A Period of Adjustment
Oops! That giant hissing audio is the gaming balloon that had been expanding above the years, gradually shedding air. But, it has not been a tide that decreased all ships nevertheless, as some rising and increasing gaming jurisdictions showed sturdy growth in 2008.
All round, the business and racetrack casino sectors (excluding Indian gaming), seasoned a 3.5 p.c decrease in gaming revenues for 2008, producing a complete of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they showed a achieve of practically $1 billion in 2008, therefore bringing the Professional sector market decrease to $1.8 billion, or 6.7 percent. Nevada was the biggest loser in 2008, dropping practically $1.3 billion, much more than 50 percent of which stemmed from the Las Vegas Strip phase.
For the most part, on line casino operators were caught comparatively flat-footed by the extent of the 2008 revenue downturn, as it was not till the 3rd and fourth quarters when it genuinely nosedived. Using the crest of 12 months in excess of yr market progress across the place and the availability of sufficient credit history and equity funds, new construction and enlargement proliferated in latest several years. Nowadays, faced with the realities of declining, or at greatest stagnant demand from customers, a lot of of these projects are now regarded as more than-leveraged and/or more than-sized. As a consequence several gaming firms are making an attempt to renegotiate their credit card debt – made more tough by reduce valuations – even though also paring down operational fees. The latter has become a really problematic conundrum when dealing with the competitors, specially in individuals jurisdictions that are now vying for market place shares with new emerging on line casino tasks in neighboring regions. A matter we examine a lot more fully in the Condition by State investigation part of this publication.
As a result of these problems the gaming industry landscape is now strewn with impending fatalities. Among the more noteworthy troubled corporations are Station Casinos, Empire Resorts, Harrah’s Leisure, Greektown Holdings, Legends Gaming, Tropicana Entertainment, Herbst Gaming and the listing grows each week.
“How lengthy will these economic situations persist, and are we at the bottom nevertheless?” are questions no one particular appears to be answering nevertheless. What is clear nevertheless is that most gaming jurisdictions will have to discover how to offer with a more compact pie.
This evaluation consists of only gaming revenues of accredited casinos and pari-mutuel retailers that offer you on line casino video games, and not Indian gaming operations, card rooms, or tiny non-on line casino variety slot places. The whole report, including profits tables is obtainable on our net website page.
A essential aspect that seems to have arisen from the ashes of this existing development is that several on line casino assignments were just also massive to help themselves. The input, in conditions of expense bucks, was not proportional to the output, in phrases of internet revenue soon after debt services, when compared to beforehand attained final results. A lot more and/or even bigger is not often much better. Looking at the increase in non-gaming earnings at the Las Vegas Strip resorts, gave impetus to the development of a lot more comprehensive amenities in numerous other jurisdictions. The flaw in this approach however is that the fees connected with widening market penetration and occasioned-use, are drastically greater than these incurred to appeal to the base marketplace.
As daytripper marketplaces turn out to be more competitive, on line casino venues will have to depend more and a lot more on their in-property lodge patrons, and dimension their houses (and expectations) accordingly. Although Steve Wynn started a major pattern in producing up-market place mega-destinations, there merely was not adequate demand from customers on the Strip to warrant the many other comparable assignments that adopted that aimed at the same market.
The trick is to strike a satisfied medium in venture configurations which of course call for less of a ‘seat-of-pants’ strategy, and one particular that is far more studied. A shameless plug for development consultants like ourselves.
Other Gaming Pursuits
Despite the fact that there are no revealed in depth information of American Indian gaming revenues, anecdotal evidence appears to suggest that this segment has been as hard strike as the Commercial sector. The two Connecticut Indian gaming installations report slot income of $one.6 billion in 2008, symbolizing a drop of about 7 p.c, or nearly $114 million, much more than doubling the three.5 p.c drop from the calendar year just before. This market place is seemingly still reeling from the ripple-result of a on line casino growth in Rhode Island, and the opening of slot operations in New York and Pennsylvania.
The Arizona Division of Gaming studies that contributions primarily based on a gaming revenue method from the state’s 23 Indian gaming casinos, have been declining every quarter in 2008 in comparison to the previous year lowering .eight % in the initial quarter, seven.five percent in the 2nd quarter, 9.5 % in the 3rd quarter, and sixteen.one p.c in the fourth quarter.
Some SEC reporting Indian gaming houses report comparable decreases. Seneca Gaming, which operates three Class III casinos in upstate New York, studies that even though calendar year 2008 confirmed an virtually two per cent growth charge in gaming revenues, there was an eight.seven percent decrease in the 3rd quarter and an nearly ten percent drop in the fourth quarter of 2008, compared with 2007. Gaming revenue tendencies at close by Niagara Falls, Ontario had been down one.five% in 2008 compared with 2007.
