A Period of time of Adjustment
Oops! That big hissing sound is the gaming balloon that had been expanding above the several years, slowly dropping air. But, it has not been a tide that lowered all ships however, as some rising and expanding gaming jurisdictions showed robust development in 2008.
Overall, the professional and racetrack on line casino sectors (excluding Indian gaming), seasoned a three.five per cent drop in gaming revenues for 2008, generating a overall of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they showed a achieve of almost $1 billion in 2008, therefore bringing the Business sector marketplace decrease to $1.8 billion, or 6.7 %. Nevada was the biggest loser in 2008, dropping nearly $one.3 billion, a lot more than 50 % of which stemmed from the Las Vegas Strip segment.
Hunkering Down
For the most part, casino operators ended up caught comparatively flat-footed by the extent of the 2008 profits downturn, as it was not until finally the third and fourth quarters when it really nosedived. Riding the crest of year over 12 months market place expansion throughout the region and the availability of sufficient credit and equity money, new development and enlargement proliferated in latest several years. These days, faced with the realities of declining, or at best stagnant demand, several of these tasks are now deemed in excess of-leveraged and/or in excess of-sized. As a consequence many gaming businesses are trying to renegotiate their credit card debt – made much more challenging by reduce valuations – even though also paring down operational costs. The latter has turn into a very problematic conundrum when dealing with the competitiveness, specifically in these jurisdictions that are now vying for market shares with new rising casino projects in neighboring places. A matter we talk about a lot more fully in the Point out by Point out evaluation section of this publication.
As a outcome of these situations the gaming industry landscape is now strewn with impending fatalities. Amongst the a lot more notable troubled companies are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Amusement, Herbst Gaming and the listing grows every single 7 days.
“How lengthy will these economic circumstances persist, and are we at the base nevertheless?” are concerns no a single seems to be answering yet. What is very clear nonetheless is that most gaming jurisdictions will have to discover how to offer with a smaller sized pie.
Note:
This analysis consists of only gaming revenues of accredited casinos and pari-mutuel outlets that offer on line casino games, and not Indian gaming functions, card rooms, or little non-on line casino type slot places. The whole post, including earnings tables is accessible on our web web page.
Enter/Output Design
A key element that looks to have arisen from the ashes of this current pattern is that a lot of casino initiatives have been just also huge to help themselves. The input, in phrases of expense bucks, was not proportional to the output, in conditions of web earnings following personal debt support, in comparison to beforehand achieved final results. More and/or bigger is not usually better. Viewing the increase in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the advancement of far more comprehensive amenities in a lot of other jurisdictions. The flaw in this method even so is that the costs connected with widening marketplace penetration and occasioned-use, are considerably increased than individuals incurred to entice the base market place.
As daytripper markets become a lot more aggressive, on line casino venues will have to depend much more and far more on their in-house lodge patrons, and measurement their properties (and expectations) accordingly. Whilst Steve Wynn commenced a significant trend in making up-market mega-places, there basically was not adequate demand from customers on the Strip to warrant the many other comparable initiatives that followed that aimed at the very same area of interest.
The trick is to strike a happy medium in undertaking configurations which of program call for significantly less of a ‘seat-of-pants’ approach, and 1 that is far more studied. A shameless plug for advancement consultants like ourselves.
Other Gaming Activities
Despite the fact that there are no released detailed data of American Indian gaming revenues, anecdotal proof seems to recommend that this phase has been as tough hit as the Professional sector. The two Connecticut Indian gaming installations report slot profits of $1.six billion in 2008, symbolizing a fall of about seven per cent, or almost $114 million, far more than doubling the three.five percent fall from the 12 months ahead of. This industry is evidently nonetheless reeling from the ripple-impact of a casino expansion in Rhode Island, and the opening of slot operations in New York and Pennsylvania.
The Arizona Division of Gaming studies that contributions based mostly on a gaming revenue formula from the state’s 23 Indian gaming casinos, have been declining every quarter in 2008 when compared to the preceding calendar year reducing .eight % in the initial quarter, seven.5 % in the second quarter, nine.5 percent in the third quarter, and sixteen.one percent in the fourth quarter.
Some SEC reporting Indian gaming houses report equivalent decreases. Seneca Gaming, which operates 3 Course III casinos in upstate New York, stories that while calendar year 2008 confirmed an virtually two p.c growth rate in gaming revenues, there was an 8.7 percent drop in the third quarter and an virtually 10 per cent decline in the fourth quarter of 2008, in contrast with 2007. Gaming profits developments at close by Niagara Falls, Ontario had been down one.five% in 2008 compared with 2007.
