A Time period of Adjustment
Oops! That huge hissing sound is the gaming balloon that had been growing in excess of the years, gradually dropping air. But, it has not been a tide that reduced all ships even so, as some rising and expanding gaming jurisdictions confirmed robust growth in 2008.
Total, the industrial and racetrack on line casino sectors (excluding Indian gaming), seasoned a three.five % decline in gaming revenues for 2008, making a whole of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they confirmed a achieve of practically $one billion in 2008, thereby bringing the Professional sector marketplace decrease to $one.8 billion, or six.7 %. Nevada was the biggest loser in 2008, dropping nearly $one.three billion, far more than 50 % of which stemmed from the Las Vegas Strip section.
Hunkering Down
For the most element, casino operators had been caught fairly flat-footed by the extent of the 2008 income downturn, as it was not right up until the third and fourth quarters when it truly nosedived. Driving the crest of calendar year in excess of calendar year market growth across the region and the availability of ample credit history and equity cash, new construction and growth proliferated in latest several years. Right now, confronted with the realities of declining, or at best stagnant demand, several of these projects are now regarded more than-leveraged and/or over-sized. As a outcome several gaming firms are attempting to renegotiate their debt – created much more challenging by lower valuations – while also paring down operational charges. The latter has grow to be a really problematic conundrum when dealing with the competitors, specifically in those jurisdictions that are now vying for market place shares with new rising on line casino initiatives in neighboring areas. A topic we go over more entirely in the Point out by Condition evaluation segment of this publication.
As a end result of these conditions the gaming industry landscape is now strewn with impending fatalities. Amid the much more noteworthy troubled corporations are Station Casinos, Empire Resorts, Harrah’s Enjoyment, Greektown Holdings, Legends Gaming, Tropicana Enjoyment, Herbst Gaming and the listing grows every 7 days.
“How long will these financial problems persist, and are we at the base yet?” are queries no one particular seems to be answering however. What is distinct however is that most gaming jurisdictions will have to understand how to offer with a smaller sized pie.
Observe:
This investigation involves only gaming revenues of licensed casinos and pari-mutuel shops that offer casino games, and not Indian gaming operations, card rooms, or modest non-casino sort slot locations. The total article, such as revenue tables is offered on our web webpage.
Input/Output Model
A important facet that looks to have arisen from the ashes of this existing development is that many on line casino tasks have been just way too big to support by themselves. The input, in terms of expense bucks, was not proportional to the output, in phrases of internet revenue right after personal debt service, compared to beforehand reached benefits. Much more and/or bigger is not often much better. Looking at the rise in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the growth of much more complete features in many other jurisdictions. The flaw in this approach even so is that the charges connected with widening market place penetration and occasioned-use, are considerably higher than people incurred to appeal to the foundation industry.
As daytripper markets turn out to be a lot more competitive, on line casino venues will have to rely more and far more on their in-residence hotel patrons, and size their qualities (and expectations) appropriately. Even though Steve Wynn commenced a significant trend in generating up-market mega-destinations, there just was not adequate demand from customers on the Strip to warrant the numerous other equivalent initiatives that followed that aimed at the very same niche.
The trick is to strike a satisfied medium in venture configurations which of system call for much less of a ‘seat-of-pants’ strategy, and one that is far more analyzed. A shameless plug for improvement consultants like ourselves.
Other Gaming Actions
Despite the fact that there are no printed thorough data of American Indian gaming revenues, anecdotal evidence seems to recommend that this phase has been as tough hit as the Commercial sector. The two Connecticut Indian gaming installations report slot income of $1.6 billion in 2008, symbolizing a fall of about seven p.c, or almost $114 million, far more than doubling the three.five p.c fall from the 12 months prior to. This marketplace is apparently nevertheless reeling from the ripple-effect of a casino enlargement in Rhode Island, and the opening of slot functions in New York and Pennsylvania.
The Arizona Department of Gaming stories that contributions primarily based on a gaming earnings method from the state’s 23 Indian gaming casinos, have been declining every single quarter in 2008 in contrast to the earlier 12 months lowering .eight per cent in the first quarter, seven.five per cent in the next quarter, 9.five p.c in the 3rd quarter, and 16.1 % in the fourth quarter.
Some SEC reporting Indian gaming qualities report similar decreases. Seneca Gaming, which operates three Class III casinos in upstate New York, reviews that while calendar 12 months 2008 confirmed an almost 2 percent progress fee in gaming revenues, there was an eight.7 percent decline in the third quarter and an virtually ten % decrease in the fourth quarter of 2008, when compared with 2007. Gaming profits traits at close by Niagara Falls, Ontario had been down 1.5% in 2008 compared with 2007.
It is been a blended-bag for state lotteries throughout the place. The North American Association of State & Provincial Lotteries reviews that U.S. lotteries created a overall of $60.6 billion in sales in fiscal 2008, up about three percent from the earlier 12 months but some jurisdictions described decreases, most notably California, which showed an eight % fall. Inasmuch as some of these states are on different fiscal 12 months finishes, it would appear that the data does not reflect the influence of third and/or fourth quarter results.