It’s been a blended-bag for state lotteries throughout the region. The North American Affiliation of Condition & Provincial Lotteries studies that U.S. lotteries produced a whole of $60.6 billion in revenue in fiscal 2008, up about three p.c from the preceding 12 months yet some jurisdictions described decreases, most notably California, which confirmed an eight % fall. Inasmuch as some of these states are on various fiscal calendar year ends, it would look that the information does not reflect the affect of third and/or fourth quarter benefits.
In accordance to information supplied by Equibase, horse racing pari-mutuel revenues proceed their downward spiral, falling seven % to $13.seven billion in 2008, versus $14.7 billion in 2007.
Prepared & Proposed New Expansions
As previously famous, it has been new gaming jurisdictions that have spawned a lot of the progress in yearly on line casino/racino revenues above the many years, and their effect is apt to keep on into the in close proximity to future.
Miami Dade voters approved a ballot problem that permits every of 3 pari-mutuels to have a casino facility of up to two,000 slot devices. The Flagler Pet Keep track of and Miami Jai-Alai are reportedly arranging opening in late 2009 or early 2010, while the Calder set up in Miami Gardens has but to announced its plans. There are several other proposals being deemed that would more grow on line casino growth during the condition.
The state last but not least received close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Leisure, LLC for a one,200+ game on line casino situated in Des Plaines just east of O’Hare. The new facility is not very likely to open till 2010. There has also been some dialogue about enabling an boost 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 improvement of four casino gaming zones and slots at present horse and puppy tracks appears mired, as only 1 facility is presently underneath design, even though 3 other proposals had been rescinded. The only bidder on the Cherokee County deal, claimed it could not contend with the new Quapaw tribal casino in Oklahoma, which is located so shut to the state line that its parking lot is in Kansas. The Boot Hill On line casino Resort in Dodge City is planing a December 2009 opening with 575 slots and 10 table game titles, together with a second phase due to open in 2011 with 875 slots and 20 desk online games. The point out has extended the application process for the other a few zones till April, 2009.
There is even now a good deal of ‘jockeying’ heading on, but the prospect of as many as eight slot parlors and racinos appears to be again on the front-burner, but likely not settled in the course of the existing legislative session.
There are about 14,000 rooms scheduled to appear on line in 2009, with the most latest being the 390 area M Resort in Henderson. There are expansions underway at equally Caesars Palace and Hard Rock and new resorts include two parts of the City Middle project, and the Fountainebleau.
Pinnacle Entertainment’s new casino development tasks in Baton Rouge and Lake Charles, whilst delayed, are reported to even now be on-observe for opening this yr and/or early 2010.
There is a bill under consideration that could far more than double Penn National’s slot equipment to three,000, as well as a proposal that would remove the restriction that slots be situated inside five miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing local people to permit slots, may possibly be thinking about moving to a a lot more hospitable town.
A referendum was accredited in November, 2008 that permits for the improvement of five casinos with a complete of fifteen,000 slots, and now the bidding war is afoot though it is not as intense as the state experienced expected.
Grand Soleil Casino Vacation resort in Natchez experienced been slated to open up in 2008, but has operate into different financing troubles and whilst the hotel part is open, the riverboat is reported to open up in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, even though scaled back considerably, is nonetheless on keep track of to open this calendar year.
Massachusetts, a sleeping-huge in terms of market place potential, is nevertheless maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but can’t appear to muster the political assist. A current examine accomplished by Dartmouth College estimates that Massachusetts resident invested much more than $920 million previous 12 months at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature recently declined an option to produce casinos, nonetheless the topic is probably to be revisited, especially if Massachusetts decides to go forward. There are also tries in Maine to reconsider its possibilities.
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 keep on augmenting purses with an additional tax. The governor nevertheless, has appointed a new panel to research the state’s sagging racing software which ironically, can only be preserved by making it possible for the tracks to have slot devices particularly at the Meadowlands. (See The Nor’easter Squeeze area)
Just when it appeared as if Aqueduct’s four,500 VLT facility would last but not least be produced, the winning bidder indicated an inability to make the needed $370 million fee, citing the present lending local weather, and throwing the venture back into the lap of the governor. Despite the fact that the industry demand from customers in the area could be regarded fairly strong, the prospect of extra competitiveness from close by Belmont could have an influence on Aqueduct’s underlining financial feasibility, particularly thinking about that slightly significantly less than thirty% of the net get is retained by the operator.
Strategies to relocate Monticello Raceway into a vacation resort intricate are getting reconsidered possibly owing to the two the probable opening of at minimum one or possibly two racino functions in the NY metro spot, and the resurfacing of initiatives to development a Course III Indian gaming facility in the Catskills.
