A Period of Adjustment
Oops! That large hissing sound is the gaming balloon that experienced been growing more than the years, little by little getting rid of air. But, it has not been a tide that decreased all ships nevertheless, as some emerging and expanding gaming jurisdictions confirmed strong expansion in 2008.
Overall, the professional and racetrack on line casino sectors (excluding Indian gaming), seasoned a three.5 percent drop in gaming revenues for 2008, generating a complete of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they confirmed a gain of virtually $1 billion in 2008, thereby bringing the Business sector marketplace drop to $one.eight billion, or 6.seven %. Nevada was the greatest loser in 2008, dropping nearly $one.3 billion, a lot more than fifty percent of which stemmed from the Las Vegas Strip phase.
For the most portion, casino operators were caught fairly flat-footed by the extent of the 2008 profits downturn, as it was not until finally the third and fourth quarters when it really nosedived. Driving the crest of yr above year industry progress across the nation and the availability of enough credit and equity funds, new design and expansion proliferated in recent a long time. Right now, confronted with the realities of declining, or at best stagnant demand from customers, numerous of these assignments are now regarded as in excess of-leveraged and/or in excess of-sized. As a outcome several gaming businesses are attempting to renegotiate their credit card debt – manufactured much more hard by lower valuations – although also paring down operational fees. The latter has turn out to be a extremely problematic conundrum when dealing with the competition, specially in these jurisdictions that are now vying for industry shares with new rising on line casino assignments in neighboring regions. A subject matter we talk about much more fully in the Condition by State investigation segment of this publication.
As a end result of these conditions the gaming market landscape is now strewn with impending fatalities. Among the a lot more noteworthy troubled corporations are Station Casinos, Empire Resorts, Harrah’s Enjoyment, Greektown Holdings, Legends Gaming, Tropicana Entertainment, Herbst Gaming and the checklist grows each and every week.
“How extended will these financial circumstances persist, and are we at the bottom however?” are concerns no 1 seems to be answering nevertheless. What is very clear nonetheless is that most gaming jurisdictions will have to learn how to offer with a more compact pie.
This investigation involves only gaming revenues of licensed casinos and pari-mutuel stores that supply casino online games, and not Indian gaming functions, card rooms, or small non-on line casino kind slot spots. The total post, which includes revenue tables is accessible on our web website page.
A crucial facet that appears to have arisen from the ashes of this recent trend is that many on line casino assignments ended up just too huge to assist them selves. The enter, in terms of expense pounds, was not proportional to the output, in terms of internet profit following debt provider, compared to formerly achieved final results. Far more and/or bigger is not often far better. Seeing the rise in non-gaming income at the Las Vegas Strip resorts, gave impetus to the growth of much more comprehensive amenities in numerous other jurisdictions. The flaw in this technique nevertheless is that the charges associated with widening marketplace penetration and occasioned-use, are significantly greater than people incurred to appeal to the foundation industry.
As daytripper marketplaces turn into more competitive, casino venues will have to count more and more on their in-property lodge patrons, and size their qualities (and anticipations) accordingly. While Steve Wynn started a key development in generating up-market mega-places, there simply was not enough demand from customers on the Strip to warrant the a lot of other related assignments that adopted that aimed at the exact same market.
The trick is to strike a satisfied medium in venture configurations which of system demand considerably less of a ‘seat-of-pants’ approach, and one particular that is more analyzed. A shameless plug for improvement consultants like ourselves.
Other Gaming Actions
Despite the fact that there are no printed comprehensive data of American Indian gaming revenues, anecdotal proof appears to advise that this segment has been as tough hit as the Industrial sector. The two Connecticut Indian gaming installations report slot earnings of $1.6 billion in 2008, symbolizing a fall of about seven p.c, or almost $114 million, more than doubling the 3.five percent fall from the calendar year just before. This marketplace is evidently nonetheless reeling from the ripple-result of a casino enlargement in Rhode Island, and the opening of slot functions in New York and Pennsylvania.
The Arizona Section of Gaming stories that contributions dependent on a gaming revenue system from the state’s 23 Indian gaming casinos, have been declining every single quarter in 2008 when compared to the previous calendar year reducing .eight percent in the first quarter, 7.5 p.c in the second quarter, nine.five per cent in the 3rd quarter, and 16.one p.c in the fourth quarter.
Some SEC reporting Indian gaming homes report equivalent decreases. Seneca Gaming, which operates three Course III casinos in upstate New York, studies that while calendar calendar year 2008 confirmed an practically two % development price in gaming revenues, there was an 8.seven p.c drop in the 3rd quarter and an almost ten per cent drop in the fourth quarter of 2008, when compared with 2007. Gaming income traits at nearby Niagara Falls, Ontario ended up down 1.five% in 2008 when compared with 2007.
