A Time period of Adjustment
Oops! That giant hissing sound is the gaming balloon that had been developing more than the years, slowly and gradually getting rid of air. But, it has not been a tide that decreased all ships nonetheless, as some emerging and increasing gaming jurisdictions confirmed powerful growth in 2008.
M88 , the industrial and racetrack casino sectors (excluding Indian gaming), seasoned a three.5 percent decline in gaming revenues for 2008, producing 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 virtually $1 billion in 2008, thus bringing the Business sector industry decline to $1.eight billion, or 6.seven p.c. Nevada was the biggest loser in 2008, dropping practically $one.three billion, far more than 50 % of which stemmed from the Las Vegas Strip section.
Hunkering Down
For the most element, on line casino operators were caught reasonably flat-footed by the extent of the 2008 revenue downturn, as it was not till the third and fourth quarters when it really nosedived. Driving the crest of 12 months over year market progress throughout the nation and the availability of sufficient credit rating and equity cash, new building and expansion proliferated in modern many years. These days, confronted with the realities of declining, or at very best stagnant need, a lot of of these tasks are now considered in excess of-leveraged and/or over-sized. As a outcome several gaming companies are attempting to renegotiate their personal debt – made more hard by reduced valuations – although also paring down operational expenses. The latter has turn out to be a very problematic conundrum when working with the competition, specifically in individuals jurisdictions that are now vying for marketplace shares with new emerging on line casino initiatives in neighboring locations. A topic we talk about far more fully in the State by Point out investigation segment of this publication.
As a consequence of these circumstances the gaming industry landscape is now strewn with impending fatalities. Among the more notable troubled companies are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Leisure, Herbst Gaming and the listing grows every single 7 days.
“How extended will these economic situations persist, and are we at the bottom yet?” are inquiries no 1 appears to be answering however. What is very clear nevertheless is that most gaming jurisdictions will have to learn how to offer with a smaller pie.
Observe:
This analysis involves only gaming revenues of certified casinos and pari-mutuel retailers that supply casino game titles, and not Indian gaming operations, card rooms, or modest non-on line casino sort slot spots. The entire post, which includes income tables is available on our web webpage.
Enter/Output Product
A important factor that looks to have arisen from the ashes of this existing trend is that a lot of on line casino assignments have been just also massive to help by themselves. The enter, in terms of expense pounds, was not proportional to the output, in conditions of internet earnings right after personal debt service, when compared to formerly attained results. Far more and/or even bigger is not constantly far better. Looking at the rise in non-gaming income at the Las Vegas Strip resorts, gave impetus to the improvement of much more thorough facilities in many other jurisdictions. The flaw in this approach nonetheless is that the charges associated with widening market place penetration and occasioned-use, are significantly larger than individuals incurred to attract the base market place.
As daytripper marketplaces become a lot more aggressive, on line casino venues will have to depend far more and more on their in-residence hotel patrons, and dimensions their houses (and expectations) appropriately. Although Steve Wynn started out a major craze in creating up-marketplace mega-destinations, there just was not enough demand on the Strip to warrant the several other similar assignments that followed that aimed at the exact same niche.
The trick is to strike a happy medium in project configurations which of system demand less of a ‘seat-of-pants’ approach, and 1 that is far more analyzed. A shameless plug for growth consultants like ourselves.
Other Gaming Actions
Despite the fact that there are no published thorough info of American Indian gaming revenues, anecdotal proof appears to propose that this segment has been as tough strike as the Professional sector. The two Connecticut Indian gaming installations report slot profits of $one.six billion in 2008, representing a drop of about seven %, or virtually $114 million, more than doubling the three.5 % drop from the year prior to. This market place is seemingly nonetheless reeling from the ripple-effect of a on line casino expansion in Rhode Island, and the opening of slot functions in New York and Pennsylvania.
The Arizona Section of Gaming reviews that contributions based mostly 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 earlier year lowering .eight per cent in the first quarter, seven.five percent in the 2nd quarter, 9.5 % in the 3rd quarter, and 16.1 percent in the fourth quarter.
Some SEC reporting Indian gaming properties report similar decreases. Seneca Gaming, which operates a few Class III casinos in upstate New York, studies that although calendar year 2008 showed an practically two % growth fee in gaming revenues, there was an eight.7 p.c drop in the third quarter and an nearly 10 percent drop in the fourth quarter of 2008, in contrast with 2007. Gaming profits traits at close by Niagara Falls, Ontario have been down 1.five% in 2008 when compared with 2007.
