A Period of Adjustment
Oops! That huge hissing seem is the gaming balloon that had been increasing in excess of the years, slowly and gradually dropping air. But, it has not been a tide that decreased all ships nevertheless, as some rising and increasing gaming jurisdictions confirmed sturdy development in 2008.
All round, the professional and racetrack casino sectors (excluding Indian gaming), experienced a three.5 p.c drop in gaming revenues for 2008, creating a total of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they showed a obtain of almost $1 billion in 2008, therefore bringing the Business sector market drop to $1.8 billion, or six.7 %. Nevada was the largest loser in 2008, dropping almost $one.three billion, a lot more than half of which stemmed from the Las Vegas Strip section.
For the most component, casino operators ended up caught comparatively flat-footed by the extent of the 2008 revenue downturn, as it was not till the 3rd and fourth quarters when it really nosedived. Driving the crest of 12 months above yr market place progress throughout the country and the availability of sufficient credit score and equity funds, new building and growth proliferated in latest a long time. Nowadays, confronted with the realities of declining, or at very best stagnant demand from customers, many of these initiatives are now regarded as in excess of-leveraged and/or above-sized. As a end result numerous gaming businesses are making an attempt to renegotiate their personal debt – created a lot more challenging by reduce valuations – whilst also paring down operational charges. The latter has become a extremely problematic conundrum when dealing with the competition, specifically in individuals jurisdictions that are now vying for market place shares with new emerging casino tasks in neighboring areas. A subject matter we discuss more fully in the Condition by Condition examination segment of this publication.
As a result of these conditions the gaming business landscape is now strewn with impending fatalities. Amid the a lot more notable troubled companies are Station Casinos, Empire Resorts, Harrah’s Leisure, Greektown Holdings, Legends Gaming, Tropicana Amusement, Herbst Gaming and the checklist grows each week.
“How prolonged will these financial situations persist, and are we at the bottom yet?” are questions no 1 seems to be answering nevertheless. What is clear nonetheless is that most gaming jurisdictions will have to find out how to deal with a more compact pie.
This analysis involves only gaming revenues of licensed casinos and pari-mutuel outlets that supply casino video games, and not Indian gaming functions, card rooms, or small non-on line casino kind slot locations. The total post, such as income tables is offered on our web webpage.
A key element that seems to have arisen from the ashes of this current pattern is that several casino tasks ended up just too big to help on their own. The input, in phrases of expenditure pounds, was not proportional to the output, in phrases of internet profit soon after credit card debt services, when compared to beforehand reached outcomes. Much more and/or greater is not always far better. Looking at the increase in non-gaming profits at the Las Vegas Strip resorts, gave impetus to the improvement of a lot more extensive amenities in many other jurisdictions. The flaw in this method even so is that the expenses connected with widening market place penetration and occasioned-use, are substantially greater than people incurred to draw in the foundation market.
As daytripper marketplaces turn out to be far more aggressive, casino venues will have to rely more and more on their in-residence lodge patrons, and dimension their properties (and anticipations) accordingly. Although Steve Wynn started out a significant craze in creating up-market mega-places, there simply was not enough demand from customers on the Strip to warrant the many other related assignments that adopted that aimed at the exact same specialized niche.
The trick is to strike a happy medium in venture configurations which of course call for considerably less of a ‘seat-of-pants’ approach, and one particular that is a lot more researched. A shameless plug for growth consultants like ourselves.
Other Gaming Routines
Despite the fact that there are no revealed comprehensive knowledge of American Indian gaming revenues, anecdotal evidence appears to advise that this section has been as tough strike as the Commercial sector. The two Connecticut Indian gaming installations report slot earnings of $one.six billion in 2008, representing a fall of about seven %, or almost $114 million, a lot more than doubling the three.five p.c fall from the yr just before. This market place is seemingly still reeling from the ripple-influence of a on line casino growth in Rhode Island, and the opening of slot functions in New York and Pennsylvania.
The Arizona Office of Gaming studies that contributions dependent on a gaming profits formula from the state’s 23 Indian gaming casinos, have been declining each and every quarter in 2008 when compared to the prior yr reducing .eight p.c in the very first quarter, seven.five percent in the next quarter, 9.5 p.c in the 3rd quarter, and sixteen.one % in the fourth quarter.
Some SEC reporting Indian gaming homes report related decreases. Seneca Gaming, which operates a few Course III casinos in upstate New York, reports that even though calendar yr 2008 confirmed an nearly 2 per cent progress charge in gaming revenues, there was an eight.seven % decline in the 3rd quarter and an nearly 10 p.c drop in the fourth quarter of 2008, when compared with 2007. Gaming earnings tendencies at nearby Niagara Falls, Ontario were down 1.five% in 2008 compared with 2007.