It is been a blended-bag for point out lotteries throughout the nation. The North American Association of State & Provincial Lotteries studies that U.S. lotteries produced a whole of $60.six billion in income in fiscal 2008, up about 3 % from the earlier calendar year but some jurisdictions documented decreases, most notably California, which showed an 8 % drop. Inasmuch as some of these states are on a variety of fiscal year ends, it would appear that the data does not mirror the impact of third and/or fourth quarter final results.
According to information supplied by Equibase, horse racing pari-mutuel revenues proceed their downward spiral, falling seven % to $13.7 billion in 2008, as opposed to $14.7 billion in 2007.
Prepared & Proposed New Expansions
As previously observed, it has been new gaming jurisdictions that have spawned a lot of the growth in annual casino/racino revenues in excess of the several years, and their impact is apt to keep on into the near future.
Miami Dade voters accepted a ballot situation that makes it possible for each and every of 3 pari-mutuels to have a on line casino facility of up to 2,000 slot equipment. The Flagler Puppy Observe and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, even though the Calder installation in Miami Gardens has yet to introduced its plans. There are several other proposals being considered that would additional broaden on line casino advancement throughout the point out.
The condition lastly obtained all around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Leisure, LLC for a one,two hundred+ game casino located in Des Plaines just east of O’Hare. The new facility is not very likely to open until 2010. There has also been some dialogue about allowing an increase in for each area gaming positions and slots at racetracks, though neither initiative seems to have any traction at this time.
The state’s expanded lottery program that allows for the development of four on line casino gaming zones and slots at existing horse and canine tracks appears mired, as only one facility is presently below development, whilst 3 other proposals had been rescinded. The only bidder on the Cherokee County contract, claimed it could not contend with the new Quapaw tribal on line casino in Oklahoma, which is found so close to the point out line that its parking great deal is in Kansas. The Boot Hill On line casino Resort in Dodge Town is planing a December 2009 opening with 575 slots and ten desk video games, together with a 2nd period because of to open in 2011 with 875 slots and twenty table online games. The state has prolonged the software method for the other 3 zones right up until April, 2009.
There is still a great deal of ‘jockeying’ heading on, but the prospect of as a lot of as 8 slot parlors and racinos appears to be back on the front-burner, but probably not resolved in the course of the present legislative session.
There are about 14,000 rooms scheduled to arrive on line in 2009, with the most current becoming the 390 place M Vacation resort in Henderson. There are expansions underway at both Caesars Palace and Challenging Rock and new lodges include two factors of the City Heart task, and the Fountainebleau.
Pinnacle Entertainment’s new on line casino improvement tasks in Baton Rouge and Lake Charles, although delayed, are documented to even now be on-monitor for opening this year and/or early 2010.
There is a monthly bill underneath thought that could much more than double Penn National’s slot equipment to 3,000, as well as a proposal that would remove the restriction that slots be found inside 5 miles of the track. Scarborough Downs, which has been unsuccessful in convincing regional citizens to enable slots, may be contemplating shifting to a much more hospitable town.
A referendum was approved in November, 2008 that allows for the development of five casinos with a total of 15,000 slots, and now the bidding war is afoot though it is not as intensive as the condition experienced anticipated.
Grand Soleil Casino Vacation resort in Natchez had been slated to open in 2008, but has run into various financing problems and although the resort portion is open up, the riverboat is noted to open in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, while scaled back again somewhat, is still on track to open this year.
Massachusetts, a sleeping-giant in conditions of marketplace potential, is nevertheless maneuvering to open casinos/racinos, and/or a Course III Indian gaming facility, but can not look to muster the political assistance. A modern research completed by Dartmouth University estimates that Massachusetts resident invested a lot more than $920 million last yr at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature not too long ago declined an alternative to produce casinos, however the matter is very likely to be revisited, specifically if Massachusetts decides to go forward. There are also tries in Maine to rethink its options.
Atlantic City’s casinos have imposed their political will on staving off the addition of slot devices at racetracks by not too long ago agreeing to proceed augmenting purses with an further tax. The governor even so, 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 devices especially at the Meadowlands. (See The Nor’easter Squeeze segment)
Just when it appeared as if Aqueduct’s four,five hundred VLT facility would last but not least be produced, the successful bidder indicated an incapability to make the required $370 million price, citing the current lending local weather, and throwing the undertaking back into the lap of the governor. Although the market need in the area could be regarded very strong, the prospect of added opposition from close by Belmont could have an influence on Aqueduct’s underlining economic feasibility, specifically considering that slightly significantly less than thirty% of the internet win is retained by the operator.
Strategies to relocate Monticello Raceway into a vacation resort intricate are becoming reconsidered maybe owing to each the possible opening of at least 1 or perhaps two racino functions in the NY metro region, and the resurfacing of initiatives to improvement a Class III Indian gaming facility in the Catskills.
