2008 National Business Casino & Racino Gaming Income Evaluation

A Period of Adjustment

Oops! That giant hissing seem is the gaming balloon that experienced been growing over the several years, slowly and gradually shedding air. But, it has not been a tide that lowered all ships however, as some rising and growing gaming jurisdictions showed strong expansion in 2008.

General, the business and racetrack on line casino sectors (excluding Indian gaming), knowledgeable a three.five percent decrease in gaming revenues for 2008, creating a whole of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they showed a gain of almost $one billion in 2008, thus bringing the Business sector industry decline to $one.eight billion, or 6.seven %. Nevada was the most significant loser in 2008, dropping practically $one.three billion, more than half of which stemmed from the Las Vegas Strip section.

Hunkering Down

For the most portion, casino operators ended up caught relatively flat-footed by the extent of the 2008 revenue downturn, as it was not until the third and fourth quarters when it genuinely nosedived. Riding the crest of yr more than year industry expansion throughout the place and the availability of enough credit history and equity resources, new design and growth proliferated in recent years. Today, faced with the realities of declining, or at very best stagnant demand, a lot of of these assignments are now regarded more than-leveraged and/or over-sized. As a result several gaming organizations are attempting to renegotiate their financial debt – manufactured much more hard by decrease valuations – while also paring down operational charges. The latter has turn out to be a very problematic conundrum when working with the competition, specially in individuals jurisdictions that are now vying for market shares with new emerging on line casino initiatives in neighboring locations. A subject we go over more fully in the State by State evaluation part of this publication.

As a result of these situations the gaming sector landscape is now strewn with impending fatalities. Among the more noteworthy troubled companies are Station Casinos, Empire Resorts, Harrah’s Leisure, Greektown Holdings, Legends Gaming, Tropicana Amusement, Herbst Gaming and the checklist grows each week.

“How lengthy will these economic problems persist, and are we at the base but?” are questions no one seems to be answering however. What is very clear even so is that most gaming jurisdictions will have to learn how to deal with a scaled-down pie.

Observe:
This analysis involves only gaming revenues of accredited casinos and pari-mutuel outlets that offer on line casino games, and not Indian gaming functions, card rooms, or modest non-on line casino type slot locations. The complete article, including income tables is available on our world wide web website page.

Input/Output Design

A crucial factor that appears to have arisen from the ashes of this recent development is that numerous casino tasks have been just way too big to assist themselves. The enter, in terms of expenditure pounds, was not proportional to the output, in terms of web earnings following debt service, compared to beforehand accomplished final results. Much more and/or larger is not always greater. Looking at the increase in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the development of a lot more extensive amenities in several other jurisdictions. The flaw in this strategy even so is that the charges linked with widening market penetration and occasioned-use, are considerably larger than people incurred to attract the base industry.

As daytripper markets grow to be more aggressive, on line casino venues will have to rely much more and a lot more on their in-house lodge patrons, and dimension their homes (and expectations) accordingly. While Steve Wynn began a significant trend in creating up-industry mega-locations, there simply was not ample need on the Strip to warrant the many other related initiatives that followed that aimed at the same market.

The trick is to strike a content medium in task configurations which of program call for less of a ‘seat-of-pants’ approach, and one that is much more studied. A shameless plug for development consultants like ourselves.

Other Gaming Activities

Although there are no published comprehensive data of American Indian gaming revenues, anecdotal evidence appears to suggest that this phase has been as hard strike as the Industrial sector. The two Connecticut Indian gaming installations report slot profits of $one.six billion in 2008, representing a drop of about 7 p.c, or nearly $114 million, far more than doubling the 3.5 per cent drop from the calendar year just before. This industry is evidently nevertheless reeling from the ripple-effect of a on line casino enlargement in Rhode Island, and the opening of slot operations in New York and Pennsylvania.

The Arizona Section of Gaming studies that contributions primarily based on a gaming revenue formula from the state’s 23 Indian gaming casinos, have been declining each and every quarter in 2008 when compared to the prior 12 months lowering .eight percent in the very first quarter, seven.5 per cent in the 2nd quarter, nine.five p.c in the third quarter, and sixteen.1 p.c in the fourth quarter.

Some SEC reporting Indian gaming properties report comparable decreases. Seneca Gaming, which operates a few Class III casinos in upstate New York, studies that while calendar yr 2008 confirmed an practically 2 % development fee in gaming revenues, there was an eight.seven % decline in the third quarter and an practically ten % decline in the fourth quarter of 2008, in comparison with 2007. Gaming earnings traits at close by Niagara Falls, Ontario had been down 1.five% in 2008 in comparison with 2007.

It is been a mixed-bag for condition lotteries across the place. The North American Association of State & Provincial Lotteries studies that U.S. lotteries produced a total of $sixty.6 billion in product sales in fiscal 2008, up about 3 % from the previous calendar year yet some jurisdictions reported decreases, most notably California, which showed an 8 % fall. Inasmuch as some of these states are on numerous fiscal 12 months finishes, it would appear that the data does not mirror the impact of 3rd and/or fourth quarter final results.

