National Industrial Casino and Racino Game Profits Examination

A Period of time of Adjustment

Oops! That large hissing audio is the gaming balloon that had been expanding more than the several years, slowly shedding air. But, it has not been a tide that lowered all ships nevertheless, as some rising and expanding gaming jurisdictions showed powerful progress in 2008.

Total, the professional and racetrack casino sectors (excluding Indian gaming), seasoned a three.five per cent drop in gaming revenues for 2008, generating a overall 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, thereby bringing the Industrial sector market place decrease to $1.8 billion, or 6.7 %. Nevada was the largest loser in 2008, dropping virtually $one.three billion, far more than 50 % of which stemmed from the Las Vegas Strip segment.

Hunkering Down

For the most element, casino operators had been caught comparatively flat-footed by the extent of the 2008 revenue downturn, as it was not till the 3rd and fourth quarters when it actually nosedived. Using the crest of year more than yr market place expansion throughout the region and the availability of ample credit rating and equity cash, new development and enlargement proliferated in recent many years. These days, faced with the realities of declining, or at very best stagnant demand from customers, a lot of of these assignments are now regarded more than-leveraged and/or in excess of-sized. As a end result a lot of gaming organizations are trying to renegotiate their personal debt – created more hard by lower valuations – even though also paring down operational expenses. The latter has turn out to be a very problematic conundrum when dealing with the opposition, specifically in these jurisdictions that are now vying for marketplace shares with new rising casino projects in neighboring places. A subject matter we discuss far more completely in the Condition by State analysis section of this publication.

As a outcome of these problems the gaming business landscape is now strewn with impending fatalities. Amid the more notable troubled corporations are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Enjoyment, Herbst Gaming and the record grows each 7 days.

“How long will these financial problems persist, and are we at the base yet?” are inquiries no a single appears to be answering yet. What is clear however is that most gaming jurisdictions will have to understand how to offer with a smaller sized pie.

Be aware:
This analysis includes only gaming revenues of accredited casinos and pari-mutuel stores that offer casino game titles, and not Indian gaming operations, card rooms, or modest non-casino kind slot areas. The total post, like earnings tables is offered on our internet webpage.

Enter/Output Design

A crucial factor that seems to have arisen from the ashes of this recent pattern is that many on line casino projects have been just too big to assist by themselves. The input, in phrases of expense bucks, was not proportional to the output, in terms of net earnings right after personal debt support, compared to formerly reached benefits. Much more and/or bigger is not often greater. Looking at the rise in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the improvement of more thorough features in a lot of other jurisdictions. The flaw in this approach nonetheless is that the expenses connected with widening industry penetration and occasioned-use, are significantly greater than these incurred to entice the base market place.

As daytripper markets turn out to be far more aggressive, on line casino venues will have to count far more and a lot more on their in-residence hotel patrons, and dimensions their qualities (and anticipations) accordingly. Although Steve Wynn started a significant craze in generating up-market place mega-locations, there merely was not sufficient demand from customers on the Strip to warrant the numerous other equivalent initiatives that followed that aimed at the identical specialized niche.

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

Other Gaming Actions

Although there are no released in depth knowledge of American Indian gaming revenues, anecdotal proof seems to recommend that this phase has been as tough hit as the Business sector. gaming installations report slot revenue of $1.6 billion in 2008, representing a drop of about 7 per cent, or almost $114 million, a lot more than doubling the three.5 p.c fall from the 12 months before. This industry is seemingly still reeling from the ripple-influence of a casino expansion in Rhode Island, and the opening of slot functions in New York and Pennsylvania.

The Arizona Department of Gaming studies that contributions primarily based on a gaming earnings system from the state’s 23 Indian gaming casinos, have been declining each and every quarter in 2008 in contrast to the previous 12 months lowering .eight % in the very first quarter, 7.5 per cent in the 2nd quarter, nine.5 % in the 3rd quarter, and 16.1 p.c in the fourth quarter.

Some SEC reporting Indian gaming houses report related decreases. Seneca Gaming, which operates 3 Class III casinos in upstate New York, stories that even though calendar yr 2008 confirmed an virtually two % expansion fee in gaming revenues, there was an % drop in the third quarter and an almost 10 p.c drop in the fourth quarter of 2008, compared with 2007. Gaming income trends at nearby Niagara Falls, Ontario ended up down 1.five% in 2008 compared with 2007.

It truly is been a mixed-bag for condition lotteries across the place. The North American Association of Point out & Provincial Lotteries stories that U.S. lotteries generated a overall of $sixty.six billion in product sales in fiscal 2008, up about 3 % from the earlier calendar year yet some jurisdictions described decreases, most notably California, which showed an eight percent drop. Inasmuch as some of these states are on a variety of fiscal calendar year finishes, it would look that the information does not replicate the impact of 3rd and/or fourth quarter outcomes.

