A Period of Adjustment
Oops! That huge hissing sound is the gaming balloon that had been increasing in excess of the years, little by little shedding air. But, it has not been a tide that lowered all ships even so, as some rising and expanding gaming jurisdictions showed strong expansion in 2008.
All round, the business and racetrack casino sectors (excluding Indian gaming), skilled a 3.five p.c drop in gaming revenues for 2008, making a complete of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they confirmed a gain of practically $1 billion in 2008, thus bringing the Business sector marketplace decrease to $1.8 billion, or 6.7 percent. Nevada was the greatest loser in 2008, dropping virtually $1.3 billion, much more than 50 percent of which stemmed from the Las Vegas Strip section.
For the most component, on line casino operators had been caught reasonably flat-footed by the extent of the 2008 profits downturn, as it was not until finally the 3rd and fourth quarters when it actually nosedived. Using the crest of year above yr industry progress across the nation and the availability of enough credit score and fairness money, new development and expansion proliferated in modern several years. Right now, faced with the realities of declining, or at very best stagnant demand, many of these initiatives are now deemed above-leveraged and/or above-sized. As a consequence numerous gaming organizations are making an attempt to renegotiate their personal debt – manufactured much more hard by lower valuations – while also paring down operational expenses. The latter has turn into a quite problematic conundrum when dealing with the competitiveness, specially in those jurisdictions that are now vying for market place shares with new rising casino projects in neighboring locations. A matter we discuss much more completely in the State by State evaluation area of this publication.
As a end result of these problems the gaming sector landscape is now strewn with impending fatalities. Between the more notable troubled firms are Station Casinos, Empire Resorts, Harrah’s Leisure, Greektown Holdings, Legends Gaming, Tropicana Leisure, Herbst Gaming and the listing grows every 7 days.
“How prolonged will these economic conditions persist, and are we at the base yet?” are inquiries no 1 appears to be answering yet. What is clear however is that most gaming jurisdictions will have to discover how to deal with a more compact pie.
This investigation involves only gaming revenues of accredited casinos and pari-mutuel retailers that offer you casino games, and not Indian gaming operations, card rooms, or tiny non-casino type slot locations. The whole article, including profits tables is offered on our world wide web website page.
A key element that would seem to have arisen from the ashes of this current craze is that several on line casino projects have been just as well massive to assistance themselves. The enter, in conditions of investment decision bucks, was not proportional to the output, in terms of internet profit soon after credit card debt service, compared to beforehand achieved benefits. More and/or larger is not always greater. Observing the rise in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the growth of a lot more thorough facilities in many other jurisdictions. The flaw in this strategy however is that the expenses associated with widening market place penetration and occasioned-use, are substantially larger than people incurred to attract the base market place.
As daytripper marketplaces become much more competitive, casino venues will have to rely a lot more and a lot more on their in-house hotel patrons, and size their properties (and anticipations) appropriately. Whilst Steve Wynn started out a key trend in producing up-industry mega-places, there merely was not enough need on the Strip to warrant the a lot of other similar initiatives that followed that aimed at the exact same market.
The trick is to strike a pleased medium in task configurations which of training course require much less of a ‘seat-of-pants’ method, and one that is more examined. A shameless plug for improvement consultants like ourselves.
Other Gaming Actions
Though there are no published in depth knowledge of American Indian gaming revenues, anecdotal evidence appears to advise that this segment has been as tough strike as the Commercial sector. The two Connecticut Indian gaming installations report slot revenue of $1.6 billion in 2008, symbolizing a fall of about seven percent, or nearly $114 million, a lot more than doubling the 3.five per cent drop from the calendar year prior to. This market place is evidently nonetheless reeling from the ripple-effect of a on line casino enlargement in Rhode Island, and the opening of slot functions in New York and Pennsylvania.
The Arizona Department of Gaming stories that contributions based on a gaming profits system from the state’s 23 Indian gaming casinos, have been declining each and every quarter in 2008 compared to the prior yr lowering .eight per cent in the very first quarter, seven.5 p.c in the 2nd quarter, nine.five p.c in the third quarter, and sixteen.one per cent in the fourth quarter.
Some SEC reporting Indian gaming homes report comparable decreases. Seneca Gaming, which operates three Class III casinos in upstate New York, reviews that even though calendar yr 2008 showed an virtually two % growth rate in gaming revenues, there was an eight.seven % decline in the 3rd quarter and an almost ten percent decrease in the fourth quarter of 2008, in comparison with 2007. Gaming profits traits at nearby Niagara Falls, Ontario had been down 1.5% in 2008 in comparison with 2007.