In accordance to info offered by Equibase, horse racing pari-mutuel revenues continue their downward spiral, falling seven per cent to $13.seven billion in 2008, as opposed to $14.seven billion in 2007.
Prepared & Proposed New Expansions
As formerly observed, it has been new gaming jurisdictions that have spawned much of the progress in annual casino/racino revenues more than the years, and their affect is apt to keep on into the near foreseeable future.
Florida
Miami Dade voters accredited a ballot problem that allows each of three pari-mutuels to have a on line casino facility of up to two,000 slot equipment. The Flagler Canine Keep track of and Miami Jai-Alai are reportedly preparing opening in late 2009 or early 2010, although the Calder installation in Miami Gardens has however to announced its programs. There are numerous other proposals currently being deemed that would more expand on line casino improvement all through the condition.
Illinois
The condition finally obtained about to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Enjoyment, LLC for a one,200+ sport casino positioned in Des Plaines just east of O’Hare. The new facility is not probably to open up till 2010. There has also been some dialogue about enabling an increase in for every place gaming positions and slots at racetracks, though neither initiative appears to have any traction at this time.
Kansas
The state’s expanded lottery software that enables for the growth of 4 casino gaming zones and slots at existing horse and pet tracks seems mired, as only one particular facility is presently below development, even though 3 other proposals have been 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 situated so near to the state 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 desk online games, together with a 2nd phase thanks to open in 2011 with 875 slots and 20 table video games. The condition has prolonged the application process for the other 3 zones right up until April, 2009.
Kentucky
There is nonetheless a whole lot of ‘jockeying’ likely on, but the prospect of as several as 8 slot parlors and racinos appears to be back on the front-burner, but very likely not fixed for the duration of the current legislative session.
Las Vegas
There are about 14,000 rooms scheduled to occur on line in 2009, with the most modern being the 390 area M Resort in Henderson. There are expansions underway at the two Caesars Palace and Challenging Rock and new hotels include two elements of the Metropolis Heart project, and the Fountainebleau.
Louisiana
Pinnacle Entertainment’s new on line casino advancement assignments in Baton Rouge and Lake Charles, although delayed, are documented to nonetheless be on-observe for opening this year and/or early 2010.
Maine
There is a monthly bill under consideration that could far more than double Penn National’s slot devices to three,000, as properly as a propo sa l that would get rid of the restriction that slots be situated inside 5 miles of the monitor. Scarborough Downs, which has been unsuccessful in convincing regional inhabitants to allow slots, could be thinking about relocating to a more hospitable town.
Maryland
A referendum was accepted in November, 2008 that enables for the improvement of 5 casinos with a total of fifteen,000 slots, and now the bidding war is afoot despite the fact that it is not as extreme as the point out had anticipated.
Mississippi
Grand Soleil Casino Resort in Natchez had been slated to open in 2008, but has operate into a variety of financing problems and even though the hotel portion is open, the riverboat is reported to open in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, even though scaled again considerably, is nonetheless on track to open up this yr.
New England
Massachusetts, a sleeping-big in phrases of industry prospective, is still maneuvering to open up casinos/racinos, and/or a Class III Indian gaming facility, but can’t appear to muster the political support. A modern research finished by Dartmouth University estimates that Massachusetts resident expended more than $920 million previous yr at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature recently declined an option to produce casinos, nevertheless the subject is most likely to be revisited, particularly if Massachusetts decides to go forward. There are also attempts in Maine to rethink its choices.
New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot devices at racetracks by lately agreeing to proceed augmenting purses with an extra tax. The governor even so, has appointed a new panel to research the state’s sagging racing software which ironically, can only be preserved by allowing the tracks to have slot machines specially at the Meadowlands. (See The Nor’easter Squeeze section)
New York
Just when it appeared as if Aqueduct’s 4,five hundred VLT facility would finally be created, the winning bidder indicated an lack of ability to make the required $370 million payment, citing the existing lending weather, and throwing the venture back again into the lap of the governor. Although the marketplace need in the region could be regarded as very powerful, the prospect of extra competition from nearby Belmont could have an influence on Aqueduct’s underlining economic feasibility, particularly contemplating that a bit significantly less than thirty% of the internet get is retained by the operator.
Plans to relocate Monticello Raceway into a resort sophisticated are currently being reconsidered possibly owing to each the possible opening of at minimum one particular or maybe two racino functions in the NY metro region, and the resurfacing of initiatives to development a Course III Indian gaming facility in the Catskills.
Ohio
Yet one more gaming proposal is currently being put forth in Ohio, soon after final year’s model was turned down by the voters. This strategy calls for one casino each in the state’s biggest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a least expenditure necessary of $250 million, as properly as an first licensing price of $fifty million, and a 33 % tax on gaming earnings.