But one more gaming proposal is becoming put forth in Ohio, right after previous year’s model was turned down by the voters. This plan phone calls for a single casino every in the state’s greatest towns: Cleveland, Columbus, Cincinnati and Toledo. There would be a least investment decision required of $250 million, as properly as an original licensing price of $fifty million, and a 33 p.c tax on gaming profits.
The Sands in Bethlehem is due to open up in the Spring of ’09, and the new Rivers task in Pittsburgh is anticipated to be operational in August, ’09 even though Philadelphia’s two slot services even now wallow in a political mire, but are predicted to begin development this calendar year.
The Lodge at Deadwood is slated to open in the Slide of 2009, and contain 300 games, one hundred forty rooms and a vast variety of features.
Legislators are proposing a voter referendum that would amend the state constitution to enable on line casino gambling in designated locations, as well as enable gambling on American Indian lands in Texas and at existing racetracks.
The Greenbriar, the state’s venerable resort facility has submitted for bankruptcy, but has a new suitor in Marriott Lodges, who have reportedly tendered an provide. Condition govt has proffered the idea of permitting the vacation resort to offer you casino online games, but this energy is in as well early a phase to have any traction 1 way or another.
A current Supreme Courtroom ruling that restricts the getting of lands into trust on behalf of federally regarded American Indian tribes has further stymied some new Class III gaming tasks throughout the nation. Furthermore, there were eleven Indian on line casino tasks rejected by the DOI last calendar year due to the fact of its new rule that casinos should be close to enough to a reservation that tribal members can function at them. It has been recommended that the new Obama administration might be far more sympathetic to the advancement of Indian gaming assignments, but this concern has but to be tackled.
Meanwhile, there are other Course III projects in the various phases of advancement. The Seneca on line casino project in Buffalo, NY, although running a little short-term facility, has delayed an presently under construction permanent facility until finally the industry rebounds. They have also expressed an fascination in building a on line casino in the Catskills. The point out gaming compact with Seminoles in Florida is getting challenged, and could effect their programs for larger initiatives. There are new Indian gaming assignments established to open up in Michigan and Oklahoma this year, and others are in the planning stage. Texas might let the reopening of Indian gaming facilities and let other venue and there are plans afoot by the Navajos in Arizona to construct further casinos. California is poised to open up two to 3 new Course III casinos in 2009/ten.
The Nor’easter Squeeze
Complete gaming earnings in Atlantic City has declined seven.6 p.c, from $four.nine billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the metropolis is discovering itself in an powerful comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast were located in Atlantic City, in which it appeared as if it may possibly truly even eclipse the Las Vegas Strip’s yearly gaming revenues.
Slowly however its market place share was currently being encroached on, first by the improvement of a big Class III gaming operation in Connecticut, and then another slots operations in Rhode Island, and then video clip lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most lately Pennsylvania.
Now, with the planned opening of slot functions 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 future potential clients. It’s reliance on day-trippers lulled it into a false perception of stability, and it now finds alone possessing to redefine its mission assertion to “destination resort.”
The only difficulty with this approach however is that it is ill-outfitted to pull it off. For all intents and needs, Atlantic Town is beneath-roomed and/or over-gamed. There is just not adequate day-tripper market place to go all around, and their efficient buying and selling region is tightening, as the peripheral populations northward now/will have more prepared obtain to a widened provide in New York (Yonkers, and before long at Aqueduct and perhaps Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.
Other than the ocean entry, the city’s only genuine aggressive advantages are its hotel capability and the availability of table online games, even though the latter is likely to eventuate in Pennsylvania, and perhaps Delaware. In purchase to sufficiently contend as a spot resort the town requirements to create further guest rooms and not essentially gaming potential. By comparison, the Las Vegas Strip qualities – accurate gaming locations, in that they do not have considerably of a day-vacation market, except for the ‘locals’ – have an regular of .87 gaming positions for every guest space even though Atlantic City’s regular is two.74 positions for each visitor area.
It is not a coincidence that Atlantic City’s two largest hotels, the Borgata and Harrah’s Marina, the two of which additional new rooms in 2008, were the least impacted by the newest downturn. The Borgata experienced a gaming earnings fall of one.six per cent, although Harrah’s Marina described a 4.nine per cent boost compared to 2007. In addition, the toughest 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 homes and Resorts with the hoped for sale of the Tropicana has been even more delayed, and getting rid of valuation.
With a constant increase in gaming revenues by means of 2006, the town seemed key for even more improvement, which precipitated preparing for 4 new resort assignments, each of which have now been indefinitely delayed. Revel Amusement Group’s $two.5 billion venture continues to be an iron skeleton, Pinnacle Leisure has declared it may well look for to market its razed Sands website, MGM Mirage has shelved its on line casino strategies, and Penn National seems to have stopped its pursuit of the Bader Field airport site.