A Period of Adjustment
Oops! That giant hissing sound is the gaming balloon that experienced been growing above the many years, slowly and gradually dropping air. But, it has not been a tide that reduced all ships even so, as some rising and expanding gaming jurisdictions showed strong progress in 2008.
General, the commercial and racetrack on line casino sectors (excluding Indian gaming), knowledgeable a three.5 % drop in gaming revenues for 2008, making a overall of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they showed a gain of virtually $1 billion in 2008, thereby bringing the Commercial sector marketplace decline to $1.eight billion, or 6.7 per cent. Nevada was the largest loser in 2008, dropping nearly $one.three billion, much more than fifty percent of which stemmed from the Las Vegas Strip phase.
For the most component, casino operators ended up caught relatively flat-footed by the extent of the 2008 revenue downturn, as it was not until the 3rd and fourth quarters when it truly nosedived. Using the crest of calendar year more than 12 months market place progress throughout the country and the availability of ample credit rating and fairness resources, new construction and enlargement proliferated in latest a long time. These days, confronted with the realities of declining, or at best stagnant demand, many of these tasks are now deemed in excess of-leveraged and/or in excess of-sized. As a result numerous gaming companies are attempting to renegotiate their personal debt – produced far more challenging by reduced valuations – even though also paring down operational charges. The latter has turn into a extremely problematic conundrum when dealing with the competitors, specially in those jurisdictions that are now vying for industry shares with new rising on line casino assignments in neighboring places. A matter we discuss far more fully in the Point out by Condition investigation segment of this publication.
As a outcome of these circumstances the gaming business landscape is now strewn with impending fatalities. Among the more notable troubled companies are Station Casinos, Empire Resorts, Harrah’s Leisure, Greektown Holdings, Legends Gaming, Tropicana Amusement, Herbst Gaming and the listing grows each 7 days.
“How long will these financial conditions persist, and are we at the bottom but?” are queries no one particular seems to be answering nevertheless. What is distinct nonetheless is that most gaming jurisdictions will have to discover how to deal with a scaled-down pie.
This examination includes only gaming revenues of accredited casinos and pari-mutuel stores that offer you casino video games, and not Indian gaming functions, card rooms, or modest non-casino sort slot places. The whole report, like profits tables is offered on our world wide web web page.
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A key aspect that would seem to have arisen from the ashes of this recent trend is that many casino projects were just as well huge to assist on their own. The enter, in terms of expense dollars, was not proportional to the output, in phrases of internet profit right after financial debt provider, compared to formerly achieved final results. Far more and/or greater is not often better. Observing the rise in non-gaming income at the Las Vegas Strip resorts, gave impetus to the advancement of far more thorough features in a lot of other jurisdictions. The flaw in this strategy however is that the fees related with widening marketplace penetration and occasioned-use, are drastically higher than these incurred to appeal to the base market place.
As daytripper markets become a lot more aggressive, on line casino venues will have to depend much more and a lot more on their in-house resort patrons, and size their houses (and expectations) accordingly. Although Steve Wynn commenced a main trend in producing up-market mega-destinations, there simply was not sufficient demand on the Strip to warrant the several other comparable projects that followed that aimed at the very same niche.
The trick is to strike a content medium in undertaking configurations which of program need much less of a ‘seat-of-pants’ method, and 1 that is more studied. A shameless plug for growth consultants like ourselves.
Other Gaming Activities
Though there are no printed comprehensive information of American Indian gaming revenues, anecdotal evidence seems to recommend that this section has been as difficult hit as the Business sector. The two Connecticut Indian gaming installations report slot earnings of $one.6 billion in 2008, symbolizing a fall of about 7 %, or virtually $114 million, much more than doubling the three.5 per cent drop from the calendar year just before. This market place is apparently still reeling from the ripple-effect of a casino expansion in Rhode Island, and the opening of slot operations in New York and Pennsylvania.
The Arizona Department of Gaming reviews that contributions dependent on a gaming earnings formulation from the state’s 23 Indian gaming casinos, have been declining each and every quarter in 2008 when compared to the preceding calendar year lowering .eight percent in the first quarter, seven.5 percent in the next quarter, 9.5 % in the third quarter, and 16.one % in the fourth quarter.
Some SEC reporting Indian gaming properties report equivalent decreases. Seneca Gaming, which operates three Course III casinos in upstate New York, studies that even though calendar yr 2008 confirmed an nearly two per cent expansion fee in gaming revenues, there was an eight.7 % decline in the 3rd quarter and an practically ten % decrease in the fourth quarter of 2008, in contrast with 2007. Gaming earnings trends at close by Niagara Falls, Ontario have been down 1.5% in 2008 in comparison with 2007.
