A Period of Adjustment
Oops! That giant hissing seem is the gaming balloon that had been growing above the a long time, slowly shedding air. But, it has not been a tide that decreased all ships nevertheless, as some emerging and increasing gaming jurisdictions confirmed strong expansion in 2008.
General, the business and racetrack on line casino sectors (excluding Indian gaming), experienced a three.five percent decline in gaming revenues for 2008, generating a complete 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 $1 billion in 2008, thereby bringing the Professional sector market drop to $1.eight billion, or 6.7 percent. Nevada was the most significant loser in 2008, dropping almost $one.three billion, more than half of which stemmed from the Las Vegas Strip phase.
Hunkering Down
For the most part, casino operators have been caught comparatively flat-footed by the extent of the 2008 earnings downturn, as it was not right up until the 3rd and fourth quarters when it really nosedived. Using the crest of yr over calendar year industry progress across the nation and the availability of enough credit score and equity resources, new design and expansion proliferated in latest a long time. These days, faced with the realities of declining, or at ideal stagnant need, numerous of these initiatives are now regarded as above-leveraged and/or in excess of-sized. As a result a lot of gaming firms are attempting to renegotiate their debt – manufactured far more difficult by decrease valuations – although also paring down operational costs. The latter has grow to be a extremely problematic conundrum when working with the competitiveness, especially in individuals jurisdictions that are now vying for market shares with new rising on line casino tasks in neighboring places. A matter we go over far more entirely in the Condition by State investigation section of this publication.
As a end result of these situations the gaming sector landscape is now strewn with impending fatalities. Amongst the much more notable troubled firms are Station Casinos, Empire Resorts, Harrah’s Enjoyment, Greektown Holdings, Legends Gaming, Tropicana Enjoyment, Herbst Gaming and the record grows each and every week.
“How prolonged will these financial problems persist, and are we at the bottom but?” are queries no 1 seems to be answering but. What is very clear nevertheless is that most gaming jurisdictions will have to learn how to offer with a scaled-down pie.
Observe:
This analysis includes only gaming revenues of certified casinos and pari-mutuel stores that supply on line casino game titles, and not Indian gaming operations, card rooms, or small non-casino kind slot locations. The whole report, which includes income tables is offered on our web website page.
Input/Output Design
A important element that would seem to have arisen from the ashes of this present craze is that numerous casino assignments have been just way too massive to assist them selves. The input, in conditions of expense bucks, was not proportional to the output, in conditions of web earnings after debt service, in comparison to previously accomplished outcomes. More and/or bigger is not usually better. Looking at the rise in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the growth of a lot more extensive amenities in numerous other jurisdictions. The flaw in this technique however is that the costs related with widening marketplace penetration and occasioned-use, are substantially increased than those incurred to appeal to the base industry.
As daytripper markets turn out to be much more aggressive, casino venues will have to rely far more and much more on their in-house resort patrons, and measurement their properties (and expectations) appropriately. Although Steve Wynn started out a significant trend in producing up-market mega-places, there just was not ample demand from customers on the Strip to warrant the many other similar initiatives that adopted that aimed at the identical market.
The trick is to strike a pleased medium in venture configurations which of system need significantly less of a ‘seat-of-pants’ method, and 1 that is more studied. A shameless plug for improvement consultants like ourselves.
Other Gaming Actions
Although there are no published comprehensive information of American Indian gaming revenues, anecdotal proof appears to advise that this segment has been as difficult strike as the Industrial sector. The two Connecticut Indian gaming installations report slot income of $one.six billion in 2008, representing a fall of about 7 p.c, or nearly $114 million, more than doubling the three.5 % drop from the year before. This marketplace is evidently nevertheless reeling from the ripple-impact of a casino expansion in Rhode Island, and the opening of slot functions in New York and Pennsylvania.
The Arizona Section of Gaming studies that contributions based on a gaming revenue formula from the state’s 23 Indian gaming casinos, have been declining each and every quarter in 2008 in comparison to the earlier year reducing .eight per cent in the initial quarter, seven.5 percent in the 2nd quarter, nine.5 percent in the 3rd quarter, and sixteen.1 percent in the fourth quarter.
Some SEC reporting Indian gaming homes report similar decreases. Seneca Gaming, which operates a few Class III casinos in upstate New York, reports that whilst calendar yr 2008 showed an almost 2 percent progress fee in gaming revenues, there was an eight.seven percent decline in the third quarter and an nearly 10 per cent drop in the fourth quarter of 2008, in contrast with 2007. Gaming income tendencies at close by Niagara Falls, Ontario were down 1.five% in 2008 in contrast with 2007.
It’s been a mixed-bag for point out lotteries across the place. The North American Affiliation of Condition & Provincial Lotteries reviews that U.S. lotteries produced a total of $sixty.6 billion in product sales in fiscal 2008, up about three per cent from the earlier yr nevertheless some jurisdictions documented decreases, most notably California, which confirmed an 8 per cent fall. Inasmuch as some of these states are on numerous fiscal calendar year finishes, it would appear that the data does not mirror the effect of third and/or fourth quarter results.