In accordance to knowledge offered by Equibase, horse racing pari-mutuel revenues proceed their downward spiral, slipping seven % to $13.7 billion in 2008, vs . $14.7 billion in 2007.

Prepared & Proposed New Expansions

As formerly observed, it has been new gaming jurisdictions that have spawned considerably of the progress in annual on line casino/racino revenues above the a long time, and their influence is apt to carry on into the in close proximity to future.

Florida
Miami Dade voters accredited a ballot issue that allows each of 3 pari-mutuels to have a on line casino facility of up to two,000 slot machines. The Flagler Puppy Monitor and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, while the Calder set up in Miami Gardens has however to introduced its programs. There are many other proposals being considered that would more broaden casino advancement all through the point out.

Illinois
The state last but not least acquired about to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a 1,200+ game on line casino located in Des Plaines just east of O’Hare. The new facility is not probably to open till 2010. There has also been some discussion about allowing an increase in for each place gaming positions and slots at racetracks, despite the fact that neither initiative seems to have any traction at this time.

Kansas
The state’s expanded lottery program that makes it possible for for the advancement of four on line casino gaming zones and slots at existing horse and puppy tracks seems mired, as only one facility is presently under building, even though three other proposals ended up rescinded. The only bidder on the Cherokee County agreement, claimed it could not contend with the new Quapaw tribal on line casino in Oklahoma, which is located so close to the state line that its parking good deal is in Kansas. The Boot Hill Casino Resort in Dodge City is planing a December 2009 opening with 575 slots and ten table online games, together with a 2nd phase because of to open in 2011 with 875 slots and 20 table game titles. The condition has extended the application method for the other 3 zones right up until April, 2009.

Kentucky
There is still a whole lot of ‘jockeying’ heading on, but the prospect of as a lot of as 8 slot parlors and racinos appears to be back on the entrance-burner, but most likely not fixed for the duration of the present legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to appear on line in 2009, with the most recent currently being the 390 room M Resort in Henderson. There are expansions underway at the two Caesars Palace and Hard Rock and new hotels contain two components of the Metropolis Heart venture, and the Fountainebleau.

Louisiana
Pinnacle Entertainment’s new casino improvement initiatives in Baton Rouge and Lake Charles, even though delayed, are reported to nevertheless be on-track for opening this year and/or early 2010.

Maine
There is a invoice underneath thought that could a lot more than double Penn National’s slot machines to 3,000, as properly as a proposal that would remove the restriction that slots be positioned within five miles of the observe. Scarborough Downs, which has been unsuccessful in convincing local people to enable slots, may possibly be contemplating transferring to a much more hospitable town.

Maryland
A referendum was authorized in November, 2008 that permits for the growth of five casinos with a complete of 15,000 slots, and now the bidding war is afoot despite the fact that it is not as intensive as the point out experienced anticipated.

Mississippi
Grand Soleil Casino Resort in Natchez had been slated to open in 2008, but has run into different funding troubles and although the lodge portion is open, the riverboat is described to open in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, even though scaled back again considerably, is nonetheless on observe to open this 12 months.

New England
Massachusetts, a sleeping-large in phrases of industry possible, is even now maneuvering to open up casinos/racinos, and/or a Class III Indian gaming facility, but can not seem to muster the political support. A latest examine completed by Dartmouth College estimates that Massachusetts resident invested a lot more than $920 million last 12 months at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature recently declined an alternative to produce casinos, however the subject is very likely to be revisited, specially if Massachusetts decides to go ahead. There are also makes an attempt in Maine to rethink its alternatives.

New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot machines at racetracks by recently agreeing to continue augmenting purses with an added tax. The governor however, has appointed a new panel to review the state’s sagging racing system which ironically, can only be preserved by permitting the tracks to have slot devices specially at the Meadowlands. (See The Nor’easter Squeeze segment)

New York
Just when it looked as if Aqueduct’s four,500 VLT facility would finally be developed, the successful bidder indicated an incapability to make the required $370 million fee, citing the recent lending local climate, and throwing the project back into the lap of the governor. Despite the fact that the market demand in the spot could be considered fairly powerful, the prospect of additional competitiveness from close by Belmont could have an effect on Aqueduct’s underlining financial feasibility, especially taking into consideration that slightly considerably less than 30% of the web get is retained by the operator.

Ideas to relocate Monticello Raceway into a vacation resort sophisticated are becoming reconsidered maybe owing to equally the possible opening of at the very least 1 or possibly two racino functions in the NY metro location, and the resurfacing of initiatives to growth a Course III Indian gaming facility in the Catskills.

Ohio
However another gaming proposal is currently being set forth in Ohio, soon after last year’s variation was turned down by the voters. This strategy phone calls for one particular casino every in the state’s largest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimum investment required of $250 million, as nicely as an first licensing charge of $fifty million, and a 33 p.c tax on gaming earnings.