It’s been a mixed-bag for point out lotteries across the place. The North American Association of State & Provincial Lotteries studies that U.S. lotteries created a whole of $60.6 billion in product sales in fiscal 2008, up about three % from the previous calendar year nevertheless some jurisdictions described decreases, most notably California, which showed an eight p.c fall. Inasmuch as some of these states are on different fiscal 12 months finishes, it would appear that the data does not mirror the influence of third and/or fourth quarter results.
In accordance to information presented by Equibase, horse racing pari-mutuel revenues proceed their downward spiral, slipping seven per cent to $thirteen.7 billion in 2008, compared to $fourteen.7 billion in 2007.
Prepared & Proposed New Expansions
As previously noted, it has been new gaming jurisdictions that have spawned a lot of the expansion in annual casino/racino revenues over the several years, and their influence is apt to keep on into the near long term.
Miami Dade voters accredited a ballot problem that enables each of a few pari-mutuels to have a casino facility of up to two,000 slot devices. The Flagler Puppy Track and Miami Jai-Alai are reportedly preparing opening in late 2009 or early 2010, while the Calder set up in Miami Gardens has however to declared its ideas. There are several other proposals being considered that would even more grow on line casino development through the condition.
The condition ultimately received close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Amusement, LLC for a 1,200+ sport casino found in Des Plaines just east of O’Hare. The new facility is not likely to open up until finally 2010. There has also been some discussion about allowing an increase in per spot 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 permits for the growth of four casino gaming zones and slots at current horse and puppy tracks appears mired, as only a single facility is presently underneath building, although three other proposals had been 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 near to the point out line that its parking great deal is in Kansas. The Boot Hill On line casino Vacation resort in Dodge Town is planing a December 2009 opening with 575 slots and ten desk online games, alongside with a next section because of to open in 2011 with 875 slots and 20 table online games. The state has extended the software procedure for the other 3 zones till April, 2009.
There is even now a great deal of ‘jockeying’ heading on, but the prospect of as many as eight slot parlors and racinos appears to be back on the entrance-burner, but likely not resolved for the duration of the existing legislative session.
There are about fourteen,000 rooms scheduled to appear on line in 2009, with the most current becoming the 390 area M Vacation resort in Henderson. There are expansions underway at equally Caesars Palace and Challenging Rock and new hotels contain two components of the Metropolis Heart undertaking, and the Fountainebleau.
Pinnacle Entertainment’s new casino improvement initiatives in Baton Rouge and Lake Charles, even though delayed, are documented to still be on-observe for opening this year and/or early 2010.
There is a invoice underneath consideration that could a lot more than double Penn National’s slot machines to 3,000, as effectively as a proposal that would get rid of the restriction that slots be located in five miles of the monitor. Scarborough Downs, which has been unsuccessful in convincing neighborhood residents to enable slots, could be thinking about moving to a more hospitable city.
A referendum was authorized in November, 2008 that permits for the growth of five casinos with a complete of fifteen,000 slots, and now the bidding war is afoot even though it is not as powerful as the condition had anticipated.
Grand Soleil On line casino Resort in Natchez experienced been slated to open up in 2008, but has operate into numerous financing concerns and whilst the lodge part is open up, the riverboat is documented to open up in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, even though scaled back somewhat, is nonetheless on monitor to open up this yr.
Massachusetts, a sleeping-big in phrases of industry potential, is nonetheless maneuvering to open up casinos/racinos, and/or a Course III Indian gaming facility, but are not able to seem to muster the political help. A recent examine completed by Dartmouth College estimates that Massachusetts resident invested much more than $920 million final 12 months at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature just lately declined an option to develop casinos, nonetheless the subject is very likely to be revisited, particularly if Massachusetts decides to go forward. There are also attempts in Maine to rethink its possibilities.
Atlantic City’s casinos have imposed their political will on staving off the addition of slot machines at racetracks by lately agreeing to proceed augmenting purses with an added tax. The governor however, has appointed a new panel to study the state’s sagging racing software which ironically, can only be preserved by permitting the tracks to have slot equipment especially at the Meadowlands. (See The Nor’easter Squeeze section)
Just when it looked as if Aqueduct’s four,five hundred VLT facility would last but not least be created, the winning bidder indicated an lack of ability to make the essential $370 million price, citing the existing lending weather, and throwing the project again into the lap of the governor. Although the marketplace desire in the location could be regarded really sturdy, the prospect of extra competitiveness from nearby Belmont could have an affect on Aqueduct’s underlining financial feasibility, especially contemplating that a bit much less than 30% of the web get is retained by the operator.
Ideas to relocate Monticello Raceway into a resort complicated are becoming reconsidered possibly owing to equally the probable opening of at least 1 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.
