2008 Nationwide Industrial Casino & Racino Gaming Profits Analysis

A Period of time of Adjustment

Oops! That big hissing seem is the gaming balloon that experienced been developing above the a long time, slowly and gradually getting rid of air. But, it has not been a tide that decreased all ships nonetheless, as some rising and increasing gaming jurisdictions confirmed sturdy expansion in 2008.

All round, the business and racetrack casino sectors (excluding Indian gaming), seasoned a three.5 p.c decrease in gaming revenues for 2008, generating a whole of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they confirmed a acquire of almost $1 billion in 2008, therefore bringing the Professional sector industry decline to $1.8 billion, or six.7 p.c. Nevada was the greatest loser in 2008, dropping nearly $1.three billion, much more than 50 percent of which stemmed from the Las Vegas Strip phase.

Hunkering Down

For the most portion, on line casino operators were caught comparatively flat-footed by the extent of the 2008 revenue downturn, as it was not right up until the 3rd and fourth quarters when it genuinely nosedived. Using the crest of year more than year marketplace growth throughout the place and the availability of sufficient credit history and fairness money, new building and expansion proliferated in current several years. Nowadays, confronted with the realities of declining, or at greatest stagnant demand from customers, several of these tasks are now regarded as in excess of-leveraged and/or above-sized. As a result a lot of gaming organizations are making an attempt to renegotiate their debt – created a lot more tough by reduce valuations – while also paring down operational expenses. The latter has grow to be a extremely problematic conundrum when working with the competitiveness, particularly in those jurisdictions that are now vying for market place shares with new emerging on line casino assignments in neighboring places. A subject we examine a lot more completely in the Point out by State investigation section of this publication.

As a consequence of these conditions the gaming industry landscape is now strewn with impending fatalities. Among the a lot more notable troubled corporations are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Leisure, Herbst Gaming and the list grows each and every 7 days.

“How prolonged will these economic circumstances persist, and are we at the base but?” are concerns no a single seems to be answering but. What is obvious however is that most gaming jurisdictions will have to learn how to deal with a smaller pie.

This examination involves only gaming revenues of accredited casinos and pari-mutuel outlets that supply on line casino video games, and not Indian gaming operations, card rooms, or small non-on line casino sort slot locations. The whole post, like earnings tables is accessible on our net website page.

Input/Output Model

A key element that would seem to have arisen from the ashes of this existing development is that numerous on line casino projects have been just too large to assist on their own. The input, in conditions of expense dollars, was not proportional to the output, in conditions of web earnings following financial debt services, in comparison to formerly attained outcomes. A lot more and/or even bigger is not often much better. Viewing the rise in non-gaming profits at the Las Vegas Strip resorts, gave impetus to the growth of more extensive features in a lot of other jurisdictions. The flaw in this technique even so is that the fees linked with widening marketplace penetration and occasioned-use, are considerably increased than individuals incurred to entice the base marketplace.

As daytripper markets become more competitive, casino venues will have to rely more and far more on their in-residence resort patrons, and dimension their houses (and anticipations) accordingly. While Steve Wynn started out a main craze in producing up-industry mega-places, there basically was not enough need on the Strip to warrant the many other related initiatives that adopted that aimed at the very same niche.

The trick is to strike a pleased medium in project configurations which of program call for less of a ‘seat-of-pants’ strategy, and 1 that is far more studied. A shameless plug for growth consultants like ourselves.

Other Gaming Routines

Though there are no published in depth info of American Indian gaming revenues, anecdotal proof appears to advise that this section has been as tough strike as the Commercial sector. The two Connecticut Indian gaming installations report slot income of $one.six billion in 2008, representing a drop of about 7 %, or virtually $114 million, more than doubling the 3.five per cent fall from the yr before. This market is apparently still reeling from the ripple-influence of a casino enlargement in Rhode Island, and the opening of slot operations in New York and Pennsylvania.

The Arizona Department of Gaming reports that contributions primarily based on a gaming profits formula from the state’s 23 Indian gaming casinos, have been declining every single quarter in 2008 compared to the preceding yr decreasing .eight p.c in the very first quarter, 7.five p.c in the next quarter, 9.5 % in the 3rd quarter, and 16.1 p.c in the fourth quarter.

Some SEC reporting Indian gaming homes report similar decreases. Seneca Gaming, which operates 3 Class III casinos in upstate New York, studies that while calendar calendar year 2008 confirmed an nearly two per cent growth rate in gaming revenues, there was an 8.7 per cent decline in the 3rd quarter and an almost ten percent drop in the fourth quarter of 2008, in contrast with 2007. Gaming earnings developments at close by Niagara Falls, Ontario had been down 1.five% in 2008 in comparison with 2007.