It is been a mixed-bag for point out lotteries throughout the place. The North American Association of Point out & Provincial Lotteries reports that U.S. lotteries created a overall of $60.6 billion in sales in fiscal 2008, up about 3 percent from the preceding calendar year yet some jurisdictions reported decreases, most notably California, which confirmed an eight per cent drop. Inasmuch as some of these states are on different fiscal calendar year ends, it would seem that the info does not mirror the impact of third and/or fourth quarter benefits.
According to data presented by Equibase, horse racing pari-mutuel revenues proceed their downward spiral, slipping seven % to $thirteen.seven billion in 2008, versus $14.seven billion in 2007.
Prepared & Proposed New Expansions
As formerly famous, it has been new gaming jurisdictions that have spawned much of the development in once-a-year on line casino/racino revenues more than the many years, and their affect is apt to keep on into the close to potential.
Miami Dade voters accepted a ballot concern that makes it possible for each and every of 3 pari-mutuels to have a on line casino facility of up to two,000 slot equipment. The Flagler Dog Track and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, whilst the Calder set up in Miami Gardens has yet to declared its strategies. There are quite a few other proposals getting regarded that would further expand casino growth through the state.
The point out ultimately received around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Leisure, LLC for a 1,two hundred+ recreation casino located in Des Plaines just east of O’Hare. The new facility is not most likely to open until 2010. There has also been some discussion about enabling an improve in for every place 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 on line casino gaming zones and slots at present horse and canine tracks appears mired, as only a single facility is presently underneath building, while 3 other proposals ended up rescinded. Winning 168 on the Cherokee County deal, claimed it could not compete with the new Quapaw tribal casino in Oklahoma, which is situated so near to the state line that its parking whole lot is in Kansas. The Boot Hill On line casino Resort in Dodge Metropolis is planing a December 2009 opening with 575 slots and 10 table game titles, alongside with a next phase due to open in 2011 with 875 slots and twenty desk video games. The point out has prolonged the application procedure for the other 3 zones till April, 2009.
There is still a lot of ‘jockeying’ heading on, but the prospect of as a lot of as eight slot parlors and racinos seems to be back on the front-burner, but very likely not solved throughout the recent legislative session.
There are about fourteen,000 rooms scheduled to appear on line in 2009, with the most current currently being the 390 room M Vacation resort in Henderson. There are expansions underway at each Caesars Palace and Hard Rock and new hotels include two elements of the Metropolis Heart venture, and the Fountainebleau.
Pinnacle Entertainment’s new casino development projects in Baton Rouge and Lake Charles, whilst delayed, are documented to nevertheless be on-track for opening this year and/or early 2010.
There is a invoice underneath thing to consider that could far more than double Penn National’s slot devices to three,000, as well as a proposal that would eliminate the restriction that slots be situated inside five miles of the track. Scarborough Downs, which has been unsuccessful in convincing local inhabitants to enable slots, may be contemplating moving to a much more hospitable city.
A referendum was approved in November, 2008 that allows for the development of five casinos with a total of fifteen,000 slots, and now the bidding war is afoot though it is not as powerful as the point out had predicted.
Grand Soleil On line casino Resort in Natchez had been slated to open in 2008, but has run into different funding concerns and whilst the hotel portion is open, the riverboat is reported to open in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, although scaled back again relatively, is even now on observe to open up this year.
Massachusetts, a sleeping-giant in conditions of market likely, is nonetheless maneuvering to open casinos/racinos, and/or a Course III Indian gaming facility, but can not look to muster the political support. A latest review finished by Dartmouth College estimates that Massachusetts resident spent far more than $920 million final yr at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an alternative to produce casinos, however the topic is likely to be revisited, specifically if Massachusetts decides to go forward. There are also attempts in Maine to rethink its alternatives.
Atlantic City’s casinos have imposed their political will on staving off the addition of slot equipment at racetracks by lately agreeing to proceed augmenting purses with an additional tax. The governor nonetheless, has appointed a new panel to research the state’s sagging racing system which ironically, can only be preserved by permitting the tracks to have slot devices specifically at the Meadowlands. (See The Nor’easter Squeeze section)
Just when it appeared as if Aqueduct’s four,500 VLT facility would last but not least be designed, the profitable bidder indicated an lack of ability to make the required $370 million charge, citing the recent lending climate, and throwing the task back into the lap of the governor. Even though the industry demand from customers in the region could be regarded as quite robust, the prospect of additional competitiveness from close by Belmont could have an effect on Aqueduct’s underlining economic feasibility, specifically taking into consideration that a bit much less than thirty% of the web get is retained by the operator.
Plans to relocate Monticello Raceway into a vacation resort complex are currently being reconsidered probably owing to each the possible opening of at the very least one particular or maybe two racino operations in the NY metro location, and the resurfacing of initiatives to advancement a Course III Indian gaming facility in the Catskills.
