A Period of Adjustment

Oops! That big hissing seem is the gaming balloon that experienced been growing over the a long time, slowly and gradually dropping air. But, it has not been a tide that lowered all ships nonetheless, as some emerging and growing gaming jurisdictions showed powerful growth in 2008.

Overall, the industrial and racetrack casino sectors (excluding Indian gaming), skilled a three.five p.c decline in gaming revenues for 2008, creating a overall of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they confirmed a obtain of virtually $1 billion in 2008, therefore bringing the Business sector market decrease to $1.8 billion, or six.seven %. Nevada was the greatest loser in 2008, dropping almost $1.3 billion, a lot more than 50 percent of which stemmed from the Las Vegas Strip segment.

Hunkering Down

For the most part, casino operators have been caught relatively flat-footed by the extent of the 2008 earnings downturn, as it was not until the third and fourth quarters when it really nosedived. Riding the crest of 12 months over calendar year market place development throughout the nation and the availability of sufficient credit rating and equity funds, new building and expansion proliferated in modern many years. Nowadays, faced with the realities of declining, or at greatest stagnant desire, a lot of of these initiatives are now regarded as above-leveraged and/or more than-sized. As a outcome a lot of gaming companies are attempting to renegotiate their debt – produced a lot more tough by reduce valuations – whilst also paring down operational charges. The latter has become a really problematic conundrum when working with the opposition, specially in individuals jurisdictions that are now vying for marketplace shares with new emerging casino initiatives in neighboring areas. A subject we examine much more fully in the State by Point out examination part of this publication.

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

“How long will these economic problems persist, and are we at the base however?” are inquiries no 1 appears to be answering but. What is very clear however is that most gaming jurisdictions will have to learn how to deal with a scaled-down pie.

Notice:
This examination involves only gaming revenues of certified casinos and pari-mutuel stores that offer you casino game titles, and not Indian gaming functions, card rooms, or little non-on line casino type slot locations. The total write-up, including profits tables is offered on our web webpage.

Input/Output Model

A key facet that appears to have arisen from the ashes of this existing development is that several on line casino assignments were just way too large to support by themselves. The enter, in terms of expense pounds, was not proportional to the output, in conditions of internet earnings soon after financial debt services, compared to beforehand attained results. A lot more and/or larger is not often better. Looking at the rise in non-gaming income at the Las Vegas Strip resorts, gave impetus to the advancement of far more comprehensive amenities in many other jurisdictions. The flaw in this approach however is that the fees related with widening marketplace penetration and occasioned-use, are substantially increased than individuals incurred to attract the foundation market.

As daytripper markets grow to be far more aggressive, on line casino venues will have to rely a lot more and far more on their in-property hotel patrons, and dimensions their houses (and expectations) accordingly. Even though Steve Wynn started out a major pattern in producing up-marketplace mega-destinations, there simply was not sufficient desire on the Strip to warrant the numerous other equivalent initiatives that followed that aimed at the identical market.

The trick is to strike a satisfied medium in task configurations which of course require considerably less of a ‘seat-of-pants’ approach, and one that is more analyzed. A shameless plug for development consultants like ourselves.

Other Gaming Activities

Though there are no published thorough knowledge of American Indian gaming revenues, anecdotal proof appears to advise that this section has been as difficult hit as the Commercial sector. The two Connecticut Indian gaming installations report slot profits of $1.six billion in 2008, representing a drop of about seven percent, or practically $114 million, much more than doubling the three.five % drop from the calendar year ahead of. This market place is seemingly even now reeling from the ripple-effect of a casino expansion in Rhode Island, and the opening of slot functions in New York and Pennsylvania.

The Arizona Division of Gaming studies that contributions based mostly on a gaming earnings formula from the state’s 23 Indian gaming casinos, have been declining every quarter in 2008 compared to the earlier calendar year lowering .eight percent in the very first quarter, seven.five p.c in the next quarter, nine.5 percent in the third quarter, and 16.one percent in the fourth quarter.

Some SEC reporting Indian gaming qualities report similar decreases. Seneca Gaming, which operates a few Class III casinos in upstate New York, reports that although calendar calendar year 2008 showed an virtually two % development fee in gaming revenues, there was an 8.seven per cent decrease in the third quarter and an practically ten per cent decline in the fourth quarter of 2008, in contrast with 2007. Gaming earnings traits at close by Niagara Falls, Ontario were down 1.5% in 2008 in comparison with 2007.

It really is been a blended-bag for point out lotteries across the country. The North American Association of State & Provincial Lotteries studies that U.S. lotteries generated a complete of $60.6 billion in sales in fiscal 2008, up about 3 per cent from the earlier 12 months but some jurisdictions noted decreases, most notably California, which showed an 8 percent drop. Inasmuch as some of these states are on numerous fiscal calendar year ends, it would look that the info does not replicate the affect of 3rd and/or fourth quarter benefits.

