A Period of Adjustment

Oops! That big hissing audio is the gaming balloon that had been increasing in excess of the years, gradually losing air. But, it has not been a tide that decreased all ships even so, as some emerging and expanding gaming jurisdictions showed strong progress in 2008.

All round, the industrial and racetrack casino sectors (excluding Indian gaming), skilled a three.five per cent 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 fall, as they showed a acquire of practically $one billion in 2008, thereby bringing the Professional sector industry decrease to $1.eight billion, or six.seven per cent. Nevada was the greatest loser in 2008, dropping practically $one.three billion, much more than 50 percent of which stemmed from the Las Vegas Strip segment.

Hunkering Down

For the most element, on line casino operators had been caught reasonably flat-footed by the extent of the 2008 revenue downturn, as it was not right up until the third and fourth quarters when it genuinely nosedived. Using the crest of year over year market development across the place and the availability of enough credit and fairness funds, new construction and growth proliferated in current years. These days, faced with the realities of declining, or at best stagnant demand, many of these initiatives are now deemed more than-leveraged and/or more than-sized. As a end result numerous gaming organizations are trying to renegotiate their credit card debt – produced much more difficult by decrease valuations – whilst also paring down operational charges. The latter has turn out to be a extremely problematic conundrum when working with the competitors, particularly in these jurisdictions that are now vying for marketplace shares with new rising casino projects in neighboring locations. A subject matter we discuss far more completely in the Point out by Point out examination part of this publication.

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

“How lengthy will these financial conditions persist, and are we at the bottom however?” are concerns no 1 seems to be answering but. What is obvious however is that most gaming jurisdictions will have to understand how to offer with a smaller pie.

This analysis contains only gaming revenues of licensed casinos and pari-mutuel retailers that provide casino games, and not Indian gaming functions, card rooms, or tiny non-casino type slot places. The total article, such as revenue tables is available on our internet web page.

Enter/Output Model

A crucial facet that seems to have arisen from the ashes of this current development is that numerous on line casino assignments had been just as well massive to help themselves. The enter, in terms of expenditure bucks, was not proportional to the output, in conditions of web revenue after personal debt service, in contrast to beforehand attained outcomes. More and/or greater is not often much better. Looking at the rise in non-gaming profits at the Las Vegas Strip resorts, gave impetus to the advancement of a lot more complete amenities in a lot of other jurisdictions. The flaw in this method even so is that the costs connected with widening market penetration and occasioned-use, are drastically higher than those incurred to attract the foundation industry.

As daytripper marketplaces turn into much more aggressive, on line casino venues will have to count much more and a lot more on their in-home resort patrons, and measurement their home s (and expectations) accordingly. While Steve Wynn began a main pattern in making up-marketplace mega-places, there simply was not sufficient demand on the Strip to warrant the numerous other comparable initiatives that followed that aimed at the exact same niche.

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

Other Gaming Routines

Even though there are no revealed in depth knowledge of American Indian gaming revenues, anecdotal proof appears to advise that this section has been as challenging hit as the Industrial sector. The two Connecticut Indian gaming installations report slot income of $1.six billion in 2008, symbolizing a drop of about 7 per cent, or practically $114 million, a lot more than doubling the 3.five % drop from the 12 months before. This marketplace is apparently nevertheless reeling from the ripple-effect of a casino growth in Rhode Island, and the opening of slot operations in New York and Pennsylvania.

The Arizona Division of Gaming stories that contributions dependent on a gaming earnings formula from the state’s 23 Indian gaming casinos, have been declining every single quarter in 2008 when compared to the preceding calendar year lowering .8 % in the very first quarter, seven.five p.c in the 2nd quarter, 9.5 % in the third quarter, and 16.one percent in the fourth quarter.

Some SEC reporting Indian gaming homes report related decreases. Seneca Gaming, which operates 3 Course III casinos in upstate New York, reviews that although calendar year 2008 confirmed an nearly two % expansion charge in gaming revenues, there was an 8.7 percent decrease in the third quarter and an virtually 10 % decline in the fourth quarter of 2008, compared with 2007. Gaming revenue traits at nearby Niagara Falls, Ontario have been down 1.5% in 2008 when compared with 2007.

It truly is been a mixed-bag for state lotteries across the country. The North American Association of State & Provincial Lotteries reports that U.S. lotteries created a overall of $60.6 billion in sales in fiscal 2008, up about 3 % from the previous yr nevertheless some jurisdictions noted decreases, most notably California, which confirmed an 8 p.c drop. Inasmuch as some of these states are on a variety of fiscal yr finishes, it would seem to be that the data does not mirror the effect of 3rd and/or fourth quarter results.

