A Period of time of Adjustment
Oops! That giant hissing seem is the gaming balloon that experienced been increasing more than the years, little by little shedding air. But, UFA has not been a tide that reduced all ships however, as some emerging and expanding gaming jurisdictions showed robust expansion in 2008.
Overall, the industrial and racetrack casino sectors (excluding Indian gaming), knowledgeable a three.five p.c decline 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 drop, as they showed a gain of almost $1 billion in 2008, thus bringing the Industrial sector industry decline to $one.eight billion, or 6.7 p.c. Nevada was the biggest loser in 2008, dropping practically $one.three billion, much more than 50 percent of which stemmed from the Las Vegas Strip segment.
For the most portion, on line casino operators had been caught comparatively flat-footed by the extent of the 2008 profits downturn, as it was not until the 3rd and fourth quarters when it really nosedived. Driving the crest of calendar year more than yr market growth across the country and the availability of sufficient credit and equity funds, new development and enlargement proliferated in latest many years. These days, faced with the realities of declining, or at best stagnant demand, several of these projects are now considered in excess of-leveraged and/or more than-sized. As a end result a lot of gaming companies are trying to renegotiate their personal debt – made much more challenging by reduce valuations – even though also paring down operational expenses. The latter has grow to be a very problematic conundrum when working with the competitors, specifically in those jurisdictions that are now vying for marketplace shares with new emerging casino initiatives in neighboring regions. A topic we examine far more completely in the Condition by State analysis 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 Entertainment, Greektown Holdings, Legends Gaming, Tropicana Enjoyment, Herbst Gaming and the list grows each and every 7 days.
“How prolonged will these financial situations persist, and are we at the base nevertheless?” are inquiries no 1 appears to be answering yet. What is clear nonetheless is that most gaming jurisdictions will have to discover how to deal with a scaled-down pie.
This examination involves only gaming revenues of certified casinos and pari-mutuel stores that supply casino game titles, and not Indian gaming operations, card rooms, or small non-on line casino variety slot areas. The entire post, including earnings tables is offered on our net page.
A essential facet that looks to have arisen from the ashes of this present craze is that several casino initiatives have been just as well big to support on their own. The enter, in terms of expense bucks, was not proportional to the output, in conditions of web income soon after credit card debt services, in comparison to earlier accomplished outcomes. Much more and/or larger is not always much better. Seeing the rise in non-gaming profits at the Las Vegas Strip resorts, gave impetus to the growth of far more complete amenities in several other jurisdictions. The flaw in this approach nevertheless is that the fees associated with widening market penetration and occasioned-use, are considerably increased than these incurred to draw in the base marketplace.
As daytripper markets grow to be far more aggressive, casino venues will have to rely more and more on their in-residence hotel patrons, and dimension their qualities (and anticipations) appropriately. While Steve Wynn started out a key development in producing up-industry mega-locations, there merely was not ample demand from customers on the Strip to warrant the numerous other equivalent initiatives that adopted that aimed at the exact same market.
The trick is to strike a pleased medium in venture configurations which of course demand significantly less of a ‘seat-of-pants’ strategy, and one particular that is far more examined. A shameless plug for improvement consultants like ourselves.
Other Gaming Activities
Although there are no published detailed data of American Indian gaming revenues, anecdotal proof seems to recommend that this phase has been as challenging hit as the Commercial sector. The two Connecticut Indian gaming installations report slot income of $1.six billion in 2008, symbolizing a drop of about seven p.c, or almost $114 million, a lot more than doubling the 3.5 % drop from the calendar year before. This market is evidently still reeling from the ripple-result of a on line casino enlargement in Rhode Island, and the opening of slot functions in New York and Pennsylvania.
The Arizona Section of Gaming studies that contributions based on a gaming profits formulation from the state’s 23 Indian gaming casinos, have been declining each quarter in 2008 in contrast to the previous year lowering .eight % in the very first quarter, 7.5 per cent in the 2nd quarter, nine.five p.c in the 3rd quarter, and 16.one % in the fourth quarter.
Some SEC reporting Indian gaming properties report similar decreases. Seneca Gaming, which operates a few Class III casinos in upstate New York, reviews that although calendar year 2008 showed an virtually two per cent growth rate in gaming revenues, there was an eight.seven percent decline in the 3rd quarter and an virtually ten per cent decline in the fourth quarter of 2008, in comparison with 2007. Gaming income traits at nearby Niagara Falls, Ontario were down 1.five% in 2008 when compared with 2007.
