A Period of time of Adjustment
Oops! That giant hissing seem is the gaming balloon that experienced been increasing in excess of the many years, little by little shedding air. But, it has not been a tide that lowered all ships however, as some emerging and expanding gaming jurisdictions showed robust progress in 2008.
General, the industrial and racetrack casino sectors (excluding Indian gaming), seasoned a three.5 percent decline in gaming revenues for 2008, creating a complete of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they showed a achieve of almost $one billion in 2008, thereby bringing the Commercial sector market place decrease to $one.eight billion, or six.seven p.c. Nevada was the largest loser in 2008, dropping virtually $1.three billion, more than 50 % of which stemmed from the Las Vegas Strip phase.
For the most element, casino operators were caught reasonably flat-footed by the extent of the 2008 profits downturn, as it was not till the 3rd and fourth quarters when it genuinely nosedived. Driving the crest of calendar year more than year market progress across the nation and the availability of ample credit and equity cash, new construction and growth proliferated in modern many years. Nowadays, faced with the realities of declining, or at greatest stagnant demand, a lot of of these tasks are now deemed over-leveraged and/or over-sized. As a consequence many gaming companies are trying to renegotiate their credit card debt – manufactured far more challenging by reduced valuations – even though also paring down operational costs. The latter has turn into a extremely problematic conundrum when working with the competitors, especially in individuals jurisdictions that are now vying for market place shares with new rising on line casino initiatives in neighboring places. A matter we discuss a lot more totally in the Point out by Condition analysis part of this publication.
As a outcome of these situations the gaming business landscape is now strewn with impending fatalities. Between the more notable troubled corporations are Station Casinos, Empire Resorts, Harrah’s Amusement, Greektown Holdings, Legends Gaming, Tropicana Amusement, Herbst Gaming and the checklist grows every single week.
“How long will these financial circumstances persist, and are we at the base however?” are concerns no 1 seems to be answering however. What is obvious however is that most gaming jurisdictions will have to discover how to offer with a smaller sized pie.
This examination includes only gaming revenues of licensed casinos and pari-mutuel shops that provide casino games, and not Indian gaming operations, card rooms, or tiny non-on line casino variety slot spots. The total write-up, which includes profits tables is offered on our web webpage.
A essential facet that seems to have arisen from the ashes of this current development is that many casino tasks have been just way too big to assist on their own. The enter, in phrases of expense pounds, was not proportional to the output, in terms of net income after financial debt service, in comparison to formerly achieved final results. Far more and/or bigger is not usually better. Looking at the rise in non-gaming income at the Las Vegas Strip resorts, gave impetus to the growth of far more comprehensive amenities in many other jurisdictions. The flaw in this technique even so is that the fees related with widening marketplace penetration and occasioned-use, are drastically higher than individuals incurred to draw in the foundation industry.
As daytripper markets grow to be far more aggressive, on line casino venues will have to depend far more and much more on their in-house resort patrons, and dimensions their homes (and expectations) appropriately. While Steve Wynn began a main development in producing up-market mega-locations, there just was not enough demand from customers on the Strip to warrant the several other comparable tasks that adopted that aimed at the identical specialized niche.
The trick is to strike a happy medium in project configurations which of course demand considerably less of a ‘seat-of-pants’ strategy, and one particular that is a lot more researched. A shameless plug for development consultants like ourselves.
Other Gaming Activities
Although there are no printed thorough knowledge of American Indian gaming revenues, anecdotal proof appears to suggest that this phase has been as tough strike as the Business sector. The two Connecticut Indian gaming installations report slot profits of $one.6 billion in 2008, symbolizing a fall of about seven percent, or nearly $114 million, much more than doubling the 3.five p.c drop from the calendar year just before. This industry is evidently still reeling from the ripple-impact of a casino expansion in Rhode Island, and the opening of slot operations in New York and Pennsylvania.
The Arizona Department of Gaming stories that contributions based mostly on a gaming profits formula from the state’s 23 Indian gaming casinos, have been declining each quarter in 2008 when compared to the prior yr decreasing .eight per cent in the initial quarter, 7.five percent in the next quarter, nine.5 % in the 3rd quarter, and sixteen.1 p.c in the fourth quarter.
Some SEC reporting Indian gaming homes report related decreases. Seneca Gaming, which operates 3 Class III casinos in upstate New York, reports that although calendar 12 months 2008 confirmed an virtually two % expansion rate in gaming revenues, there was an 8.seven per cent decline in the third quarter and an virtually 10 per cent drop in the fourth quarter of 2008, in comparison with 2007. oncapan.com Gaming revenue trends at nearby Niagara Falls, Ontario have been down 1.five% in 2008 in contrast with 2007.
It really is been a blended-bag for condition lotteries throughout the country. The North American Association of Condition & Provincial Lotteries studies that U.S. lotteries created a whole of $60.6 billion in income in fiscal 2008, up about 3 % from the earlier yr however some jurisdictions documented decreases, most notably California, which showed an 8 % fall. Inasmuch as some of these states are on a variety of fiscal yr ends, it would seem that the info does not mirror the affect of third and/or fourth quarter final results.
According to info supplied by Equibase, horse racing pari-mutuel revenues keep on their downward spiral, falling seven p.c to $thirteen.7 billion in 2008, vs . $fourteen.seven billion in 2007.
Prepared & Proposed New Expansions
As earlier noted, it has been new gaming jurisdictions that have spawned much of the progress in annual on line casino/racino revenues more than the several years, and their affect is apt to continue into the near potential.