Nevertheless another gaming proposal is getting put forth in Ohio, right after last year’s edition was turned down by the voters. This strategy phone calls for a single casino each in the state’s biggest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimal investment decision essential of $250 million, as effectively as an first licensing charge of $fifty million, and a 33 % tax on gaming profits.
The Sands in Bethlehem is due to open in the Spring of ’09, and the new Rivers venture in Pittsburgh is predicted to be operational in August, ’09 even though Philadelphia’s two slot facilities even now wallow in a political mire, but are predicted to start construction this year.
The Lodge at Deadwood is slated to open in the Slide of 2009, and consist of three hundred online games, one hundred forty rooms and a extensive variety of facilities.
Legislators are proposing a voter referendum that would amend the condition constitution to let on line casino gambling in designated regions, as effectively as permit gambling on American Indian lands in Texas and at present racetracks.
The Greenbriar, the state’s venerable resort facility has filed for individual bankruptcy, but has a new suitor in Marriott Resorts, who have reportedly tendered an offer. Point out authorities has proffered the idea of making it possible for the resort to offer casino video games, but this effort is in way too early a stage to have any traction one particular way or another.
A current Supreme Court ruling that restricts the using of lands into trust on behalf of federally regarded American Indian tribes has additional stymied some new Class III gaming projects throughout the country. Furthermore, there were eleven Indian on line casino initiatives turned down by the DOI previous calendar year simply because of its new rule that casinos have to be close to ample to a reservation that tribal customers can operate at them. It has been recommended that the new Obama administration might be more sympathetic to the growth of Indian gaming projects, but this issue has nevertheless to be dealt with.
Meanwhile, there are other Class III initiatives in the various levels of improvement. The Seneca casino venture in Buffalo, NY, although running a small short term facility, has delayed an presently beneath development long term facility until the marketplace rebounds. They have also expressed an desire in creating a casino in the Catskills. The point out gaming compact with Seminoles in Florida is becoming challenged, and could influence their strategies for bigger projects. There are new Indian gaming tasks set to open in Michigan and Oklahoma this calendar year, and others are in the organizing stage. Texas might permit the reopening of Indian gaming services and permit other venue and there are plans afoot by the Navajos in Arizona to construct additional casinos. California is poised to open two to three new Class III casinos in 2009/10.
The Nor’easter Squeeze
Whole gaming revenue in Atlantic City has declined seven.six percent, from $4.9 billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the town is finding by itself in an intense comp-war with the Pennsylvania venues. At a single time the only casinos in the Northeast ended up located in Atlantic Metropolis, exactly where it appeared as if it may actually even eclipse the Las Vegas Strip’s annual gaming revenues.
Little by little however its market place share was being encroached on, first by the development of a huge Course III gaming procedure in Connecticut, and then an additional slots functions in Rhode Island, and then video clip lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most recently Pennsylvania.
Now, with the prepared opening of slot functions in Maryland, the impending opening of a new on line casino in Bethlehem, PA, and eventually two operations in Philadelphia, the noose is tightening close to Atlantic City’s potential potential clients. It’s reliance on working day-trippers lulled it into a fake sense of security, and it now finds itself possessing to redefine its mission assertion to “spot resort.”
The only dilemma with this technique however is that it is unwell-equipped to pull it off. For all intents and purposes, Atlantic Metropolis is below-roomed and/or in excess of-gamed. There is merely not adequate day-tripper industry to go about, and their successful investing area is tightening, as the peripheral populations northward now/will have far more ready 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 access, the city’s only true competitive benefits are its hotel potential and the availability of desk video games, despite the fact that the latter is probably to eventuate in Pennsylvania, and possibly Delaware. In get to adequately compete as a spot vacation resort the metropolis needs to create further guest rooms and not automatically gaming capability. By comparison, the Las Vegas Strip houses – true gaming locations, in that they do not have a lot of a working day-journey marketplace, other than for the ‘locals’ – have an common of .87 gaming positions per guest room even though Atlantic City’s regular is 2.seventy four positions per guest room.
It is not a coincidence that Atlantic City’s two largest resorts, the Borgata and Harrah’s Marina, both of which additional new rooms in 2008, had been the least impacted by the latest downturn. The Borgata skilled a gaming revenue drop of 1.six percent, although Harrah’s Marina noted a 4.nine percent boost when compared to 2007. Additionally, the toughest hit 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 steady increase in gaming revenues by way of 2006, the town appeared prime for more growth, which precipitated arranging for 4 new resort projects, each and every of which have now been indefinitely delayed. Revel Amusement Group’s $2.5 billion venture stays an iron skeleton, Pinnacle Leisure has introduced it might seek out to sell its razed Sands website, MGM Mirage has shelved its casino ideas, and Penn Countrywide appears to have stopped its pursuit of the Bader Area airport website.