In accordance to knowledge supplied by Equibase, horse racing pari-mutuel revenues continue their downward spiral, falling seven % to $13.seven billion in 2008, compared to $14.seven billion in 2007.
Planned & Proposed New Expansions
As previously observed, it has been new gaming jurisdictions that have spawned significantly of the expansion in yearly casino/racino revenues in excess of the many years, and their effect is apt to keep on into the in close proximity to potential.
Florida
Miami Dade voters accepted a ballot concern that enables every of three pari-mutuels to have a on line casino facility of up to 2,000 slot devices. The Flagler Pet Observe and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, whilst the Calder set up in Miami Gardens has yet to introduced its programs. There are several other proposals currently being regarded that would more expand on line casino improvement throughout the condition.
Illinois
The state last but not least received close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a 1,200+ game casino situated in Des Plaines just east of O’Hare. The new facility is not likely to open until 2010. There has also been some dialogue about allowing an improve in for each area gaming positions and slots at racetracks, though neither initiative appears to have any traction at this time.
Kansas
The state’s expanded lottery plan that enables for the growth of 4 casino gaming zones and slots at existing horse and pet tracks appears mired, as only a single facility is presently underneath building, although three other proposals were rescinded. The only bidder on the Cherokee County deal, claimed it could not contend with the new Quapaw tribal on line casino in Oklahoma, which is located so near to the point out line that its parking whole lot is in Kansas. The Boot Hill Casino Vacation resort in Dodge City is planing a December 2009 opening with 575 slots and 10 table games, along with a 2nd section because of to open up in 2011 with 875 slots and twenty table online games. The state has extended the software procedure for the other three zones right up until April, 2009.
Kentucky
There is nonetheless a good deal of ‘jockeying’ heading on, but the prospect of as numerous as 8 slot parlors and racinos seems to be back again on the front-burner, but very likely not fixed throughout the recent legislative session.
Las Vegas
There are about 14,000 rooms scheduled to come on line in 2009, with the most modern getting the 390 room M Resort in Henderson. There are expansions underway at equally Caesars Palace and Challenging Rock and new lodges include two parts of the City Centre venture, and the Fountainebleau.
Louisiana
Pinnacle Entertainment’s new casino growth projects in Baton Rouge and Lake Charles, whilst delayed, are documented to nevertheless be on-observe for opening this 12 months and/or early 2010.
Maine
There is a invoice below consideration that could much more than double Penn National’s slot equipment to three,000, as well as a proposal that would eliminate the restriction that slots be found inside of 5 miles of the observe. Scarborough Downs, which has been unsuccessful in convincing neighborhood people to allow slots, may be considering moving to a much more hospitable town.
Maryland
A referendum was authorized in November, 2008 that makes it possible for for the improvement of five casinos with a total of fifteen,000 slots, and now the bidding war is afoot though it is not as extreme as the condition had predicted.
Mississippi
Grand Soleil On line casino Resort in Natchez experienced been slated to open up in 2008, but has operate into various financing concerns and whilst the hotel part is open up, the riverboat is described to open in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, while scaled again considerably, is nevertheless on keep track of to open up this yr.
New England
Massachusetts, a sleeping-giant in terms of market place likely, is nonetheless maneuvering to open up casinos/racinos, and/or a Course III Indian gaming facility, but are not able to seem to muster the political help. A recent review finished by Dartmouth University estimates that Massachusetts resident invested much more than $920 million last yr at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature not too long ago declined an choice to produce casinos, however the subject is very likely to be revisited, especially if Massachusetts decides to go ahead. 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 equipment at racetracks by just lately agreeing to keep on augmenting purses with an additional tax. The governor nonetheless, has appointed a new panel to study the state’s sagging racing software which ironically, can only be preserved by allowing the tracks to have slot machines especially at the Meadowlands. (See The Nor’easter Squeeze part)
New York
Just when it seemed as if Aqueduct’s four,five hundred VLT facility would finally be created, the successful bidder indicated an incapacity to make the required $370 million payment, citing the recent lending weather, and throwing the task back into the lap of the governor. Though the marketplace desire in the spot could be regarded as quite strong, the prospect of added opposition from nearby Belmont could have an affect on Aqueduct’s underlining economic feasibility, especially taking into consideration that marginally less than 30% of the web win is retained by the operator.
Plans to relocate Monticello Raceway into a resort sophisticated are being reconsidered possibly owing to the two the possible opening of at least a single or maybe two racino functions in the NY metro location, and the resurfacing of initiatives to improvement a Course III Indian gaming facility in the Catskills.
Ohio
Yet another gaming proposal is becoming set forth in Ohio, soon after last year’s variation was turned down by the voters. This strategy calls for one on line casino every single in the state’s biggest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a least investment necessary of $250 million, as nicely as an first licensing charge of $fifty million, and a 33 per cent tax on gaming profits.