According to data presented by Equibase, horse racing pari-mutuel revenues proceed their downward spiral, falling 7 percent to $thirteen.7 billion in 2008, vs . $fourteen.7 billion in 2007.

Planned & Proposed New Expansions

As beforehand noted, it has been new gaming jurisdictions that have spawned a lot of the development in yearly on line casino/racino revenues in excess of the many years, and their influence is apt to keep on into the close to future.

Miami Dade voters accepted a ballot issue that allows each of 3 pari-mutuels to have a casino facility of up to 2,000 slot equipment. The Flagler Pet Monitor and Miami Jai-Alai are reportedly arranging opening in late 2009 or early 2010, even though the Calder installation in Miami Gardens has however to introduced its strategies. There are quite a few other proposals becoming considered that would more expand on line casino development through the point out.

The condition ultimately obtained about to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Leisure, LLC for a one,200+ sport on line casino situated 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 discussion about making it possible for an boost in for each area 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 allows for the advancement of four casino gaming zones and slots at current horse and puppy tracks appears mired, as only one facility is presently beneath design, although three other proposals were 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 close to the condition line that its parking great deal is in Kansas. The Boot Hill Casino Vacation resort in Dodge Metropolis is planing a December 2009 opening with 575 slots and 10 desk game titles, together with a 2nd phase because of to open in 2011 with 875 slots and twenty table games. The point out has extended the application method for the other a few zones till April, 2009.

There is nevertheless a great deal of ‘jockeying’ going on, but the prospect of as several as 8 slot parlors and racinos appears to be again on the front-burner, but most likely not fixed in the course of the current legislative session.

Las Vegas
There are about 14,000 rooms scheduled to arrive on line in 2009, with the most current becoming the 390 area M Resort in Henderson. There are expansions underway at each Caesars Palace and Difficult Rock and new accommodations contain two elements of the Metropolis Middle undertaking, and the Fountainebleau.

Pinnacle Entertainment’s new on line casino development initiatives in Baton Rouge and Lake Charles, whilst delayed, are reported to nevertheless be on-keep track of for opening this year and/or early 2010.

There is a bill under thought that could a lot more than double Penn National’s slot equipment to three,000, as properly as a proposal that would get rid of the restriction that slots be located in five miles of the observe. Scarborough Downs, which has been unsuccessful in convincing regional residents to enable slots, may possibly be contemplating relocating to a much more hospitable city.

A referendum was accredited in November, 2008 that enables for the advancement of five casinos with a total of 15,000 slots, and now the bidding war is afoot though it is not as intensive as the condition had predicted.

Grand Soleil Casino Resort in Natchez experienced been slated to open up in 2008, but has operate into various funding issues and even though the resort portion is open, the riverboat is documented to open in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, even though scaled again considerably, is nevertheless on track to open up this yr.

New England
Massachusetts, a sleeping-giant in phrases of industry likely, is still maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but can not appear to muster the political support. A current research completed by Dartmouth University estimates that Massachusetts resident expended far more than $920 million previous calendar year at Connecticut casinos and slot equipment parlors in Rhode Island and Maine. The New Hampshire legislature not too long ago declined an alternative to produce casinos, nonetheless the matter is very likely to be revisited, specially if Massachusetts decides to go forward. There are also makes an attempt 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 review the state’s sagging racing software which ironically, can only be preserved by permitting the tracks to have slot machines specially at the Meadowlands. (See The Nor’easter Squeeze segment)

New York
Just when it seemed as if Aqueduct’s 4,five hundred VLT facility would last but not least be designed, the winning bidder indicated an incapability to make the essential $370 million charge, citing the current lending weather, and throwing the task again into the lap of the governor. Even though the market desire in the area could be regarded really sturdy, the prospect of additional competition from close by Belmont could have an influence on Aqueduct’s underlining financial feasibility, particularly thinking about that marginally less than 30% of the internet win is retained by the operator.

Strategies to relocate Monticello Raceway into a vacation resort complex are becoming reconsidered probably owing to both the possible opening of at minimum 1 or probably two racino operations in the NY metro spot, and the resurfacing of initiatives to development a Class III Indian gaming facility in the Catskills.

However one more gaming proposal is becoming put forth in Ohio, right after final year’s edition was turned down by the voters. This prepare calls for one on line casino each in the state’s largest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimal investment decision essential of $250 million, as well as an first licensing fee of $50 million, and a 33 p.c tax on gaming earnings.

The Sands in Bethlehem is due to open up in the Spring of ’09, and the new Rivers task in Pittsburgh is expected to be operational in August, ’09 although Philadelphia’s two slot services even now wallow in a political mire, but are expected to start development this 12 months.