It truly is been a mixed-bag for condition lotteries across the place. The North American Affiliation of Condition & Provincial Lotteries stories that U.S. lotteries generated a whole of $sixty.six billion in product sales in fiscal 2008, up about three per cent from the prior 12 months however some jurisdictions noted decreases, most notably California, which confirmed an 8 percent fall. Inasmuch as some of these states are on a variety of fiscal yr ends, it would appear that the data does not mirror the effect of third and/or fourth quarter outcomes.
In accordance to data provided by Equibase, horse racing pari-mutuel revenues keep on their downward spiral, slipping 7 per cent to $13.7 billion in 2008, vs . $fourteen.seven billion in 2007.
Prepared & Proposed New Expansions
As beforehand noted, it has been new gaming jurisdictions that have spawned significantly of the development in annual on line casino/racino revenues over the a long time, and their impact is apt to keep on into the around long term.
Florida
Miami Dade voters approved a ballot issue that allows every of 3 pari-mutuels to have a on line casino facility of up to two,000 slot equipment. The Flagler Canine Observe and Miami Jai-Alai are reportedly arranging opening in late 2009 or early 2010, even though the Calder set up in Miami Gardens has nevertheless to introduced its programs. There are numerous other proposals currently being regarded as that would further broaden on line casino advancement during the point out.
Illinois
The state last but not least acquired all around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Amusement, LLC for a 1,200+ sport casino situated in Des Plaines just east of O’Hare. The new facility is not very likely to open until finally 2010. There has also been some discussion about permitting an increase in for every spot gaming positions and slots at racetracks, although neither initiative appears to have any traction at this time.
Kansas
The state’s expanded lottery system that enables for the growth of 4 casino gaming zones and slots at existing horse and pet tracks appears mired, as only one particular facility is presently beneath construction, while 3 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 found so close to the point out line that its parking whole lot is in Kansas. The Boot Hill Casino Vacation resort in Dodge Town is planing a December 2009 opening with 575 slots and 10 table video games, together with a next phase because of to open up in 2011 with 875 slots and 20 table online games. The state has prolonged the software procedure for the other three zones till April, 2009.
Kentucky
There is nevertheless a lot of ‘jockeying’ going on, but the prospect of as many as 8 slot parlors and racinos seems to be back again on the front-burner, but probably not resolved during the current legislative session.
Las Vegas
There are about 14,000 rooms scheduled to arrive on line in 2009, with the most modern getting the 390 place M Vacation resort in Henderson. There are expansions underway at equally Caesars Palace and Challenging Rock and new lodges contain two components of the Town Center project, and the Fountainebleau.
Louisiana
Pinnacle Entertainment’s new casino improvement projects in Baton Rouge and Lake Charles, whilst delayed, are noted to still be on-keep track of for opening this 12 months and/or early 2010.
Maine
There is a invoice under thing to consider that could more than double Penn National’s slot devices to three,000, as nicely as a proposal that would remove the restriction that slots be situated inside of five miles of the monitor. Scarborough Downs, which has been unsuccessful in convincing regional inhabitants to enable slots, could be taking into consideration moving to a much more hospitable town.
Maryland
A referendum was accepted in November, 2008 that makes it possible for for the growth of 5 casinos with a total of 15,000 slots, and now the bidding war is afoot though it is not as intense as the point out had predicted.
Mississippi
Grand Soleil On line casino Resort in Natchez had been slated to open in 2008, but has run into different funding issues and although the resort part is open, the riverboat is documented to open up in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, while scaled back fairly, is still on observe to open up this yr.
New England
Massachusetts, a sleeping-huge in conditions of industry possible, is even now maneuvering to open up casinos/racinos, and/or a Course III Indian gaming facility, but cannot seem to muster the political support. A recent review completed by Dartmouth College estimates that Massachusetts resident expended more than $920 million previous year at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an alternative to create casinos, however the subject matter is probably to be revisited, especially if Massachusetts decides to go ahead. There are also attempts in Maine to reconsider its alternatives.
New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot equipment at racetracks by not too long ago agreeing to carry on augmenting purses with an extra tax. The governor however, has appointed a new panel to research the state’s sagging racing program which ironically, can only be preserved by allowing the tracks to have slot equipment particularly at the Meadowlands. (See The Nor’easter Squeeze part)
New York
Just when it seemed as if Aqueduct’s 4,500 VLT facility would lastly be created, the winning bidder indicated an incapability to make the essential $370 million charge, citing the recent lending climate, and throwing the venture again into the lap of the governor. Though the industry demand from customers in the area could be regarded as quite powerful, the prospect of added competition from nearby Belmont could have an influence on Aqueduct’s underlining financial feasibility, specially considering that slightly considerably less than 30% of the internet earn is retained by the operator.
Plans to relocate Monticello Raceway into a resort complicated are currently being reconsidered probably owing to the two the possible opening of at the very least 1 or possibly two racino functions in the NY metro region, and the resurfacing of initiatives to growth a Course III Indian gaming facility in the Catskills.