It is been a combined-bag for state lotteries throughout the country. The North American Association of Point out & Provincial Lotteries reports that U.S. lotteries produced a complete of $60.6 billion in product sales in fiscal 2008, up about 3 per cent from the earlier calendar year but some jurisdictions documented decreases, most notably California, which showed an 8 percent drop. Inasmuch as some of these states are on different fiscal calendar year finishes, it would seem to be that the information does not mirror the affect of third and/or fourth quarter final results.

According to info offered by Equibase, horse racing pari-mutuel revenues proceed their downward spiral, falling 7 percent to $thirteen.seven billion in 2008, as opposed to $14.7 billion in 2007.

Prepared & Proposed New Expansions

As beforehand noted, it has been new gaming jurisdictions that have spawned significantly of the expansion in annual on line casino/racino revenues above the several years, and their influence is apt to keep on into the near foreseeable future.

Miami Dade voters approved a ballot concern that makes it possible for every single of a few pari-mutuels to have a on line casino facility of up to two,000 slot machines. The Flagler Dog Track and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, although the Calder installation in Miami Gardens has however to introduced its ideas. There are numerous other proposals getting regarded as that would more broaden on line casino development throughout the state.

The condition ultimately got about to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a one,two hundred+ match casino located in Des Plaines just east of O’Hare. The new facility is not likely to open right up until 2010. There has also been some dialogue about enabling an improve in per location 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 allows for the improvement of four on line casino gaming zones and slots at current horse and pet tracks appears mired, as only 1 facility is presently beneath design, although 3 other proposals have been rescinded. The only bidder on the Cherokee County deal, claimed it could not contend with the new Quapaw tribal on line casino in Oklahoma, which is positioned so shut to the point out line that its parking good deal is in Kansas. The Boot Hill On line casino Vacation resort in Dodge Metropolis is planing a December 2009 opening with 575 slots and 10 table games, together with a 2nd period due to open in 2011 with 875 slots and 20 table game titles. The state has extended the software method for the other 3 zones until finally April, 2009.

There is even now a lot of ‘jockeying’ heading on, but the prospect of as several as 8 slot parlors and racinos seems to be back on the front-burner, but likely not fixed in the course of the recent legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to appear on line in 2009, with the most latest becoming the 390 place M Resort in Henderson. There are expansions underway at both Caesars Palace and Challenging Rock and new accommodations include two factors of the City Middle task, and the Fountainebleau.

Pinnacle Entertainment’s new casino advancement initiatives in Baton Rouge and Lake Charles, whilst delayed, are reported to nonetheless be on-monitor for opening this yr and/or early 2010.

There is a monthly bill under consideration that could far more than double Penn National’s slot machines to 3,000, as nicely as a proposal that would remove the restriction that slots be situated inside of five miles of the track. Scarborough Downs, which has been unsuccessful in convincing regional residents to allow slots, may possibly be considering relocating to a much more hospitable city.

A referendum was accepted in November, 2008 that makes it possible for for the improvement of five casinos with a whole of 15,000 slots, and now the bidding war is afoot though it is not as intensive as the condition had expected.

Grand Soleil Casino Resort in Natchez experienced been slated to open in 2008, but has run into various funding problems and whilst the lodge part is open, the riverboat is documented to open in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, although scaled back considerably, is nonetheless on observe to open this calendar year.

New England
Massachusetts, a sleeping-large in terms of industry possible, is nevertheless maneuvering to open up casinos/racinos, and/or a Class III Indian gaming facility, but are not able to appear to muster the political support. A modern review finished by Dartmouth College estimates that Massachusetts resident put in a lot more than $920 million last yr at Connecticut casinos and slot equipment parlors in Rhode Island and Maine. The New Hampshire legislature recently declined an selection to build casinos, however the topic is most likely to be revisited, particularly 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 machines at racetracks by just lately agreeing to proceed augmenting purses with an further tax. The governor nevertheless, 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 equipment specifically at the Meadowlands. (See Woori Casinoda Squeeze part)

New York
Just when it appeared as if Aqueduct’s 4,five hundred VLT facility would lastly be produced, the successful bidder indicated an incapacity to make the required $370 million fee, citing the recent lending local weather, and throwing the project again into the lap of the governor. Despite the fact that the market demand from customers in the area could be considered fairly robust, the prospect of additional opposition from close by Belmont could have an effect on Aqueduct’s underlining economic feasibility, specially thinking about that a bit less than thirty% of the web acquire 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 the very least one or probably two racino operations in the NY metro area, and the resurfacing of initiatives to development a Class III Indian gaming facility in the Catskills.

Yet an additional gaming proposal is becoming set forth in Ohio, right after last year’s edition was turned down by the voters. This plan calls for a single casino every single in the state’s premier cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a least expense essential of $250 million, as nicely as an preliminary licensing price of $50 million, and a 33 per cent tax on gaming profits.