According to knowledge presented by Equibase, horse racing pari-mutuel revenues continue their downward spiral, falling seven % to $13.7 billion in 2008, as opposed to $14.7 billion in 2007.

Planned & Proposed New Expansions

As earlier observed, it has been new gaming jurisdictions that have spawned a lot of the progress in annual on line casino/racino revenues above the many years, and their affect is apt to proceed into the close to foreseeable future.

Florida
Miami Dade voters accredited a ballot problem that enables each of a few pari-mutuels to have a on line casino facility of up to two,000 slot devices. The Flagler Dog Keep track of and Miami Jai-Alai are reportedly organizing opening in late 2009 or early 2010, although the Calder installation in Miami Gardens has but to introduced its programs. There are numerous other proposals becoming deemed that would further broaden on line casino growth during the point out.

Illinois
The point out lastly obtained all around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a 1,200+ recreation on line casino found in Des Plaines just east of O’Hare. The new facility is not most likely to open up till 2010. There has also been some discussion about allowing an enhance in for every spot gaming positions and slots at racetracks, even though neither initiative seems to have any traction at this time.

Kansas
The state’s expanded lottery program that makes it possible for for the development of four on line casino gaming zones and slots at existing horse and pet tracks appears mired, as only one facility is presently beneath design, while a few other proposals have been rescinded. The only bidder on the Cherokee County contract, claimed it could not contend with the new Quapaw tribal casino in Oklahoma, which is situated so near to the point out line that its parking whole lot is in Kansas. The Boot Hill On line casino Resort in Dodge Town is planing a December 2009 opening with 575 slots and 10 table video games, together with a 2nd period owing to open up in 2011 with 875 slots and twenty desk online games. The point out has extended the application procedure for the other a few zones until finally April, 2009.

Kentucky
There is nevertheless a lot of ‘jockeying’ heading on, but the prospect of as many as 8 slot parlors and racinos appears to be back on the front-burner, but probably not resolved during the existing legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to occur on line in 2009, with the most recent currently being the 390 room M Resort in Henderson. There are expansions underway at each Caesars Palace and Tough Rock and new lodges consist of two components of the Town Center undertaking, and the Fountainebleau.

Louisiana
Pinnacle Entertainment’s new casino advancement tasks in Baton Rouge and Lake Charles, whilst delayed, are documented to even now be on-observe for opening this year and/or early 2010.

Maine
There is a invoice below consideration that could far more than double Penn National’s slot devices to three,000, as nicely as a proposal that would remove the restriction that slots be found inside 5 miles of the monitor. Scarborough Downs, which has been unsuccessful in convincing neighborhood people to permit slots, may possibly be taking into consideration transferring to a more hospitable city.

Maryland
A referendum was accredited in November, 2008 that makes it possible for for the improvement of 5 casinos with a complete of 15,000 slots, and now the bidding war is afoot although it is not as extreme as the condition experienced predicted.

Mississippi
Grand Soleil On line casino Resort in Natchez had been slated to open in 2008, but has operate into numerous financing troubles and whilst the resort part is open, the riverboat is documented to open in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, even though scaled back again fairly, is still on monitor to open up this calendar year.

New England
Massachusetts, a sleeping-big in conditions of market place prospective, is even now maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but cannot appear to muster the political support. A latest research accomplished by Dartmouth University estimates that Massachusetts resident spent far more than $920 million final year at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an choice to build casinos, nevertheless the topic is probably to be revisited, especially if Massachusetts decides to go ahead. There are also tries in Maine to reconsider its options.

New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot devices at racetracks by recently agreeing to continue augmenting purses with an additional tax. The governor nonetheless, 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 machines especially at the Meadowlands. (See The Nor’easter Squeeze section)

New York
Just when it appeared as if Aqueduct’s 4,500 VLT facility would ultimately be developed, the profitable bidder indicated an incapability to make the required $370 million payment, citing the current lending weather, and throwing the project again into the lap of the governor. Despite the fact that the market demand in the location could be deemed really sturdy, the prospect of added opposition from nearby Belmont could have an impact on Aqueduct’s underlining economic feasibility, especially contemplating that somewhat considerably less than 30% of the internet win is retained by the operator.

Ideas to relocate Monticello Raceway into a vacation resort intricate are becoming reconsidered probably owing to the two the probable opening of at the very least one particular or maybe two racino functions in the NY metro spot, and the resurfacing of initiatives to improvement a Course III Indian gaming facility in the Catskills.