It’s been a combined-bag for state lotteries throughout the place. The North American Affiliation of Point out & Provincial Lotteries reports that U.S. lotteries produced a complete of $60.6 billion in income in fiscal 2008, up about 3 p.c from the previous calendar year however some jurisdictions documented decreases, most notably California, which showed an 8 percent fall. Inasmuch as some of these states are on numerous fiscal year finishes, it would seem that the information does not replicate the impact of 3rd and/or fourth quarter final results.
According to info supplied by Equibase, horse racing pari-mutuel revenues proceed their downward spiral, slipping 7 percent to $13.7 billion in 2008, vs . $fourteen.7 billion in 2007.
Planned & Proposed New Expansions
As formerly mentioned, it has been new gaming jurisdictions that have spawned much of the progress in annual on line casino/racino revenues more than the several years, and their impact is apt to keep on into the near long term.
Florida
Miami Dade voters accepted a ballot issue that enables every of three pari-mutuels to have a on line casino facility of up to two,000 slot devices. The Flagler Canine Track and Miami Jai-Alai are reportedly preparing opening in late 2009 or early 2010, while the Calder set up in Miami Gardens has yet to announced its ideas. There are quite a few other proposals becoming deemed that would additional expand on line casino development all through the point out.
Illinois
The state last but not least obtained around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Enjoyment, LLC for a 1,200+ sport on line casino located in Des Plaines just east of O’Hare. The new facility is not most likely to open up right up until 2010. There has also been some discussion about enabling an enhance in per location gaming positions and slots at racetracks, even though neither initiative appears to have any traction at this time.
Kansas
The state’s expanded lottery software that enables for the development of four casino gaming zones and slots at present horse and pet tracks seems mired, as only one facility is presently beneath construction, whilst a few other proposals had been rescinded. The only bidder on the Cherokee County agreement, claimed it could not compete with the new Quapaw tribal casino in Oklahoma, which is found so near to the point out line that its parking great deal is in Kansas. The Boot Hill On line casino Vacation resort in Dodge City is planing a December 2009 opening with 575 slots and 10 table game titles, alongside with a next section because of to open in 2011 with 875 slots and 20 desk game titles. The condition has prolonged the application procedure for the other 3 zones until finally April, 2009.
Kentucky
There is still a good deal of ‘jockeying’ likely on, but the prospect of as a lot of as 8 slot parlors and racinos appears to be back on the entrance-burner, but probably not fixed in the course of the existing legislative session.
Las Vegas
There are about fourteen,000 rooms scheduled to come on line in 2009, with the most latest being the 390 space M Resort in Henderson. There are expansions underway at equally Caesars Palace and Tough Rock and new lodges incorporate two elements of the City Heart undertaking, and the Fountainebleau.
Louisiana
Pinnacle Entertainment’s new on line casino growth assignments in Baton Rouge and Lake Charles, although delayed, are noted to nonetheless be on-keep track of for opening this year and/or early 2010.
Maine
There is a invoice beneath thing to consider that could far more than double Penn National’s slot machines to three,000, as well as a proposal that would take away the restriction that slots be found in 5 miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing neighborhood residents to let slots, might be thinking about transferring to a much more hospitable city.
Maryland
A referendum was authorized in November, 2008 that allows for the advancement of five casinos with a overall of 15,000 slots, and now the bidding war is afoot even though it is not as intensive as the state experienced expected.
Mississippi
Grand Soleil On line casino Resort in Natchez had been slated to open in 2008, but has operate into a variety of financing concerns and while the lodge portion is open up, the riverboat is noted to open in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, although scaled back considerably, is nonetheless on observe to open up this year.
New England
Massachusetts, a sleeping-big in terms of industry possible, is still maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but cannot appear to muster the political assist. A recent review concluded by Dartmouth University estimates that Massachusetts resident put in more than $920 million previous yr at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an choice to produce casinos, nevertheless the subject matter is probably to be revisited, specially if Massachusetts decides to go ahead. There are also tries in Maine to reconsider its alternatives.
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 continue augmenting purses with an added tax. The governor however, has appointed a new panel to examine the state’s sagging racing system which ironically, can only be preserved by permitting the tracks to have slot machines specifically at the Meadowlands. (See The Nor’easter Squeeze section)
New York
Just when it appeared as if Aqueduct’s four,500 VLT facility would finally be developed, the successful bidder indicated an inability to make the essential $370 million fee, citing the recent lending local climate, and throwing the venture back into the lap of the governor. Although the market place demand in the spot could be considered quite powerful, the prospect of further competitiveness from close by Belmont could have an affect on Aqueduct’s underlining financial feasibility, specially taking into consideration that somewhat much less than thirty% of the web get is retained by the operator.
Plans to relocate Monticello Raceway into a vacation resort sophisticated are being reconsidered possibly owing to the two the probable opening of at least a single or probably two racino operations in the NY metro spot, and the resurfacing of initiatives to growth a Course III Indian gaming facility in the Catskills.
