A Period of Adjustment
Oops! That giant hissing seem is the gaming balloon that had been developing over the years, slowly and gradually shedding air. But, it has not been a tide that lowered all ships nonetheless, as some emerging and expanding gaming jurisdictions confirmed sturdy growth in 2008.
All round, the industrial and racetrack on line casino sectors (excluding Indian gaming), seasoned a three.five percent decline in gaming revenues for 2008, making a whole of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they confirmed a acquire of nearly $1 billion in 2008, thus bringing the Industrial sector industry drop to $one.8 billion, or 6.seven %. Nevada was the biggest loser in 2008, dropping nearly $1.3 billion, much more than fifty percent of which stemmed from the Las Vegas Strip segment.
For the most component, on line casino operators were caught fairly flat-footed by the extent of the 2008 profits downturn, as it was not until finally the 3rd and fourth quarters when it genuinely nosedived. Using the crest of year over yr market place progress across the nation and the availability of enough credit and equity money, new construction and growth proliferated in current years. These days, faced with the realities of declining, or at best stagnant demand, a lot of of these initiatives are now considered in excess of-leveraged and/or above-sized. As a end result many gaming firms are making an attempt to renegotiate their financial debt – created far more difficult by reduced valuations – even though also paring down operational expenses. The latter has become a extremely problematic conundrum when working with the competitiveness, particularly in individuals jurisdictions that are now vying for marketplace shares with new emerging casino assignments in neighboring places. A subject matter we discuss more entirely in the Condition by Condition examination segment of this publication.
As a end result of these problems 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 Entertainment, Herbst Gaming and the record grows every single week.
“How extended will these economic circumstances persist, and are we at the base nevertheless?” are inquiries no 1 seems to be answering nevertheless. What is obvious however is that most gaming jurisdictions will have to learn how to offer with a smaller sized pie.
This analysis contains only gaming revenues of certified casinos and pari-mutuel stores that supply on line casino video games, and not Indian gaming operations, card rooms, or tiny non-on line casino sort slot areas. The complete report, which includes earnings tables is offered on our world wide web website page.
A crucial factor that looks to have arisen from the ashes of this existing trend is that many casino tasks ended up just as well big to help by themselves. The enter, in phrases of investment dollars, was not proportional to the output, in conditions of net profit after personal debt services, when compared to beforehand accomplished results. A lot more and/or bigger is not often greater. Seeing the rise in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the growth of more complete facilities in numerous other jurisdictions. The flaw in this method nevertheless is that the charges connected with widening industry penetration and occasioned-use, are considerably higher than individuals incurred to entice the base marketplace.
As daytripper marketplaces turn into much more competitive, on line casino venues will have to count more and more on their in-property lodge patrons, and measurement their homes (and expectations) appropriately. While Steve Wynn started out a key development in generating up-marketplace mega-destinations, there simply was not sufficient demand from customers on the Strip to warrant the numerous other related projects that adopted that aimed at the very same market.
The trick is to strike a satisfied medium in project configurations which of system require significantly less of a ‘seat-of-pants’ strategy, and one that is much more studied. A shameless plug for development consultants like ourselves.
Other Gaming Pursuits
Even though there are no revealed comprehensive knowledge of American Indian gaming revenues, anecdotal proof seems to recommend that this phase has been as hard hit as the Industrial sector. The two Connecticut Indian gaming installations report slot profits of $1.six billion in 2008, symbolizing a fall of about 7 p.c, or nearly $114 million, more than doubling the 3.5 per cent fall from the year ahead of. This market place is apparently nonetheless reeling from the ripple-effect of a casino growth in Rhode Island, and the opening of slot functions in New York and Pennsylvania.
The Arizona Office of Gaming reports that contributions dependent on a gaming revenue formula from the state’s 23 Indian gaming casinos, have been declining each quarter in 2008 when compared to the prior calendar year reducing .8 percent in the initial quarter, 7.5 percent in the 2nd quarter, nine.5 percent in the 3rd quarter, and sixteen.1 p.c in the fourth quarter.
Some SEC reporting Indian gaming properties report similar decreases. Seneca Gaming, which operates a few Course III casinos in upstate New York, stories that even though calendar calendar year 2008 showed an virtually two per cent expansion price in gaming revenues, there was an eight.7 p.c drop in the 3rd quarter and an virtually 10 percent drop in the fourth quarter of 2008, in contrast with 2007. Gaming earnings trends at nearby Niagara Falls, Ontario were down one.five% in 2008 when compared with 2007.
It truly is been a combined-bag for state lotteries across the place. The North American Affiliation of State & Provincial Lotteries reviews that U.S. lotteries created a whole of $sixty.six billion in product sales in fiscal 2008, up about 3 % from the prior yr but some jurisdictions documented decreases, most notably California, which showed an eight % drop. Inasmuch as some of these states are on a variety of fiscal 12 months finishes, it would seem that the knowledge does not reflect the effect of third and/or fourth quarter results.