The Sands in Bethlehem is thanks to open up in the Spring of ’09, and the new Rivers undertaking in Pittsburgh is expected to be operational in August, ’09 while Philadelphia’s two slot amenities nonetheless wallow in a political mire, but are predicted to start off construction this yr.

South Dakota
The Lodge at Deadwood is slated to open in the Tumble of 2009, and contain 300 games, 140 rooms and a extensive selection of amenities.

Legislators are proposing a voter referendum that would amend the state constitution to let on line casino gambling in specified areas, as effectively as permit gambling on American Indian lands in Texas and at current racetracks.

West Virginia
The Greenbriar, the state’s venerable resort facility has submitted for individual bankruptcy, but has a new suitor in Marriott Hotels, who have reportedly tendered an offer you. Condition govt has proffered the notion of enabling the vacation resort to supply casino game titles, but this work is in way too early a stage to have any traction one particular way or an additional.

Indian Gaming
A recent Supreme Court ruling that restricts the using of lands into trust on behalf of federally regarded American Indian tribes has further stymied some new Class III gaming initiatives across the country. Furthermore, there ended up eleven Indian casino projects turned down by the DOI final calendar year simply because of its new rule that casinos need to be close to adequate to a reservation that tribal customers can operate at them. It has been proposed that the new Obama administration may well be a lot more sympathetic to the development of Indian gaming projects, but this concern has yet to be dealt with.

In the meantime, there are other Class III assignments in the a variety of levels of growth. The Seneca on line casino project in Buffalo, NY, although functioning a modest momentary facility, has delayed an currently beneath building long lasting facility right up until the market rebounds. They have also expressed an desire in establishing a casino in the Catskills. The point out gaming compact with Seminoles in Florida is getting challenged, and could affect their ideas for more substantial assignments. There are new Indian gaming tasks established to open in Michigan and Oklahoma this 12 months, and other individuals are in the preparing stage. Texas could allow the reopening of Indian gaming facilities and enable other location and there are strategies afoot by the Navajos in Arizona to build additional casinos. California is poised to open two to a few new Course III casinos in 2009/10.

The Nor’easter Squeeze

Total gaming profits in Atlantic Town has declined seven.6 %, from $4.9 billion in 2007 to $four.5 billion in 2008 with decreases continuing into 2009, as the city is obtaining itself in an intense comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast had been positioned in Atlantic Town, exactly where it appeared as if it may actually even eclipse the Las Vegas Strip’s once-a-year gaming revenues.

Little by little nonetheless its market place share was becoming encroached upon, 1st by the development of a huge Class III gaming operation in Connecticut, and then yet another slots functions in Rhode Island, and then video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most not too long ago Pennsylvania.

Now, with the prepared opening of slot operations in Maryland, the impending opening of a new casino in Bethlehem, PA, and sooner or later two operations in Philadelphia, the noose is tightening around Atlantic City’s future potential clients. It truly is reliance on day-trippers lulled it into a bogus feeling of protection, and it now finds itself having to redefine its mission assertion to “destination resort.”

The only problem with this technique however is that it is ill-geared up to pull it off. For all intents and purposes, Atlantic Town is below-roomed and/or more than-gamed. There is simply not enough day-tripper market place to go close to, and their powerful trading location is tightening, as the peripheral populations northward now/will have a lot more ready obtain to a widened supply in New York (Yonkers, and quickly 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 genuine aggressive benefits are its hotel potential and the availability of desk online games, although the latter is likely to eventuate in Pennsylvania, and perhaps Delaware. In purchase to adequately contend as a destination vacation resort the city requirements to build added guest rooms and not automatically gaming capability. By comparison, the Las Vegas Strip houses – correct gaming locations, in that they do not have much of a working day-vacation market, apart from for the ‘locals’ – have an regular of .87 gaming positions per guest place whilst Atlantic City’s average is two.seventy four positions per guest place.

It is not a coincidence that Atlantic City’s two premier resorts, the Borgata and Harrah’s Marina, equally of which added new rooms in 2008, had been the minimum impacted by the latest downturn. The Borgata seasoned a gaming profits drop of 1.6 per cent, whilst Harrah’s Marina documented a 4.9 % enhance in comparison to 2007. Additionally, the hardest hit venues, particularly 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, such as the the Trump homes and Resorts with the hoped for sale of the Tropicana has been more delayed, and losing valuation.

With a continual rise in gaming revenues by way of 2006, the city appeared prime for even more advancement, which precipitated arranging for four new resort assignments, each of which have now been indefinitely delayed. Revel Entertainment Group’s $two.5 billion undertaking continues to be an iron skeleton, Pinnacle Entertainment has announced it might seek out to market its razed Sands website, MGM Mirage has shelved its casino strategies, and Penn Countrywide appears to have stopped its pursuit of the Bader Subject airport website.

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