South Dakota
The Lodge at Deadwood is slated to open up in the Slide of 2009, and include 300 online games, one hundred forty rooms and a wide variety of features.

Legislators are proposing a voter referendum that would amend the condition structure to let on line casino gambling in specified areas, as nicely as allow gambling on American Indian lands in Texas and at existing racetracks.

West Virginia
The Greenbriar, the state’s venerable resort facility has filed for bankruptcy, but has a new suitor in Marriott Resorts, who have reportedly tendered an provide. Point out federal government has proffered the notion of allowing the resort to offer on line casino online games, but this hard work is in way too early a phase to have any traction 1 way or another.

Indian Gaming
A recent Supreme Court ruling that restricts the taking of lands into believe in on behalf of federally recognized American Indian tribes has additional stymied some new Class III gaming projects across the place. Furthermore, there had been eleven Indian on line casino tasks turned down by the DOI very last calendar year because of its new rule that casinos have to be in close proximity to ample to a reservation that tribal users can perform at them. It has been recommended that the new Obama administration might be more sympathetic to the growth of Indian gaming initiatives, but this concern has yet to be tackled.

Meanwhile, there are other Course III initiatives in the various stages of development. The Seneca on line casino venture in Buffalo, NY, even though operating a small short-term facility, has delayed an already underneath building long term facility till the industry rebounds. They have also expressed an curiosity in establishing 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 larger tasks. There are new Indian gaming assignments set to open in Michigan and Oklahoma this calendar year, and other folks are in the organizing phase. Texas could allow the reopening of Indian gaming facilities and let other venue and there are programs afoot by the Navajos in Arizona to construct further casinos. California is poised to open up two to three new Class III casinos in 2009/ten.

The Nor’easter Squeeze

Total gaming profits in Atlantic Metropolis has declined seven.six %, from $four.9 billion in 2007 to $four.5 billion in 2008 with decreases continuing into 2009, as the town is finding alone in an extreme comp-war with the Pennsylvania venues. At one time the only casinos in the Northeast were positioned in Atlantic Metropolis, where it appeared as if it may actually even eclipse the Las Vegas Strip’s once-a-year gaming revenues.

Little by little nonetheless its marketplace share was being encroached on, first by the development of a large Course III gaming operation in Connecticut, and then an additional slots functions in Rhode Island, and then online video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most just lately Pennsylvania.

Now, with the planned opening of slot operations in Maryland, the impending opening of a new casino in Bethlehem, PA, and ultimately two operations in Philadelphia, the noose is tightening about Atlantic City’s potential prospects. It truly is reliance on working day-trippers lulled it into a untrue feeling of protection, and it now finds by itself possessing to redefine its mission statement to “vacation spot resort.”

The only difficulty with this technique nevertheless is that it is unwell-outfitted to pull it off. For all intents and functions, Atlantic Town is beneath-roomed and/or in excess of-gamed. There is simply not enough working day-tripper industry to go close to, and their effective investing area is tightening, as the peripheral populations northward now/will have a lot more all set access to a widened supply 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 genuine competitive positive aspects are its hotel capability and the availability of desk online games, even though the latter is very likely to eventuate in Pennsylvania, and probably Delaware. In buy to adequately contend as a destination vacation resort the city demands to produce added visitor rooms and not essentially gaming capability. By comparison, the Las Vegas Strip homes – correct gaming destinations, in that they do not have significantly of a day-trip industry, other than for the ‘locals’ – have an average of .87 gaming positions for each visitor room although Atlantic City’s average is two.seventy four positions per visitor place.

It is not a coincidence that Atlantic City’s two biggest resorts, the Borgata and Harrah’s Marina, each of which added new rooms in 2008, were the the very least impacted by the newest downturn. The Borgata experienced a gaming income fall of 1.six per cent, even though Harrah’s Marina documented a 4.9 percent increase compared to 2007. Additionally, the most difficult hit venues, namely the AC Hilton, Resorts and the Trump Marina, also have the smallest quantity of rooms. In the meantime some of the venues are teetering on viability, such as the the Trump homes and Resorts with the hoped for sale of the Tropicana has been even more delayed, and dropping valuation.

With a steady increase in gaming revenues through 2006, the town appeared key for additional improvement, which precipitated arranging for 4 new vacation resort tasks, each of which have now been indefinitely delayed. Revel Entertainment Group’s $2.5 billion undertaking continues to be an iron skeleton, Pinnacle Entertainment has introduced it may possibly find to market its razed Sands website, MGM Mirage has shelved its on line casino plans, and Penn Nationwide appears to have stopped its pursuit of the Bader Field airport internet site.

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