It’s been a combined-bag for condition lotteries throughout the nation. The North American Association of State & Provincial Lotteries reports that U.S. lotteries created a complete of $60.six billion in revenue in fiscal 2008, up about three percent from the earlier 12 months however some jurisdictions described decreases, most notably California, which confirmed an eight percent drop. Inasmuch as some of these states are on different fiscal year ends, it would seem that the information does not reflect the influence of third and/or fourth quarter results.
In accordance to info supplied by Equibase, horse racing pari-mutuel revenues carry on their downward spiral, slipping 7 per cent to $13.7 billion in 2008, compared to $14.seven billion in 2007.
Planned & Proposed New Expansions
As earlier famous, it has been new gaming jurisdictions that have spawned considerably of the progress in once-a-year on line casino/racino revenues more than the years, and their effect is apt to carry on into the near future.
Miami Dade voters accredited a ballot problem that enables each of 3 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, whilst the Calder installation in Miami Gardens has however to introduced its strategies. There are several other proposals being deemed that would more grow on line casino growth throughout the condition.
The state lastly got about to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Enjoyment, LLC for a one,200+ game casino found in Des Plaines just east of O’Hare. The new facility is not most likely to open up until finally 2010. There has also been some dialogue about allowing an improve in per area gaming positions and slots at racetracks, even though neither initiative seems to have any traction at this time.
The state’s expanded lottery system that makes it possible for for the advancement of four on line casino gaming zones and slots at existing horse and canine tracks appears mired, as only one particular facility is presently under development, whilst 3 other proposals were rescinded. The only bidder on the Cherokee County deal, claimed it could not compete with the new Quapaw tribal on line casino in Oklahoma, which is located so shut to the condition 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 10 table games, alongside with a next stage owing to open up in 2011 with 875 slots and twenty desk video games. The condition has extended the software procedure for the other three zones until April, 2009.
There is still a great deal of ‘jockeying’ going on, but the prospect of as numerous as eight slot parlors and racinos seems to be back on the front-burner, but very likely not settled during the present legislative session.
There are about 14,000 rooms scheduled to appear on line in 2009, with the most current being the 390 place M Resort in Henderson. There are expansions underway at both Caesars Palace and Tough Rock and new hotels contain two factors of the City Center venture, and the Fountainebleau.
Pinnacle Entertainment’s new on line casino growth projects in Baton Rouge and Lake Charles, whilst delayed, are documented to still be on-observe for opening this 12 months and/or early 2010.
There is a monthly bill under consideration that could more than double Penn National’s slot equipment to 3,000, as properly as a proposal that would get rid of the restriction that slots be positioned inside of five miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing local citizens to allow slots, could be contemplating moving to a far more hospitable town.
A referendum was approved in November, 2008 that allows for the advancement of 5 casinos with a total of 15,000 slots, and now the bidding war is afoot even though it is not as intensive as the state experienced expected.
Grand Soleil Casino Vacation resort in Natchez experienced been slated to open up in 2008, but has operate into numerous financing issues and whilst the resort part is open, the riverboat is described to open in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, whilst scaled back again considerably, is even now on observe to open this yr.
Massachusetts, a sleeping-huge in terms of market place prospective, is nonetheless maneuvering to open casinos/racinos, and/or a Course III Indian gaming facility, but cannot look to muster the political assist. A modern research finished by Dartmouth College estimates that Massachusetts resident spent far more than $920 million previous yr at Connecticut casinos and slot equipment parlors in Rhode Island and Maine. The New Hampshire legislature not too long ago declined an alternative to produce casinos, nonetheless the subject is likely to be revisited, especially if Massachusetts decides to go forward. There are also makes an attempt in Maine to reconsider its options.
Atlantic City’s casinos have imposed their political will on staving off the addition of slot devices at racetracks by just lately agreeing to continue augmenting purses with an added tax. The governor nevertheless, has appointed a new panel to research the state’s sagging racing program which ironically, can only be preserved by enabling the tracks to have slot equipment specially at the Meadowlands. (See The Nor’easter Squeeze section)
Just when it seemed as if Aqueduct’s 4,500 VLT facility would finally be developed, the profitable bidder indicated an incapacity to make the essential $370 million fee, citing the current lending climate, and throwing the venture back into the lap of the governor. Although the market desire in the region could be deemed fairly powerful, the prospect of added competition from close by Belmont could have an impact on Aqueduct’s underlining economic feasibility, especially thinking about that somewhat significantly less than 30% of the internet get is retained by the operator.
Ideas to relocate Monticello Raceway into a vacation resort complex are currently being reconsidered possibly owing to equally the possible opening of at least one particular or perhaps two racino operations in the NY metro location, and the resurfacing of initiatives to advancement a Class III Indian gaming facility in the Catskills.
However another gaming proposal is currently being set forth in Ohio, after very last year’s edition was turned down by the voters. This program phone calls for one on line casino every in the state’s greatest towns: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimum investment decision required of $250 million, as properly as an preliminary licensing payment of $fifty million, and a 33 percent tax on gaming profits.