Pennsylvania
The Sands in Bethlehem is owing to open in the Spring of ’09, and the new Rivers project in Pittsburgh is predicted to be operational in August, ’09 whilst Philadelphia’s two slot amenities nevertheless wallow in a political mire, but are expected to commence building this 12 months.
South Dakota
The Lodge at Deadwood is slated to open up in the Fall of 2009, and include 300 game titles, one hundred forty rooms and a broad range of amenities.
Texas
Legislators are proposing a voter referendum that would amend the point out constitution to enable casino gambling in designated places, as properly as allow gambling on American Indian lands in Texas and at current racetracks.
West Virginia
The Greenbriar, the state’s venerable vacation resort facility has filed for bankruptcy, but has a new suitor in Marriott Hotels, who have reportedly tendered an offer you. State federal government has proffered the idea of allowing the vacation resort to offer you on line casino games, but this energy is in too early a phase to have any traction 1 way or one more.
Indian Gaming
A recent Supreme Courtroom ruling that restricts the using of lands into believe in on behalf of federally acknowledged American Indian tribes has even more stymied some new Class III gaming initiatives across the region. Furthermore, there ended up eleven Indian on line casino tasks rejected by the DOI final yr due to the fact of its new rule that casinos should be close to adequate to a reservation that tribal members can operate at them. http://yoursite.com has been proposed that the new Obama administration may be far more sympathetic to the growth of Indian gaming projects, but this situation has yet to be addressed.
In the meantime, there are other Class III assignments in the numerous phases of improvement. The Seneca casino task in Buffalo, NY, while functioning a small short term facility, has delayed an previously below building long term facility until the marketplace rebounds. They have also expressed an curiosity in establishing a casino in the Catskills. The point out gaming compact with Seminoles in Florida is getting challenged, and could affect their programs for more substantial projects. There are new Indian gaming assignments established to open up in Michigan and Oklahoma this calendar year, and others are in the preparing phase. Texas may enable the reopening of Indian gaming facilities and let other location and there are ideas afoot by the Navajos in Arizona to assemble additional casinos. California is poised to open two to a few new Course III casinos in 2009/10.
The Nor’easter Squeeze
Total gaming earnings in Atlantic Town has declined 7.6 per cent, from $four.nine billion in 2007 to $4.five billion in 2008 with decreases continuing into 2009, as the town is locating alone in an intense comp-war with the Pennsylvania venues. At 1 time the only casinos in the Northeast ended up positioned in Atlantic Town, the place it looked as if it may possibly truly even eclipse the Las Vegas Strip’s once-a-year gaming revenues.
Slowly and gradually even so its marketplace share was currently being encroached upon, 1st by the development of a huge Class III gaming operation in Connecticut, and then yet another slots functions in Rhode Island, and then video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most lately Pennsylvania.
Now, with the planned 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 all around Atlantic City’s long term potential customers. It really is reliance on day-trippers lulled it into a fake sense of safety, and it now finds alone having to redefine its mission statement to “spot resort.”
The only issue with this method however is that it is unwell-geared up to pull it off. For all intents and reasons, Atlantic Town is underneath-roomed and/or over-gamed. There is merely not ample day-tripper marketplace to go around, and their successful investing spot is tightening, as the peripheral populations northward now/will have more ready entry to a widened offer in New York (Yonkers, and soon at Aqueduct and probably Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.
Other than the ocean entry, the city’s only genuine aggressive benefits are its lodge potential and the availability of desk video games, despite the fact that the latter is likely to eventuate in Pennsylvania, and probably Delaware. In get to sufficiently compete as a vacation spot resort the metropolis wants to create extra visitor rooms and not automatically gaming capacity. By comparison, the Las Vegas Strip homes – true gaming locations, in that they do not have a lot of a day-vacation market place, besides for the ‘locals’ – have an typical of .87 gaming positions per guest room while Atlantic City’s average is two.74 positions for every guest area.
It is not a coincidence that Atlantic City’s two premier hotels, the Borgata and Harrah’s Marina, both of which added new rooms in 2008, were the the very least impacted by the most current downturn. The Borgata knowledgeable a gaming revenue drop of one.six percent, even though Harrah’s Marina noted a 4.nine percent improve compared to 2007. In addition, the toughest strike venues, specifically 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, like the the Trump qualities and Resorts with the hoped for sale of the Tropicana has been more delayed, and getting rid of valuation.
With a steady rise in gaming revenues through 2006, the city appeared primary for even more advancement, which precipitated preparing for 4 new resort assignments, every single of which have now been indefinitely delayed. Revel Entertainment Group’s $2.5 billion undertaking continues to be an iron skeleton, Pinnacle Amusement has introduced it may look for to promote its razed Sands website, MGM Mirage has shelved its casino plans, and Penn Countrywide appears to have stopped its pursuit of the Bader Subject airport web site.