Pennsylvania
The Sands in Bethlehem is owing to open in the Spring of ’09, and the new Rivers project 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 predicted to start off development this yr.
South Dakota
The Lodge at Deadwood is slated to open in the Slide of 2009, and consist of 300 video games, 140 rooms and a vast range of features.
Texas
Legislators are proposing a voter referendum that would amend the state constitution to let casino gambling in designated areas, as properly as permit gambling on American Indian lands in Texas and at present racetracks.
West Virginia
The Greenbriar, the state’s venerable resort facility has submitted for individual bankruptcy, but has a new suitor in Marriott Resorts, who have reportedly tendered an provide. State federal government has proffered the idea of making it possible for the resort to offer casino online games, but this hard work is in way too early a phase to have any traction one way or yet another.
Indian Gaming
A latest Supreme Court ruling that restricts the getting of lands into have faith in on behalf of federally regarded American Indian tribes has more stymied some new Class III gaming initiatives across the place. In addition, there had been eleven Indian on line casino initiatives turned down by the DOI previous yr simply because of its new rule that casinos should be in close proximity to sufficient to a reservation that tribal users can work at them. It has been advised that the new Obama administration might be much more sympathetic to the development of Indian gaming assignments, but this concern has nevertheless to be tackled.
In the meantime, there are other Course III assignments in the different levels of development. The Seneca on line casino undertaking in Buffalo, NY, although running a small temporary facility, has delayed an currently below design permanent facility until the marketplace rebounds. They have also expressed an curiosity in creating a casino in the Catskills. The state gaming compact with Seminoles in Florida is being challenged, and could influence their strategies for larger projects. There are new Indian gaming initiatives set to open up in Michigan and Oklahoma this 12 months, and other individuals are in the organizing phase. Texas might allow the reopening of Indian gaming facilities and permit other location and there are ideas afoot by the Navajos in Arizona to assemble added casinos. California is poised to open up two to a few new Course III casinos in 2009/10.
The Nor’easter Squeeze
Whole gaming profits in Atlantic Metropolis has declined seven.6 per cent, from $4.9 billion in 2007 to $four.five billion in 2008 with decreases continuing into 2009, as the city is finding alone in an powerful comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast were located in Atlantic City, exactly where it looked as if it may well in fact even eclipse the Las Vegas Strip’s once-a-year gaming revenues.
Slowly and gradually nonetheless its marketplace share was becoming encroached upon, initial by the improvement of a massive Course III gaming operation in Connecticut, and then one more slots functions in Rhode Island, and then video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most just lately Pennsylvania.
Now, with the planned opening of slot functions in Maryland, the impending opening of a new on line casino in Bethlehem, PA, and at some point two operations in Philadelphia, the noose is tightening all around Atlantic City’s potential potential clients. It really is reliance on working day-trippers lulled it into a untrue perception of safety, and it now finds alone getting to redefine its mission assertion to “destination resort.”
The only issue with this approach even so is that it is ill-equipped to pull it off. For all intents and reasons, Atlantic Metropolis is below-roomed and/or above-gamed. There is merely not ample day-tripper industry to go close to, and their efficient trading spot is tightening, as the peripheral populations northward now/will have more prepared accessibility to a widened source in New York (Yonkers, and shortly at Aqueduct and possibly Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.
Other than the ocean obtain, the city’s only genuine aggressive rewards are its hotel capability and the availability of table video games, though the latter is probably to eventuate in Pennsylvania, and potentially Delaware. In get to adequately compete as a destination vacation resort the metropolis demands to produce added guest rooms and not automatically gaming ability. By comparison, the Las Vegas Strip qualities – correct gaming places, in that they do not have much of a day-vacation market, other than for the ‘locals’ – have an typical of .87 gaming positions per visitor room whilst Atlantic City’s typical is 2.74 positions for every guest area.
It is not a coincidence that Atlantic City’s two premier hotels, the Borgata and Harrah’s Marina, equally of which additional new rooms in 2008, were the least impacted by the newest downturn. The Borgata knowledgeable a gaming income drop of one.6 per cent, while Harrah’s Marina documented a four.9 per cent improve in comparison to 2007. In addition, the toughest hit venues, specifically the AC Hilton, Resorts and the Trump Marina, also have the smallest quantity of rooms. In the meantime some of the venues are teetering on viability, which includes the the Trump qualities and Resorts with the hoped for sale of the Tropicana has been additional delayed, and dropping valuation.
With a continual increase in gaming revenues through 2006, the town seemed primary for more growth, which precipitated organizing for 4 new vacation resort initiatives, each of which have now been indefinitely delayed. Revel Leisure Group’s $two.five billion undertaking remains an iron skeleton, Pinnacle Entertainment has announced it may seek out to sell its razed Sands site, MGM Mirage has shelved its on line casino plans, and Penn National seems to have stopped its pursuit of the Bader Subject airport website.