The Sands in Bethlehem is due to open in the Spring of ’09, and the new Rivers project in Pittsburgh is anticipated to be operational in August, ’09 even though Philadelphia’s two slot amenities even now wallow in a political mire, but are expected to commence development this year.
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The Lodge at Deadwood is slated to open up in the Slide of 2009, and incorporate three hundred games, a hundred and forty rooms and a wide selection of features.
Legislators are proposing a voter referendum that would amend the condition structure to allow casino gambling in selected areas, as effectively as enable gambling on American Indian lands in Texas and at existing racetracks.
The Greenbriar, the state’s venerable vacation resort facility has submitted for personal bankruptcy, but has a new suitor in Marriott Hotels, who have reportedly tendered an provide. State govt has proffered the idea of allowing the resort to provide casino game titles, but this work is in too early a phase to have any traction 1 way or another.
A latest Supreme Court docket ruling that restricts the using of lands into trust on behalf of federally identified American Indian tribes has even more stymied some new Class III gaming initiatives across the country. Additionally, there were eleven Indian on line casino assignments rejected by the DOI last 12 months since of its new rule that casinos must be around adequate to a reservation that tribal users can function at them. It has been recommended that the new Obama administration may possibly be a lot more sympathetic to the growth of Indian gaming assignments, but this issue has yet to be dealt with.
Meanwhile, there are other Class III tasks in the numerous stages of improvement. The Seneca on line casino task in Buffalo, NY, whilst working a little momentary facility, has delayed an already underneath design permanent facility till the marketplace rebounds. They have also expressed an desire in building a casino in the Catskills. The point out gaming compact with Seminoles in Florida is being challenged, and could effect their programs for bigger tasks. There are new Indian gaming assignments established to open in Michigan and Oklahoma this calendar year, and others are in the planning stage. Texas could enable the reopening of Indian gaming amenities and allow other location and there are ideas afoot by the Navajos in Arizona to construct extra casinos. California is poised to open two to three new Class III casinos in 2009/ten.
The Nor’easter Squeeze
Complete gaming profits in Atlantic Metropolis has declined seven.6 p.c, from $4.9 billion in 2007 to $four.5 billion in 2008 with decreases continuing into 2009, as the town is obtaining itself in an intensive comp-war with the Pennsylvania venues. At one time the only casinos in the Northeast were positioned in Atlantic Metropolis, the place it seemed as if it may truly even eclipse the Las Vegas Strip’s yearly gaming revenues.
Slowly nevertheless its market share was currently being encroached on, 1st by the improvement of a large Class III gaming operation in Connecticut, and then an additional slots operations in Rhode Island, and then online video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most just lately Pennsylvania.
Now, with the prepared opening of slot operations in Maryland, the impending opening of a new casino in Bethlehem, PA, and ultimately two functions in Philadelphia, the noose is tightening close to Atlantic City’s future potential customers. It really is reliance on working day-trippers lulled it into a bogus feeling of protection, and it now finds itself having to redefine its mission statement to “destination vacation resort.”
The only problem with this technique even so is that it is sick-equipped to pull it off. For all intents and functions, Atlantic City is beneath-roomed and/or more than-gamed. There is merely not sufficient working day-tripper market place to go close to, and their powerful buying and selling area is tightening, as the peripheral populations northward now/will have much more prepared accessibility to a widened supply in New York (Yonkers, and quickly 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 aggressive benefits are its lodge potential and the availability of table video games, though the latter is probably to eventuate in Pennsylvania, and perhaps Delaware. In order to sufficiently compete as a spot resort the city requirements to develop added guest rooms and not always gaming potential. By comparison, the Las Vegas Strip homes – correct gaming locations, in that they do not have significantly of a working day-excursion marketplace, apart from for the ‘locals’ – have an regular of .87 gaming positions for each visitor space while Atlantic City’s common is 2.seventy four positions for every visitor room.
It is not a coincidence that Atlantic City’s two greatest accommodations, the Borgata and Harrah’s Marina, each of which added new rooms in 2008, ended up the minimum impacted by the most current downturn. The Borgata experienced a gaming earnings fall of one.six per cent, even though Harrah’s Marina noted a four.nine % increase in comparison to 2007. In addition, the toughest strike 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, like the the Trump houses and Resorts with the hoped for sale of the Tropicana has been additional delayed, and shedding valuation.
With a continual increase in gaming revenues by way of 2006, the city appeared prime for additional improvement, which precipitated planning for 4 new resort assignments, every single of which have now been indefinitely delayed. Revel Amusement Group’s $2.five billion project continues to be an iron skeleton, Pinnacle Enjoyment has declared it may find to promote its razed Sands web site, MGM Mirage has shelved its casino ideas, and Penn Nationwide seems to have stopped its pursuit of the Bader Subject airport web site.