Nevertheless another gaming proposal is currently being place forth in Ohio, following final year’s model was turned down by the voters. This prepare calls for a single on line casino each in the state’s greatest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a least investment required of $250 million, as nicely as an first licensing price of $50 million, and a 33 % tax on gaming profits.
The Sands in Bethlehem is thanks to open in the Spring of ’09, and the new Rivers task in Pittsburgh is expected to be operational in August, ’09 whilst Philadelphia’s two slot facilities still wallow in a political mire, but are predicted to start off building this yr.
The Lodge at Deadwood is slated to open in the Fall of 2009, and incorporate three hundred online games, 140 rooms and a extensive selection of features.
Legislators are proposing a voter referendum that would amend the point out structure to let on line casino gambling in specified places, as well as permit gambling on American Indian lands in Texas and at current racetracks.
The Greenbriar, the state’s venerable resort facility has submitted for personal bankruptcy, but has a new suitor in Marriott Lodges, who have reportedly tendered an supply. State govt has proffered the idea of permitting the vacation resort to provide on line casino games, but this energy is in as well early a phase to have any traction one particular way or one more.
A modern Supreme Court docket ruling that restricts the having of lands into have faith in on behalf of federally identified American Indian tribes has further stymied some new Class III gaming projects throughout the nation. Furthermore, there were eleven Indian on line casino assignments turned down by the DOI last 12 months due to the fact of its new rule that casinos should be in close proximity to enough to a reservation that tribal customers can perform at them. It has been recommended that the new Obama administration may possibly be more sympathetic to the growth of Indian gaming assignments, but this issue has yet to be tackled.
Meanwhile, there are other Class III assignments in the a variety of stages of growth. The Seneca on line casino undertaking in Buffalo, NY, even though working a tiny short term facility, has delayed an previously beneath design long term facility until finally the industry rebounds. They have also expressed an desire in developing a casino in the Catskills. The condition gaming compact with Seminoles in Florida is being challenged, and could impact their programs for bigger tasks. There are do-jo gaming tasks set to open up in Michigan and Oklahoma this year, and others are in the preparing phase. Texas may let the reopening of Indian gaming amenities and permit other venue and there are programs afoot by the Navajos in Arizona to assemble added casinos. California is poised to open two to a few new Course III casinos in 2009/ten.
The Nor’easter Squeeze
Total gaming earnings in Atlantic Metropolis has declined seven.6 p.c, from $4.9 billion in 2007 to $four.5 billion in 2008 with decreases continuing into 2009, as the metropolis is finding itself in an extreme comp-war with the Pennsylvania venues. At 1 time the only casinos in the Northeast were positioned in Atlantic Town, where it looked as if it might in fact even eclipse the Las Vegas Strip’s annual gaming revenues.
Slowly and gradually nonetheless its market place share was currently being encroached upon, very first by the improvement of a large Class III gaming procedure 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 recently Pennsylvania.
Now, with the planned opening of slot operations in Maryland, the impending opening of a new on line casino in Bethlehem, PA, and at some point two functions in Philadelphia, the noose is tightening close to Atlantic City’s long term prospective customers. It’s reliance on working day-trippers lulled it into a fake feeling of safety, and it now finds by itself obtaining to redefine its mission assertion to “location vacation resort.”
The only difficulty with this strategy even so is that it is unwell-equipped to pull it off. For all intents and reasons, Atlantic Town is underneath-roomed and/or above-gamed. There is basically not sufficient working day-tripper market place to go about, and their efficient trading location is tightening, as the peripheral populations northward now/will have much more prepared access 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 obtain, the city’s only true aggressive rewards are its lodge potential and the availability of table games, although the latter is most likely to eventuate in Pennsylvania, and perhaps Delaware. In purchase to sufficiently compete as a destination resort the town needs to produce additional guest rooms and not always gaming capacity. By comparison, the Las Vegas Strip qualities – correct gaming locations, in that they do not have significantly of a working day-vacation marketplace, apart from for the ‘locals’ – have an average of .87 gaming positions for each guest room even though Atlantic City’s common is 2.74 positions per visitor area.
It is not a coincidence that Atlantic City’s two largest hotels, the Borgata and Harrah’s Marina, both of which added new rooms in 2008, had been the minimum impacted by the most current downturn. The Borgata experienced a gaming profits drop of one.6 percent, while Harrah’s Marina documented a 4.nine per cent improve in contrast to 2007. Moreover, the most difficult strike 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, like the the Trump properties and Resorts with the hoped for sale of the Tropicana has been more delayed, and losing valuation.
With a regular rise in gaming revenues by means of 2006, the town seemed key for even more advancement, which precipitated arranging for four new resort tasks, each and every of which have now been indefinitely delayed. Revel Leisure Group’s $2.five billion task stays an iron skeleton, Pinnacle Amusement has announced it may well seek to sell its razed Sands internet site, MGM Mirage has shelved its on line casino programs, and Penn Countrywide seems to have stopped its pursuit of the Bader Area airport site.