In accordance to info offered by Equibase, horse racing pari-mutuel revenues keep on their downward spiral, slipping seven % to $13.seven billion in 2008, as opposed to $14.seven billion in 2007.
Prepared & Proposed New Expansions
As formerly mentioned, it has been new gaming jurisdictions that have spawned significantly of the growth in annual on line casino/racino revenues over the years, and their impact is apt to keep on into the near future.
Miami Dade voters accepted a ballot concern that enables every single of 3 pari-mutuels to have a on line casino facility of up to two,000 slot equipment. The Flagler Pet Observe and Miami Jai-Alai are reportedly organizing opening in late 2009 or early 2010, while the Calder set up in Miami Gardens has nevertheless to declared its ideas. There are several other proposals currently being regarded as that would additional grow on line casino advancement all through the point out.
The condition last but not least obtained around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a one,200+ game casino found in Des Plaines just east of O’Hare. The new facility is not most likely to open up until 2010. There has also been some discussion about allowing an boost in for every spot gaming positions and slots at racetracks, even though neither initiative appears to have any traction at this time.
The state’s expanded lottery software that makes it possible for for the advancement of 4 on line casino gaming zones and slots at current horse and puppy tracks appears mired, as only a single facility is presently underneath development, whilst three other proposals were rescinded. The only bidder on the Cherokee County agreement, claimed it could not compete with the new Quapaw tribal casino in Oklahoma, which is found so near to the point out line that its parking whole lot is in Kansas. The Boot Hill On line casino Vacation resort in Dodge City is planing a December 2009 opening with 575 slots and ten desk online games, together with a 2nd section owing to open in 2011 with 875 slots and 20 table online games. The point out has extended the application approach for the other three zones until finally April, 2009.
There is nevertheless a whole lot of ‘jockeying’ likely on, but the prospect of as many as 8 slot parlors and racinos appears to be back on the entrance-burner, but probably not settled throughout the existing legislative session.
There are about fourteen,000 rooms scheduled to appear on line in 2009, with the most recent becoming the 390 place M Vacation resort in Henderson. There are expansions underway at both Caesars Palace and Tough Rock and new hotels contain two elements of the Town Heart task, and the Fountainebleau.
Pinnacle Entertainment’s new on line casino advancement assignments in Baton Rouge and Lake Charles, while delayed, are documented to even now be on-track for opening this yr and/or early 2010.
There is a monthly bill below thought 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 within five miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing neighborhood inhabitants to allow slots, may be taking into consideration relocating to a a lot more hospitable city.
A referendum was accredited in November, 2008 that makes it possible for for the development of 5 casinos with a whole of 15,000 slots, and now the bidding war is afoot though it is not as intense as the state experienced anticipated.
Grand Soleil On line casino Resort in Natchez experienced been slated to open up in 2008, but has run into various funding problems and although the resort part is open, the riverboat is reported to open in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, although scaled again somewhat, is even now on keep track of to open this calendar year.
Massachusetts, a sleeping-huge in conditions of market place prospective, is nonetheless maneuvering to open up casinos/racinos, and/or a Class III Indian gaming facility, but are not able to seem to muster the political support. A recent examine finished by Dartmouth University estimates that Massachusetts resident spent far more than $920 million last year at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature just lately declined an selection to develop casinos, however the subject matter is probably to be revisited, specifically if Massachusetts decides to go ahead. 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 continue augmenting purses with an further tax. The governor nonetheless, has appointed a new panel to examine the state’s sagging racing system which ironically, can only be preserved by allowing the tracks to have slot devices specifically at the Meadowlands. (See The Nor’easter Squeeze area)
Just when it seemed as if Aqueduct’s four,500 VLT facility would finally be designed, the successful bidder indicated an inability to make the essential $370 million fee, citing the existing lending climate, and throwing the project again into the lap of the governor. Even though the marketplace demand from customers in the spot could be regarded quite strong, the prospect of further competition from nearby Belmont could have an affect on Aqueduct’s underlining economic feasibility, specifically considering that a bit much less than thirty% of the web acquire is retained by the operator.
Strategies to relocate Monticello Raceway into a vacation resort intricate are getting reconsidered perhaps owing to the two the possible opening of at least a single or possibly two racino operations in the NY metro region, and the resurfacing of initiatives to growth a Course III Indian gaming facility in the Catskills.
Nevertheless another gaming proposal is becoming put forth in Ohio, after final year’s model was turned down by the voters. This program calls for 1 casino every in the state’s biggest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimal investment needed of $250 million, as effectively as an original licensing charge of $fifty million, and a 33 per cent tax on gaming revenue.