Pennsylvania
The Sands in Bethlehem is due 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 services nonetheless wallow in a political mire, but are expected to commence design this year.

South Dakota
The Lodge at Deadwood is slated to open in the Tumble of 2009, and incorporate three hundred game titles, a hundred and forty rooms and a extensive assortment of facilities.

Texas
Legislators are proposing a voter referendum that would amend the condition structure to enable on line casino gambling in designated regions, as properly as permit gambling on American Indian lands in Texas and at present racetracks.

West Virginia
The Greenbriar, the state’s venerable vacation resort facility has submitted for bankruptcy, but has a new suitor in Marriott Lodges, who have reportedly tendered an offer you. Condition government has proffered the notion of allowing the resort to supply on line casino online games, but this effort is in also early a stage to have any traction 1 way or an additional.

Indian Gaming
A modern Supreme Court docket ruling that restricts the taking of lands into have faith in on behalf of federally recognized American Indian tribes has further stymied some new Course III gaming projects across the place. Furthermore, there had been eleven Indian on line casino initiatives rejected by the DOI previous year because of its new rule that casinos must be near sufficient to a reservation that tribal members can operate at them. It has been advised that the new Obama administration may well be far more sympathetic to the growth of Indian gaming initiatives, but this situation has however to be resolved.

In the meantime, there are other Class III assignments in the various levels of improvement. The Seneca casino undertaking in Buffalo, NY, although working a little short term facility, has delayed an presently below building permanent facility right up until the industry rebounds. They have also expressed an curiosity in creating a on line casino in the Catskills. The condition gaming compact with Seminoles in Florida is currently being challenged, and could influence their plans for bigger projects. There are new Indian gaming projects set to open up in Michigan and Oklahoma this calendar year, and others are in the preparing stage. Texas might enable the reopening of Indian gaming services and allow other venue and there are ideas afoot by the Navajos in Arizona to assemble further casinos. California is poised to open two to a few new Course III casinos in 2009/10.

The Nor’easter Squeeze

Overall gaming income in Atlantic Town has declined seven.six per cent, from $4.nine billion in 2007 to $4.five billion in 2008 with decreases continuing into 2009, as the city is discovering itself in an powerful comp-war with the Pennsylvania venues. At one time the only casinos in the Northeast had been located in Atlantic Town, in which it looked as if it might in fact even eclipse the Las Vegas Strip’s annual gaming revenues.

Slowly and gradually nevertheless its industry share was getting encroached upon, very first by the development of a huge Class III gaming procedure in Connecticut, and then another slots operations in Rhode Island, and then online video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most just lately Pennsylvania.

Now, with the prepared opening of slot operations 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 around Atlantic City’s future prospective customers. www.bkwooricasino.com is reliance on working day-trippers lulled it into a untrue sense of security, and it now finds by itself getting to redefine its mission statement to “location vacation resort.”

The only dilemma with this technique nevertheless is that it is sick-geared up to pull it off. For all intents and reasons, Atlantic Town is beneath-roomed and/or over-gamed. There is merely not ample working day-tripper market place to go around, and their powerful buying and selling area is tightening, as the peripheral populations northward now/will have more completely ready access to a widened offer in New York (Yonkers, and shortly at Aqueduct and perhaps Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean accessibility, the city’s only genuine aggressive advantages are its resort ability and the availability of desk online games, despite the fact that the latter is most likely to eventuate in Pennsylvania, and potentially Delaware. In get to sufficiently contend as a spot vacation resort the town needs to build added visitor rooms and not always gaming ability. By comparison, the Las Vegas Strip qualities – true gaming places, in that they do not have considerably of a working day-trip market, apart from for the ‘locals’ – have an regular of .87 gaming positions for every visitor room although Atlantic City’s common is two.seventy four positions per guest room.

It is not a coincidence that Atlantic City’s two greatest accommodations, the Borgata and Harrah’s Marina, the two of which additional new rooms in 2008, ended up the the very least impacted by the most current downturn. The Borgata seasoned a gaming profits fall of 1.six percent, whilst Harrah’s Marina reported a four.nine % increase when compared to 2007. Furthermore, the toughest strike venues, particularly the AC Hilton, Resorts and the Trump Marina, also have the smallest number of rooms. In the meantime some of the venues are teetering on viability, including the the Trump homes and Resorts with the hoped for sale of the Tropicana has been additional delayed, and losing valuation.

With a regular increase in gaming revenues by means of 2006, the metropolis seemed primary for more development, which precipitated preparing for 4 new resort initiatives, every of which have now been indefinitely delayed. Revel Leisure Group’s $two.5 billion venture continues to be an iron skeleton, Pinnacle Leisure has introduced it may seek out to market its razed Sands internet site, MGM Mirage has shelved its casino strategies, and Penn Countrywide seems to have stopped its pursuit of the Bader Discipline airport website.

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