It really is been a blended-bag for state lotteries throughout the country. The North American Affiliation of Point out & Provincial Lotteries stories that U.S. lotteries generated a complete of $60.six billion in income in fiscal 2008, up about three p.c from the preceding calendar year yet some jurisdictions noted decreases, most notably California, which showed an eight p.c fall. Inasmuch as some of these states are on a variety of fiscal yr finishes, it would seem that the data does not reflect the effect of third and/or fourth quarter outcomes.
According to data supplied by Equibase, horse racing pari-mutuel revenues continue their downward spiral, falling seven percent to $13.seven billion in 2008, as opposed to $14.7 billion in 2007.
Planned & Proposed New Expansions
As earlier noted, it has been new gaming jurisdictions that have spawned considerably of the growth in annual casino/racino revenues in excess of the many years, and their affect is apt to carry on into the close to foreseeable future.
Miami Dade voters accepted a ballot concern that allows every single of a few pari-mutuels to have a on line casino facility of up to 2,000 slot devices. The Flagler Pet Monitor and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, whilst the Calder installation in Miami Gardens has yet to announced its plans. There are numerous other proposals currently being regarded that would more broaden casino improvement during the condition.
The condition last but not least got all around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a one,two hundred+ sport casino situated in Des Plaines just east of O’Hare. The new facility is not very likely to open until 2010. There has also been some discussion about making it possible for an boost 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 software that allows for the growth of four on line casino gaming zones and slots at current horse and pet tracks seems mired, as only one facility is presently beneath construction, even though three other proposals have been rescinded. The only bidder on the Cherokee County contract, claimed it could not compete with the new Quapaw tribal on line casino in Oklahoma, which is found so shut to the condition line that its parking whole lot is in Kansas. The Boot Hill Casino Resort in Dodge Town is planing a December 2009 opening with 575 slots and ten desk online games, along with a 2nd phase owing to open up in 2011 with 875 slots and 20 table game titles. The state has extended the software approach for the other three zones right up until April, 2009.
There is nonetheless a good deal of ‘jockeying’ heading on, but the prospect of as numerous as eight slot parlors and racinos appears to be back on the entrance-burner, but likely not fixed in the course of the existing legislative session.
There are about fourteen,000 rooms scheduled to come on line in 2009, with the most latest becoming the 390 place M Vacation resort in Henderson. There are expansions underway at both Caesars Palace and Hard Rock and new accommodations include two factors of the Town Centre project, and the Fountainebleau.
Pinnacle Entertainment’s new on line casino development initiatives in Baton Rouge and Lake Charles, although delayed, are documented to still be on-track for opening this yr and/or early 2010.
There is a bill underneath thought that could much more than double Penn National’s slot equipment to 3,000, as well as a proposal that would take away the restriction that slots be positioned in five miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing local people to allow slots, may possibly be contemplating transferring to a far more hospitable town.
A referendum was authorized in November, 2008 that makes it possible for for the improvement of five casinos with a complete of 15,000 slots, and now the bidding war is afoot although it is not as powerful as the state experienced anticipated.
Grand Soleil Casino Vacation resort in Natchez had been slated to open in 2008, but has run into numerous funding issues and whilst the lodge part is open, the riverboat is documented to open in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, whilst scaled back again somewhat, is nevertheless on keep track of to open up this 12 months.
Massachusetts, a sleeping-big in terms of industry potential, is nonetheless maneuvering to open up casinos/racinos, and/or a Class III Indian gaming facility, but can not seem to be to muster the political help. A modern study finished by Dartmouth University estimates that Massachusetts resident invested a lot more than $920 million previous year at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an selection to produce casinos, nonetheless the matter is most likely to be revisited, especially if Massachusetts decides to go ahead. 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 carry on augmenting purses with an added tax. The governor however, has appointed a new panel to study the state’s sagging racing system which ironically, can only be preserved by allowing the tracks to have slot devices specially at the Meadowlands. (See The Nor’easter Squeeze area)
Just when it seemed as if Aqueduct’s four,500 VLT facility would finally be produced, the winning bidder indicated an inability to make the needed $370 million payment, citing the present lending climate, and throwing the project back into the lap of the governor. Although the market demand in the location could be regarded fairly strong, the prospect of further competition from close by Belmont could have an affect on Aqueduct’s underlining economic feasibility, especially thinking about that somewhat less than 30% of the internet acquire is retained by the operator.
Ideas to relocate Monticello Raceway into a resort complex are currently being reconsidered maybe owing to each the probable opening of at least 1 or perhaps two racino functions in the NY metro area, and the resurfacing of initiatives to improvement a Course III Indian gaming facility in the Catskills.