Ohio
However yet another gaming proposal is getting place forth in Ohio, right after previous year’s edition was turned down by the voters. This program calls for 1 casino each and every in the state’s premier metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimal investment decision essential of $250 million, as well as an first licensing charge of $50 million, and a 33 p.c tax on gaming income.
Pennsylvania
The Sands in Bethlehem is owing to open in the Spring of ’09, and the new Rivers task in Pittsburgh is expected to be operational in August, ’09 whilst Philadelphia’s two slot amenities even now wallow in a political mire, but are anticipated to start development this calendar year.
South Dakota
The Lodge at Deadwood is slated to open in the Drop of 2009, and include three hundred game titles, a hundred and forty rooms and a wide assortment of features.
Texas
Legislators are proposing a voter referendum that would amend the point out constitution to permit casino gambling in specified regions, as well as permit gambling on American Indian lands in Texas and at existing racetracks.
West Virginia
The Greenbriar, the state’s venerable resort facility has filed for bankruptcy, but has a new suitor in Marriott Resorts, who have reportedly tendered an offer. Condition authorities has proffered the notion of making it possible for the vacation resort to offer on line casino games, but this hard work is in too early a phase to have any traction a single way or an additional.
Indian Gaming
A current Supreme Courtroom ruling that restricts the having of lands into have confidence in on behalf of federally regarded American Indian tribes has more stymied some new Course III gaming assignments across the region. Furthermore, there have been eleven Indian casino projects turned down by the DOI final yr due to the fact of its new rule that casinos should be close to sufficient to a reservation that tribal members can work at them. It has been recommended that the new Obama administration might be far more sympathetic to the improvement of Indian gaming assignments, but this issue has yet to be resolved.
Meanwhile, there are other Class III projects in the a variety of levels of improvement. The Seneca on line casino project in Buffalo, NY, whilst operating a little momentary facility, has delayed an already below development permanent facility till the market place rebounds. pg have also expressed an desire in creating a casino in the Catskills. The point out gaming compact with Seminoles in Florida is being challenged, and could effect their ideas for bigger assignments. There are new Indian gaming projects established to open up in Michigan and Oklahoma this year, and other folks are in the planning stage. Texas may enable the reopening of Indian gaming amenities and permit other venue and there are strategies afoot by the Navajos in Arizona to build added casinos. California is poised to open two to three new Course III casinos in 2009/10.
The Nor’easter Squeeze
Overall gaming earnings in Atlantic City has declined 7.six percent, from $4.nine billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the metropolis is locating alone in an intensive comp-war with the Pennsylvania venues. At a single time the only casinos in the Northeast ended up positioned in Atlantic Town, exactly where it looked as if it might actually even eclipse the Las Vegas Strip’s yearly gaming revenues.
Slowly nonetheless its market place share was being encroached upon, very first by the growth of a big Course III gaming operation in Connecticut, and then an additional slots functions in Rhode Island, and then movie lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most recently Pennsylvania.
Now, with the planned 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 all around Atlantic City’s potential prospective customers. It is reliance on day-trippers lulled it into a false sense of safety, and it now finds itself having to redefine its mission assertion to “location vacation resort.”
The only issue with this method nonetheless is that it is ill-equipped to pull it off. For all intents and functions, Atlantic Town is under-roomed and/or above-gamed. There is merely not sufficient day-tripper market to go around, and their powerful trading area is tightening, as the peripheral populations northward now/will have a lot more prepared access to a widened source in New York (Yonkers, and before long at Aqueduct and potentially Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.
Other than the ocean obtain, the city’s only genuine competitive benefits are its lodge capacity and the availability of desk game titles, despite the fact that the latter is probably to eventuate in Pennsylvania, and perhaps Delaware. In purchase to adequately compete as a location resort the city wants to create extra visitor rooms and not always gaming ability. By comparison, the Las Vegas Strip homes – real gaming places, in that they do not have significantly of a day-journey marketplace, apart from for the ‘locals’ – have an average of .87 gaming positions for every guest place even though Atlantic City’s common is 2.74 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 included new rooms in 2008, have been the least impacted by the newest downturn. The Borgata experienced a gaming profits fall of one.six %, even though Harrah’s Marina reported a four.nine percent boost when compared to 2007. Moreover, the toughest strike venues, specifically 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 properties and Resorts with the hoped for sale of the Tropicana has been more delayed, and losing valuation.
With a constant rise in gaming revenues by way of 2006, the metropolis appeared key for further growth, which precipitated arranging for four new resort assignments, every of which have now been indefinitely delayed. Revel Entertainment Group’s $2.5 billion task continues to be an iron skeleton, Pinnacle Entertainment has announced it might find to offer its razed Sands site, MGM Mirage has shelved its casino programs, and Penn Countrywide seems to have stopped its pursuit of the Bader Discipline airport site.