According to information offered by Equibase, horse racing pari-mutuel revenues keep on their downward spiral, slipping seven percent to $13.seven billion in 2008, compared to $fourteen.seven billion in 2007.

Prepared & Proposed New Expansions

As previously observed, it has been new gaming jurisdictions that have spawned a lot of the development in once-a-year casino/racino revenues above the years, and their effect is apt to continue into the near potential.

Miami Dade voters authorized a ballot issue that allows every single of a few pari-mutuels to have a casino facility of up to two,000 slot equipment. The Flagler Canine Track and Miami Jai-Alai are reportedly preparing opening in late 2009 or early 2010, while the Calder installation in Miami Gardens has but to introduced its plans. There are many other proposals being regarded as that would more increase casino advancement throughout the condition.

The condition lastly obtained close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Leisure, LLC for a one,200+ sport on line casino located in Des Plaines just east of O’Hare. The new facility is not most likely to open up until finally 2010. There has also been some dialogue about allowing an increase in per place gaming positions and slots at racetracks, though neither initiative appears to have any traction at this time.

The state’s expanded lottery system that enables for the advancement of four on line casino gaming zones and slots at present horse and dog tracks appears mired, as only 1 facility is presently below development, even though a few other proposals had been rescinded. The only bidder on the Cherokee County agreement, 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 Town is planing a December 2009 opening with 575 slots and ten desk game titles, along with a 2nd section owing to open in 2011 with 875 slots and 20 desk games. The point out has extended the software procedure for the other a few zones till April, 2009.

There is nevertheless a whole lot of ‘jockeying’ likely on, but the prospect of as many as eight slot parlors and racinos seems to be again on the front-burner, but most likely not solved in the course of the recent legislative session.

Las Vegas
There are about 14,000 rooms scheduled to appear on line in 2009, with the most recent being the 390 place M Resort in Henderson. There are expansions underway at equally Caesars Palace and Hard Rock and new lodges incorporate two elements of the City Center task, and the Fountainebleau.

Pinnacle Entertainment’s new on line casino advancement projects in Baton Rouge and Lake Charles, although delayed, are documented to nonetheless be on-keep track of for opening this year and/or early 2010.

There is a bill beneath consideration that could more than double Penn National’s slot machines to 3,000, as effectively as a proposal that would take away the restriction that slots be located inside five miles of the observe. Scarborough Downs, which has been unsuccessful in convincing local people to let slots, may possibly be considering relocating to a far more hospitable town.

A referendum was authorized in November, 2008 that enables for the development of five casinos with a whole of 15,000 slots, and now the bidding war is afoot though it is not as extreme as the condition had anticipated.

Grand Soleil On line casino Vacation resort in Natchez had been slated to open up in 2008, but has run into numerous financing troubles and although the lodge part is open up, the riverboat is noted to open up in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, whilst scaled back fairly, is even now on observe to open this calendar year.

New England
Massachusetts, a sleeping-giant in terms of market potential, is even now maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but can not seem to be to muster the political assist. A current review finished by Dartmouth University estimates that Massachusetts resident invested far more than $920 million final calendar year at Connecticut casinos and slot equipment parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an selection to develop casinos, even so the matter is most likely to be revisited, especially if Massachusetts decides to go ahead. There are also makes an attempt in Maine to rethink its possibilities.

New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot devices at racetracks by just lately agreeing to keep on augmenting purses with an additional tax. The governor however, has appointed a new panel to study the state’s sagging racing plan which ironically, can only be preserved by permitting the tracks to have slot equipment specially at the Meadowlands. (See The Nor’easter Squeeze part)

New York
Just when it seemed as if Aqueduct’s four,five hundred VLT facility would ultimately be produced, the successful bidder indicated an inability to make the essential $370 million fee, citing the existing lending climate, and throwing the project back into the lap of the governor. Though the marketplace demand from customers in the spot could be considered fairly strong, the prospect of extra competition from close by Belmont could have an impact on Aqueduct’s underlining financial feasibility, particularly contemplating that marginally significantly less than 30% of the web earn is retained by the operator.

Programs to relocate Monticello Raceway into a resort complicated are becoming reconsidered perhaps owing to equally the possible opening of at the very least one or probably two racino functions in the NY metro spot, and the resurfacing of initiatives to improvement a Course III Indian gaming facility in the Catskills.

