study completed by Dartmouth College estimates that Massachusetts resident invested a lot more than $920 million last year at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature recently declined an option to develop casinos, nevertheless the subject matter is most likely to be revisited, especially if Massachusetts decides to go forward. There are also tries in Maine to rethink its possibilities.

New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot machines at racetracks by just lately agreeing to carry on augmenting purses with an added tax. The governor nonetheless, has appointed a new panel to research the state’s sagging racing software which ironically, can only be preserved by making it possible for the tracks to have slot devices specially at the Meadowlands. (See The Nor’easter Squeeze segment)

New York
Just when it appeared as if Aqueduct’s four,500 VLT facility would last but not least be created, the profitable bidder indicated an incapacity to make the needed $370 million fee, citing the existing lending local weather, and throwing the project back again into the lap of the governor. Though the market place need in the location could be regarded as quite sturdy, the prospect of additional competition from close by Belmont could have an affect on Aqueduct’s underlining financial feasibility, specially taking into consideration that slightly much less than thirty% of the net earn is retained by the operator.

Ideas to relocate Monticello Raceway into a vacation resort sophisticated are becoming reconsidered perhaps owing to the two the probable opening of at least a single or possibly two racino operations in the NY metro area, and the resurfacing of initiatives to advancement a Course III Indian gaming facility in the Catskills.

Ohio
However an additional gaming proposal is currently being set forth in Ohio, following previous year’s variation was turned down by the voters. This strategy calls for one on line casino each in the state’s biggest towns: Cleveland, Columbus, Cincinnati and Toledo. There would be a bare minimum investment essential of $250 million, as effectively as an initial licensing payment of $fifty million, and a 33 percent tax on gaming revenue.

Pennsylvania
The Sands in Bethlehem is due to open in the Spring of ’09, and the new Rivers venture in Pittsburgh is expected to be operational in August, ’09 even though Philadelphia’s two slot facilities nevertheless wallow in a political mire, but are predicted to begin construction this yr.

South Dakota
The Lodge at Deadwood is slated to open up in the Tumble of 2009, and contain 300 game titles, a hundred and forty rooms and a broad selection of amenities.

Texas
Legislators are proposing a voter referendum that would amend the state constitution to let casino gambling in selected areas, as well as allow gambling on American Indian lands in Texas and at existing racetracks.

West Virginia
The Greenbriar, the state’s venerable vacation resort facility has filed for bankruptcy, but has a new suitor in Marriott Resorts, who have reportedly tendered an offer you. Condition authorities has proffered the notion of making it possible for the vacation resort to offer you on line casino online games, but this hard work is in way too early a stage to have any traction 1 way or another.

Indian Gaming
A current Supreme Court ruling that restricts the using of lands into have confidence in on behalf of federally acknowledged American Indian tribes has additional stymied some new Course III gaming assignments throughout the country. In addition, there were eleven Indian casino initiatives turned down by the DOI previous 12 months due to the fact of its new rule that casinos have to be in close proximity to adequate to a reservation that tribal associates can perform at them. It has been recommended that the new Obama administration may well be far more sympathetic to the improvement of Indian gaming projects, but this problem has however to be tackled.

Meanwhile, there are other Class III assignments in the different phases of development. The Seneca on line casino venture in Buffalo, NY, whilst working a tiny short-term facility, has delayed an presently under building permanent facility until finally the marketplace rebounds. They have also expressed an fascination in building a casino in the Catskills. The condition gaming compact with Seminoles in Florida is being challenged, and could affect their strategies for larger tasks. There are new Indian gaming projects established to open in Michigan and Oklahoma this yr, and other individuals are in the preparing phase. Texas might permit the reopening of Indian gaming services and let other location and there are plans afoot by the Navajos in Arizona to build added casinos. California is poised to open up two to three new Class III casinos in 2009/10.

The Nor’easter Squeeze

Overall gaming revenue in Atlantic City has declined seven.6 p.c, from $4.nine billion in 2007 to $four.5 billion in 2008 with decreases continuing into 2009, as the city is obtaining by itself in an extreme comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast had been found in Atlantic Metropolis, in which it looked as if it may well actually even eclipse the Las Vegas Strip’s yearly gaming revenues.

Slowly nonetheless its market share was getting encroached upon, 1st by the development of a large 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 functions in Maryland, the impending opening of a new on line casino in Bethlehem, PA, and ultimately two functions in Philadelphia, the noose is tightening about Atlantic City’s future potential customers. It’s reliance on day-trippers lulled it into a bogus perception of protection, and it now finds by itself possessing to redefine its mission assertion to “vacation spot vacation resort.”

The only difficulty with this strategy nevertheless is that it is unwell-outfitted to pull it off. For all intents and functions, Atlantic City is underneath-roomed and/or in excess of-gamed. There is merely not enough working day-tripper industry to go about, and their successful investing area is tightening, as the peripheral populations northward now/will have far more ready obtain to a widened offer in New York (Yonkers, and shortly at Aqueduct and probably Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean obtain, the city’s only genuine competitive positive aspects are its resort capacity and the availability of desk video games, even though the latter is probably to eventuate in Pennsylvania, and perhaps Delaware. In order to adequately compete as a destination resort the metropolis demands to create additional visitor rooms and not essentially gaming ability. By comparison, the Las Vegas Strip qualities – correct gaming destinations, in that they do not have significantly of a working day-excursion marketplace, apart from for the ‘locals’ – have an common of .87 gaming positions for each guest place while Atlantic City’s average is 2.74 positions for each guest room.

It is not a coincidence that Atlantic City’s two biggest lodges, the Borgata and Harrah’s Marina, both of which additional new rooms in 2008, were the the very least impacted by the most current downturn. The Borgata experienced a gaming earnings drop of one.six %, although Harrah’s Marina documented a four.nine % improve in comparison to 2007. Moreover, the hardest hit venues, particularly the AC Hilton, Resorts and the Trump Marina, also have the smallest amount of rooms. In the meantime some of the venues are teetering on viability, such as the the Trump houses and Resorts with the hoped for sale of the Tropicana has been additional delayed, and shedding valuation.

With a continual rise in gaming revenues through 2006, the metropolis appeared prime for further development, which precipitated arranging for 4 new resort tasks, every of which have now been indefinitely delayed. Revel Amusement Group’s $two.five billion project remains an iron skeleton, Pinnacle Enjoyment has introduced it might find to promote its razed Sands internet site, MGM Mirage has shelved its on line casino plans, and Penn National seems to have stopped its pursuit of the Bader Subject airport internet site.