But an additional gaming proposal is currently being set forth in Ohio, following final year’s version was turned down by the voters. This strategy calls for one particular casino each in the state’s biggest towns: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimal investment decision needed of $250 million, as properly as an preliminary licensing fee of $fifty million, and a 33 per cent tax on gaming earnings.
The Sands in Bethlehem is owing 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 services nevertheless wallow in a political mire, but are predicted to commence development this yr.
The Lodge at Deadwood is slated to open in the Fall of 2009, and consist of three hundred video games, one hundred forty rooms and a vast selection of facilities.
Legislators are proposing a voter referendum that would amend the point out structure to allow casino gambling in selected places, as nicely as let gambling on American Indian lands in Texas and at existing racetracks.
The Greenbriar, the state’s venerable vacation resort facility has filed for individual bankruptcy, but has a new suitor in Marriott Lodges, who have reportedly tendered an offer you. Condition federal government has proffered the idea of enabling the vacation resort to provide on line casino video games, but this effort is in as well early a stage to have any traction one particular way or one more.
A recent Supreme Court docket ruling that restricts the getting of lands into trust on behalf of federally regarded American Indian tribes has further stymied some new Class III gaming projects across the place. Furthermore, there have been eleven Indian casino assignments turned down by the DOI last calendar year simply because of its new rule that casinos should be around ample to a reservation that tribal customers can operate at them. It has been suggested that the new Obama administration may possibly be far more sympathetic to the improvement of Indian gaming initiatives, but this problem has however to be addressed.
Meanwhile, there are other Course III assignments in the various phases of growth. The Seneca on line casino task in Buffalo, NY, although functioning a small short-term facility, has delayed an already underneath construction permanent facility until the industry rebounds. They have also expressed an fascination in creating a on line casino in the Catskills. The state gaming compact with Seminoles in Florida is currently being challenged, and could effect their ideas for greater projects. There are new Indian gaming initiatives established to open in Michigan and Oklahoma this calendar year, and other people are in the planning stage. Texas may possibly enable the reopening of Indian gaming facilities and enable other location and there are ideas afoot by the Navajos in Arizona to assemble added casinos. California is poised to open two to three new Class III casinos in 2009/ten.
The Nor’easter Squeeze
Total gaming profits in Atlantic Metropolis has declined seven.6 percent, from $four.nine billion in 2007 to $four.5 billion in 2008 with decreases continuing into 2009, as the metropolis is locating itself in an intensive comp-war with the Pennsylvania venues. At one time the only casinos in the Northeast were situated in Atlantic Town, the place it appeared as if it may possibly truly even eclipse the Las Vegas Strip’s yearly gaming revenues.
Slowly and gradually nonetheless its market share was becoming encroached upon, very first by the growth of a massive Course III gaming procedure in Connecticut, and then one more slots functions in Rhode Island, and then online video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most lately Pennsylvania.
Now, with the planned opening of slot functions 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 potential prospects. It really is reliance on day-trippers lulled it into a untrue perception of protection, and it now finds by itself getting to redefine its mission assertion to “spot resort.”
The only difficulty with this strategy even so is that it is unwell-geared up to pull it off. For all intents and needs, Atlantic City is below-roomed and/or above-gamed. There is merely not ample working day-tripper marketplace to go close to, and their effective investing spot 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 potentially Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.
Other than the ocean entry, the city’s only actual competitive benefits are its hotel potential and the availability of table games, although the latter is likely to eventuate in Pennsylvania, and potentially Delaware. In buy to adequately compete as a location resort the town needs to develop extra guest rooms and not essentially gaming ability. By comparison, the Las Vegas Strip homes – accurate gaming locations, in that they do not have much of a day-trip market place, other than for the ‘locals’ – have an common of .87 gaming positions for every guest area while Atlantic City’s average is 2.seventy four positions for every visitor place.
It is not a coincidence that Atlantic City’s two premier resorts, the Borgata and Harrah’s Marina, equally of which included new rooms in 2008, have been the the very least impacted by the most current downturn. The Borgata seasoned a gaming income fall of one.6 p.c, although Harrah’s Marina noted a four.nine % boost when compared to 2007. Furthermore, the hardest hit venues, specifically 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, like the the Trump qualities and Resorts with the hoped for sale of the Tropicana has been more delayed, and losing valuation.
With a steady increase in gaming revenues by way of 2006, the metropolis seemed primary for more growth, which precipitated planning for four new vacation resort tasks, each and every of which have now been indefinitely delayed. Revel Amusement Group’s $2.5 billion project remains an iron skeleton, Pinnacle Amusement has declared it may find to sell its razed Sands site, MGM Mirage has shelved its casino plans, and Penn National seems to have stopped its pursuit of the Bader Field airport internet site.