However one more gaming proposal is getting set forth in Ohio, following very last year’s edition was turned down by the voters. This plan phone calls for one on line casino every single in the state’s biggest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimal investment necessary of $250 million, as nicely as an initial licensing payment of $50 million, and a 33 per cent tax on gaming profits.

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

South Dakota
The Lodge at Deadwood is slated to open in the Tumble of 2009, and consist of 300 video games, 140 rooms and a broad variety of facilities.

Legislators are proposing a voter referendum that would amend the point out constitution to enable casino gambling in specified areas, as well as let gambling on American Indian lands in Texas and at current racetracks.

West Virginia
The Greenbriar, the state’s venerable resort facility has filed for individual bankruptcy, but has a new suitor in Marriott Accommodations, who have reportedly tendered an offer you. Point out govt has proffered the idea of making it possible for the vacation resort to offer casino video games, but this work is in also early a stage to have any traction a single way or an additional.

Indian Gaming
A latest Supreme Court ruling that restricts the having of lands into trust on behalf of federally regarded American Indian tribes has additional stymied some new Course III gaming assignments throughout the country. Additionally, there ended up eleven Indian casino assignments rejected by the DOI last 12 months simply because of its new rule that casinos need to be around ample to a reservation that tribal customers can work at them. It has been advised that the new Obama administration may well be a lot more sympathetic to the improvement of Indian gaming initiatives, but this problem has however to be dealt with.

Meanwhile, there are other Class III initiatives in the numerous levels of improvement. The Seneca casino task in Buffalo, NY, although running a small momentary facility, has delayed an already below design long lasting facility until the industry rebounds. They have also expressed an desire in building a on line casino in the Catskills. The state gaming compact with Seminoles in Florida is becoming challenged, and could effect their strategies for bigger initiatives. There are new Indian gaming assignments set to open in Michigan and Oklahoma this year, and other folks are in the preparing phase. Texas may let the reopening of Indian gaming facilities and permit other venue and there are programs afoot by the Navajos in Arizona to build added casinos. California is poised to open two to a few new Class III casinos in 2009/10.

The Nor’easter Squeeze

Overall gaming income in Atlantic City has declined 7.6 p.c, from $four.nine billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the city is finding alone in an extreme comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast had been located in Atlantic Metropolis, where it looked as if it may possibly truly even eclipse the Las Vegas Strip’s annual gaming revenues.

Slowly nonetheless its industry share was being encroached upon, initial by the advancement of a large Course III gaming procedure in Connecticut, and then another slots operations in Rhode Island, and then online video 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 on line casino in Bethlehem, PA, and eventually two operations in Philadelphia, the noose is tightening all around Atlantic City’s long term prospective customers. It is reliance on day-trippers lulled it into a false feeling of protection, and it now finds by itself getting to redefine its mission assertion to “spot resort.”

The only issue with this method nevertheless is that it is ill-geared up to pull it off. For all intents and needs, Atlantic City is beneath-roomed and/or over-gamed. There is just not ample day-tripper market place to go close to, and their successful trading location is tightening, as the peripheral populations northward now/will have a lot more completely ready entry to a widened offer in New York (Yonkers, and soon at Aqueduct and probably Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean access, the city’s only true competitive positive aspects are its resort potential and the availability of desk games, despite the fact that the latter is most likely to eventuate in Pennsylvania, and perhaps Delaware. In get to adequately compete as a vacation spot vacation resort the city requirements to create further visitor rooms and not automatically gaming capability. By comparison, the Las Vegas Strip houses – accurate gaming destinations, in that they do not have a lot of a working day-trip industry, except for the ‘locals’ – have an regular of .87 gaming positions for each visitor area whilst Atlantic City’s common is 2.74 positions per visitor space.

It is not a coincidence that Atlantic City’s two largest accommodations, the Borgata and Harrah’s Marina, each of which added new rooms in 2008, ended up the minimum impacted by the most recent downturn. The Borgata knowledgeable a gaming earnings fall of one.6 percent, whilst Harrah’s Marina noted a four.nine percent improve compared to 2007. Furthermore, the most difficult strike venues, specifically 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 qualities and Resorts with the hoped for sale of the Tropicana has been more delayed, and shedding valuation.

With a constant increase in gaming revenues by way of 2006, the town seemed prime for more advancement, which precipitated preparing for four new resort assignments, each of which have now been indefinitely delayed. Revel Entertainment Group’s $two.5 billion undertaking remains an iron skeleton, Pinnacle Enjoyment has announced it might look for to promote its razed Sands website, MGM Mirage has shelved its casino strategies, and Penn National seems to have stopped its pursuit of the Bader Discipline airport site.