Nevertheless yet another gaming proposal is currently being place forth in Ohio, right after final year’s model was turned down by the voters. This prepare phone calls for one particular casino every in the state’s biggest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a least expenditure necessary of $250 million, as properly as an original licensing payment 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 project in Pittsburgh is envisioned to be operational in August, ’09 even though Philadelphia’s two slot amenities nonetheless wallow in a political mire, but are anticipated to start design this 12 months.
The Lodge at Deadwood is slated to open in the Drop of 2009, and incorporate 300 games, one hundred forty rooms and a vast assortment of facilities.
Legislators are proposing a voter referendum that would amend the point out constitution to permit on line casino gambling in specified locations, as nicely as let gambling on American Indian lands in Texas and at current racetracks.
The Greenbriar, the state’s venerable vacation 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 idea of making it possible for the resort to provide on line casino games, but this hard work is in also early a phase to have any traction one way or one more.
A latest Supreme Court docket ruling that restricts the taking of lands into believe in on behalf of federally regarded American Indian tribes has additional stymied some new Class III gaming assignments across the country. Furthermore, there have been eleven Indian casino initiatives rejected by the DOI previous yr since of its new rule that casinos must be near sufficient to a reservation that tribal members can operate at them. It has been proposed that the new Obama administration might be far more sympathetic to the improvement of Indian gaming tasks, but this problem has however to be resolved.
Meanwhile, there are other Course III initiatives in the numerous levels of improvement. The Seneca casino project in Buffalo, NY, while operating a little momentary facility, has delayed an currently underneath building everlasting facility until finally the market place rebounds. They have also expressed an curiosity in building a on line casino in the Catskills. The point out gaming compact with Seminoles in Florida is currently being challenged, and could effect their ideas for bigger tasks. There are new Indian gaming projects set to open up in Michigan and Oklahoma this yr, and others are in the planning stage. Texas may possibly allow the reopening of Indian gaming amenities and allow other venue and there are programs afoot by the Navajos in Arizona to construct added casinos. California is poised to open two to 3 new Course III casinos in 2009/10.
The Nor’easter Squeeze
Total gaming profits in Atlantic City has declined seven.6 per cent, from $4.nine billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the metropolis is locating by itself in an intensive comp-war with the Pennsylvania venues. At one time the only casinos in the Northeast had been positioned in Atlantic Metropolis, in which it seemed as if it may possibly in fact even eclipse the Las Vegas Strip’s yearly gaming revenues.
Slowly and gradually even so its market share was getting encroached on, first by the development of a large Course III gaming procedure in Connecticut, and then yet another slots functions in Rhode Island, and then movie lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most just lately Pennsylvania.
Now, with the prepared opening of slot functions 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 around Atlantic City’s future potential customers. It’s reliance on working day-trippers lulled it into a fake perception of security, and it now finds alone possessing to redefine its mission statement to “spot vacation resort.”
The only dilemma with this method even so is that it is sick-outfitted to pull it off. For all intents and needs, Atlantic Metropolis is below-roomed and/or in excess of-gamed. There is merely not ample working day-tripper marketplace to go all around, and their successful buying and selling area is tightening, as the peripheral populations northward now/will have much more all set access to a widened supply in New York (Yonkers, and shortly at Aqueduct and possibly Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.
Other than the ocean entry, the city’s only real aggressive advantages are its hotel capability and the availability of table online games, though the latter is likely to eventuate in Pennsylvania, and perhaps Delaware. In get to adequately contend as a location resort the town needs to create added visitor rooms and not always gaming ability. By comparison, the Las Vegas Strip qualities – real gaming destinations, in that they do not have considerably of a working day-vacation market, besides for the ‘locals’ – have an typical of .87 gaming positions for each guest place while Atlantic City’s typical is 2.seventy four positions for each guest room.
It is not a coincidence that Atlantic City’s two greatest hotels, the Borgata and Harrah’s Marina, both of which added new rooms in 2008, have been the least impacted by the latest downturn. The Borgata experienced a gaming income fall of 1.6 per cent, whilst Harrah’s Marina described a four.9 percent increase compared to 2007. Furthermore, the toughest strike venues, namely 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, including the the Trump qualities and Resorts with the hoped for sale of the Tropicana has been further delayed, and losing valuation.
With a regular rise in gaming revenues through 2006, the city seemed primary for additional advancement, which precipitated arranging for 4 new resort tasks, each of which have now been indefinitely delayed. Revel Entertainment Group’s $two.five billion undertaking continues to be an iron skeleton, Pinnacle Entertainment has introduced it may find to market its razed Sands web site, MGM Mirage has shelved its on line casino ideas, and Penn Countrywide appears to have stopped its pursuit of the Bader Subject airport internet site.