Ohio
Yet another gaming proposal is becoming set forth in Ohio, right after previous year’s edition was turned down by the voters. This prepare 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 needed of $250 million, as properly as an original licensing fee of $50 million, and a 33 percent tax on gaming revenue.
Pennsylvania
The Sands in Bethlehem is because of to open in the Spring of ’09, and the new Rivers task in Pittsburgh is predicted to be operational in August, ’09 while Philadelphia’s two slot services still wallow in a political mire, but are predicted to begin development this year.
South Dakota
The Lodge at Deadwood is slated to open up in the Fall of 2009, and consist of three hundred games, one hundred forty rooms and a broad selection of amenities.
Texas
Legislators are proposing a voter referendum that would amend the state constitution to enable on line casino gambling in designated locations, as effectively 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 submitted for individual bankruptcy, but has a new suitor in Marriott Lodges, who have reportedly tendered an offer. Point out government has proffered the notion of allowing the vacation resort to provide on line casino games, but this hard work is in as well early a phase to have any traction one way or another.
Indian Gaming
A modern Supreme Courtroom ruling that restricts the using of lands into trust on behalf of federally recognized American Indian tribes has more stymied some new Course III gaming initiatives throughout the region. Additionally, there had been eleven Indian casino projects turned down by the DOI final 12 months due to the fact of its new rule that casinos should be in close proximity to enough to a reservation that tribal users can function at them. It has been recommended that the new Obama administration may well be far more sympathetic to the growth of Indian gaming tasks, but this issue has nevertheless to be resolved.
In the meantime, there are other Course III projects in the different levels of growth. The Seneca on line casino project in Buffalo, NY, even though working a modest short-term facility, has delayed an currently below development long lasting facility until the market rebounds. They have also expressed an desire in developing a casino in the Catskills. The condition gaming compact with Seminoles in Florida is being challenged, and could influence their strategies for bigger tasks. There are new Indian gaming projects established to open in Michigan and Oklahoma this yr, and others are in the organizing phase. Texas may possibly allow the reopening of Indian gaming facilities and let other location and there are strategies afoot by the Navajos in Arizona to construct added casinos. California is poised to open two to three new Class III casinos in 2009/ten.
The Nor’easter Squeeze
Overall gaming income in Atlantic Metropolis has declined seven.six percent, from $4.nine billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the town is obtaining alone in an intense comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast had been situated in Atlantic Town, the place it seemed as if it may possibly in fact even eclipse the Las Vegas Strip’s once-a-year gaming revenues.
Slowly however its market place share was becoming encroached on, very first by the advancement of a huge 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 functions in Maryland, the impending opening of a new on line casino in Bethlehem, PA, and sooner or later two functions in Philadelphia, the noose is tightening around Atlantic City’s future prospective customers. It really is reliance on day-trippers lulled it into a untrue perception of stability, and it now finds alone possessing to redefine its mission assertion to “destination vacation resort.”
The only dilemma with this strategy however is that it is sick-equipped to pull it off. For all intents and functions, Atlantic City is beneath-roomed and/or over-gamed. There is basically not sufficient day-tripper market to go all around, and their powerful investing spot is tightening, as the peripheral populations northward now/will have a lot more all set accessibility to a widened offer in New York (Yonkers, and quickly at Aqueduct and potentially Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.
Other than the ocean accessibility, the city’s only actual competitive benefits are its resort potential and the availability of desk video games, even though the latter is likely to eventuate in Pennsylvania, and probably Delaware. In order to sufficiently compete as a location vacation resort the city requirements to develop extra guest rooms and not essentially gaming capability. By comparison, the Las Vegas Strip homes – true gaming destinations, in that they do not have a lot of a working day-vacation industry, apart from for the ‘locals’ – have an typical of .87 gaming positions for every guest room even though Atlantic City’s common is two.seventy four positions for every guest room.
It is not a coincidence that Atlantic City’s two largest hotels, the Borgata and Harrah’s Marina, both of which additional new rooms in 2008, ended up the the very least impacted by the most recent downturn. The Borgata experienced a gaming profits drop of 1.six %, although Harrah’s Marina reported a four.nine percent boost in comparison to 2007. Furthermore, the hardest hit 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 additional delayed, and getting rid of valuation.
With a constant rise in gaming revenues via 2006, the city seemed key for more development, which precipitated preparing for 4 new resort initiatives, every single of which have now been indefinitely delayed. Revel Leisure Group’s $two.five billion task remains an iron skeleton, Pinnacle Leisure has introduced it may possibly seek to promote its razed Sands internet site, MGM Mirage has shelved its on line casino plans, and Penn Nationwide seems to have stopped its pursuit of the Bader Discipline airport web site.