Ohio
However yet another gaming proposal is becoming set forth in Ohio, following final year’s edition was turned down by the voters. This plan phone calls for a single casino every in the state’s greatest towns: Cleveland, Columbus, Cincinnati and Toledo. There would be a least expenditure required of $250 million, as properly as an original licensing charge of $50 million, and a 33 per cent tax on gaming earnings.

Pennsylvania
The Sands in Bethlehem is thanks to open up in the Spring of ’09, and the new Rivers venture in Pittsburgh is envisioned to be operational in August, ’09 even though Philadelphia’s two slot facilities nonetheless wallow in a political mire, but are anticipated to begin design this calendar year.

South Dakota
The Lodge at Deadwood is slated to open up in the Fall of 2009, and contain 300 game titles, 140 rooms and a extensive assortment of features.

Texas
Legislators are proposing a voter referendum that would amend the condition structure to allow on line casino gambling in designated areas, as properly as allow 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 provide. Point out government has proffered the idea of permitting the vacation resort to offer casino games, but this effort is in as well early a phase to have any traction one way or yet another.

Indian Gaming
A current Supreme Courtroom ruling that restricts the taking of lands into trust on behalf of federally regarded American Indian tribes has more stymied some new Class III gaming projects throughout the place. Additionally, there have been eleven Indian on line casino assignments rejected by the DOI last yr since of its new rule that casinos have to be in close proximity to ample to a reservation that tribal members can operate at them. It has been proposed that the new Obama administration may possibly be far more sympathetic to the improvement of Indian gaming assignments, but this situation has however to be resolved.

In the meantime, there are other Class III assignments in the various phases of improvement. The Seneca on line casino project in Buffalo, NY, although operating a tiny momentary facility, has delayed an already underneath construction long lasting facility until the marketplace rebounds. They have also expressed an interest in establishing a casino in the Catskills. The condition gaming compact with Seminoles in Florida is being challenged, and could affect their strategies for more substantial initiatives. There are new Indian gaming initiatives set to open up in Michigan and Oklahoma this 12 months, and others are in the planning phase. Kakakjudi might permit the reopening of Indian gaming services and enable other location and there are plans afoot by the Navajos in Arizona to assemble added casinos. California is poised to open up two to a few new Course III casinos in 2009/10.

The Nor’easter Squeeze

Complete gaming earnings in Atlantic City has declined seven.six percent, from $four.nine billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the metropolis is discovering by itself in an powerful comp-war with the Pennsylvania venues. At one time the only casinos in the Northeast were situated in Atlantic City, where it looked as if it may actually even eclipse the Las Vegas Strip’s yearly gaming revenues.

Gradually however its industry share was currently being encroached on, first by the development of a big Course III gaming procedure in Connecticut, and then an additional slots functions in Rhode Island, and then movie 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 on line casino in Bethlehem, PA, and eventually two operations in Philadelphia, the noose is tightening close to Atlantic City’s potential potential customers. It is reliance on working day-trippers lulled it into a fake feeling of protection, and it now finds alone having to redefine its mission statement to “spot resort.”

The only issue with this method nonetheless is that it is ill-outfitted to pull it off. For all intents and reasons, Atlantic City is beneath-roomed and/or in excess of-gamed. There is merely not sufficient working day-tripper industry to go close to, and their powerful buying and selling location is tightening, as the peripheral populations northward now/will have a lot more all set accessibility to a widened provide in New York (Yonkers, and soon at Aqueduct and possibly Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean access, the city’s only true aggressive positive aspects are its lodge capacity and the availability of desk game titles, even though the latter is likely to eventuate in Pennsylvania, and perhaps Delaware. In buy to sufficiently compete as a location resort the city requirements to create further guest rooms and not necessarily gaming capability. By comparison, the Las Vegas Strip properties – true gaming locations, in that they do not have significantly of a working day-vacation market place, except for the ‘locals’ – have an common of .87 gaming positions per guest area although Atlantic City’s regular is 2.seventy four positions per visitor room.

It is not a coincidence that Atlantic City’s two biggest hotels, the Borgata and Harrah’s Marina, each of which added new rooms in 2008, had been the the very least impacted by the most recent downturn. The Borgata knowledgeable a gaming revenue drop of one.six %, while Harrah’s Marina reported a 4.nine per cent boost compared to 2007. Furthermore, the most difficult 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 homes and Resorts with the hoped for sale of the Tropicana has been further delayed, and shedding valuation.

With a constant increase in gaming revenues through 2006, the town seemed prime for further development, which precipitated preparing for 4 new vacation resort projects, each and every of which have now been indefinitely delayed. Revel Enjoyment Group’s $2.5 billion project continues to be an iron skeleton, Pinnacle Amusement has announced it might look for to sell its razed Sands web site, MGM Mirage has shelved its on line casino programs, and Penn National seems to have stopped its pursuit of the Bader Area airport website.