The Sands in Bethlehem is owing to open up in the Spring of ’09, and the new Rivers project in Pittsburgh is anticipated to be operational in August, ’09 whilst Philadelphia’s two slot amenities even now wallow in a political mire, but are anticipated to start off building this yr.
The Lodge at Deadwood is slated to open in the Fall of 2009, and incorporate 300 game titles, a hundred and forty rooms and a wide range of amenities.
Legislators are proposing a voter referendum that would amend the state structure to allow on line casino gambling in selected regions, as properly as allow gambling on American Indian lands in Texas and at existing racetracks.
The Greenbriar, the state’s venerable resort facility has submitted for individual bankruptcy, but has a new suitor in Marriott Lodges, who have reportedly tendered an offer you. Point out govt has proffered the idea of making it possible for the vacation resort to provide casino online games, but this energy is in as well early a stage to have any traction 1 way or another.
A current Supreme Courtroom ruling that restricts the taking of lands into have faith in on behalf of federally identified American Indian tribes has more stymied some new Course III gaming assignments across the nation. Furthermore, there had been eleven Indian on line casino projects turned down by the DOI last yr because of its new rule that casinos need to be close to ample to a reservation that tribal associates can function at them. It has been advised that the new Obama administration may be a lot more sympathetic to the growth of Indian gaming projects, but this issue has however to be resolved.
In the meantime, there are other Course III tasks in the a variety of phases of growth. The Seneca casino undertaking in Buffalo, NY, while functioning a tiny short-term facility, has delayed an currently below design long term facility till the industry rebounds. They have also expressed an desire in developing a casino in the Catskills. The point out gaming compact with Seminoles in Florida is getting challenged, and could effect their plans for greater projects. There are new Indian gaming tasks established to open in Michigan and Oklahoma this yr, and other individuals are in the organizing phase. Texas may allow the reopening of Indian gaming services and let other location and there are strategies afoot by the Navajos in Arizona to build extra casinos. California is poised to open up two to three new Course III casinos in 2009/10.
The Nor’easter Squeeze
Overall gaming earnings in Atlantic City has declined 7.six percent, from $4.9 billion in 2007 to $four.five billion in 2008 with decreases continuing into 2009, as the town is locating alone in an intensive comp-war with the Pennsylvania venues. At a single time the only casinos in the Northeast have been located in Atlantic City, exactly where it seemed as if it may possibly in fact even eclipse the Las Vegas Strip’s annual gaming revenues.
Gradually nonetheless its marketplace share was being encroached upon, 1st by the development of a huge Course III gaming operation in Connecticut, and then yet another slots operations 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 planned 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 all around Atlantic City’s long term prospects. It is reliance on day-trippers lulled it into a bogus feeling of security, and it now finds by itself obtaining to redefine its mission statement to “vacation spot resort.”
The only problem with this approach however is that it is ill-geared up to pull it off. For all intents and needs, Atlantic Metropolis is underneath-roomed and/or over-gamed. There is simply not sufficient working day-tripper industry to go around, and their successful buying and selling area is tightening, as the peripheral populations northward now/will have more ready entry to a widened provide in New York (Yonkers, and before long at Aqueduct and possibly Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.
Other than the ocean accessibility, the city’s only true aggressive positive aspects are its lodge capability and the availability of table online games, even though the latter is very likely to eventuate in Pennsylvania, and perhaps Delaware. In order to adequately contend as a destination vacation resort the metropolis needs to build additional visitor rooms and not automatically gaming potential. By comparison, the Las Vegas Strip houses – accurate gaming places, in that they do not have much of a day-excursion marketplace, apart from for the ‘locals’ – have an regular of .87 gaming positions for each guest place while Atlantic City’s regular is two.seventy four positions for every visitor place.
It is not a coincidence that Atlantic City’s two premier accommodations, the Borgata and Harrah’s Marina, the two of which added new rooms in 2008, have been the the very least impacted by the most recent downturn. The Borgata skilled a gaming revenue drop of 1.six percent, whilst Harrah’s Marina described a four.9 percent enhance when compared to 2007. Furthermore, the toughest strike venues, namely 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, such as the the Trump properties and Resorts with the hoped for sale of the Tropicana has been further delayed, and getting rid of valuation.
With a continual rise in gaming revenues via 2006, the city seemed primary for further improvement, which precipitated preparing for 4 new resort initiatives, every single of which have now been indefinitely delayed. Revel Leisure Group’s $2.five billion venture remains an iron skeleton, Pinnacle Amusement has announced it may look for to market its razed Sands website, MGM Mirage has shelved its on line casino plans, and Penn Countrywide appears to have stopped its pursuit of the Bader Discipline airport site.