Miami Dade voters authorized a ballot issue that makes it possible for each of 3 pari-mutuels to have a on line casino facility of up to two,000 slot equipment. The Flagler Dog Observe and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, although the Calder set up in Miami Gardens has however to introduced its strategies. There are numerous other proposals getting considered that would more increase on line casino advancement through the point out.
The state ultimately obtained around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Enjoyment, LLC for a one,200+ recreation casino positioned in Des Plaines just east of O’Hare. The new facility is not most likely to open till 2010. There has also been some discussion about permitting an boost in per area gaming positions and slots at racetracks, though neither initiative seems to have any traction at this time.
The state’s expanded lottery system that allows for the improvement of 4 casino gaming zones and slots at existing horse and dog tracks seems mired, as only 1 facility is presently below building, although a few other proposals had been rescinded. The only bidder on the Cherokee County contract, claimed it could not compete with the new Quapaw tribal casino in Oklahoma, which is located so shut to the point out line that its parking great deal is in Kansas. The Boot Hill On line casino Vacation resort in Dodge City is planing a December 2009 opening with 575 slots and 10 table video games, alongside with a 2nd stage because of to open up in 2011 with 875 slots and twenty table game titles. The condition has extended the application method for the other 3 zones right up until April, 2009.
There is nevertheless a whole lot of ‘jockeying’ likely on, but the prospect of as several as 8 slot parlors and racinos appears to be back again on the entrance-burner, but very likely not settled for the duration of the existing legislative session.
There are about 14,000 rooms scheduled to appear on line in 2009, with the most modern being the 390 room M Vacation resort in Henderson. There are expansions underway at equally Caesars Palace and Difficult Rock and new lodges contain two elements of the Town Middle project, and the Fountainebleau.
Pinnacle Entertainment’s new casino improvement projects in Baton Rouge and Lake Charles, whilst delayed, are documented to still be on-keep track of for opening this 12 months and/or early 2010.
There is a bill underneath thought that could more than double Penn National’s slot equipment to 3,000, as nicely as a proposal that would get rid of the restriction that slots be positioned inside of five miles of the track. Scarborough Downs, which has been unsuccessful in convincing regional citizens to let slots, might be taking into consideration relocating to a far more hospitable city.
A referendum was accredited in November, 2008 that allows for the development of five casinos with a complete of 15,000 slots, and now the bidding war is afoot although it is not as extreme as the state had predicted.
Grand Soleil On line casino Vacation resort in Natchez had been slated to open up in 2008, but has operate into numerous funding problems and while the resort portion is open, the riverboat is described to open in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, although scaled again somewhat, is still on observe to open up this calendar year.
Massachusetts, a sleeping-giant in conditions of market likely, is nevertheless maneuvering to open up casinos/racinos, and/or a Course III Indian gaming facility, but cannot seem to muster the political assistance. A latest study accomplished by Dartmouth College estimates that Massachusetts resident put in more than $920 million very last year at Connecticut casinos and slot equipment parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an alternative to develop casinos, however the subject is probably to be revisited, particularly if Massachusetts decides to go forward. There are also attempts in Maine to rethink its possibilities.
Atlantic City’s casinos have imposed their political will on staving off the addition of slot equipment at racetracks by just lately agreeing to carry on augmenting purses with an further tax. The governor however, has appointed a new panel to review the state’s sagging racing plan which ironically, can only be preserved by permitting the tracks to have slot devices specifically at the Meadowlands. (See The Nor’easter Squeeze area)
Just when it appeared as if Aqueduct’s 4,five hundred VLT facility would finally be created, the winning bidder indicated an incapacity to make the needed $370 million fee, citing the present lending weather, and throwing the venture back again into the lap of the governor. Although the market desire in the spot could be regarded fairly strong, the prospect of further competitors from close by Belmont could have an influence on Aqueduct’s underlining financial feasibility, specifically contemplating that a bit much less than thirty% of the net get is retained by the operator.
Plans to relocate Monticello Raceway into a resort sophisticated are currently being reconsidered perhaps owing to each the possible opening of at least one or perhaps two racino operations in the NY metro location, and the resurfacing of initiatives to development a Class III Indian gaming facility in the Catskills.
But another gaming proposal is being place forth in Ohio, soon after previous year’s model was turned down by the voters. This program calls for 1 casino every single in the state’s largest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a least investment necessary of $250 million, as well as an first licensing fee of $fifty million, and a 33 p.c tax on gaming earnings.
The Sands in Bethlehem is because of to open up in the Spring of ’09, and the new Rivers venture in Pittsburgh is predicted to be operational in August, ’09 although Philadelphia’s two slot amenities still wallow in a political mire, but are predicted to start off building this year.
The Lodge at Deadwood is slated to open in the Drop of 2009, and include three hundred game titles, a hundred and forty rooms and a vast selection of facilities.
Legislators are proposing a voter referendum that would amend the point out structure to enable casino gambling in designated areas, as effectively as enable gambling on American Indian lands in Texas and at current racetracks.
The Greenbriar, the state’s venerable resort facility has submitted for individual bankruptcy, but has a new suitor in Marriott Accommodations, who have reportedly tendered an provide. Condition federal government has proffered the notion of making it possible for the resort to supply on line casino games, but this effort is in as well early a phase to have any traction 1 way or another.
A modern Supreme Court ruling that restricts the having of lands into have faith in on behalf of federally acknowledged American Indian tribes has additional stymied some new Course III gaming assignments across the nation. Furthermore, there had been eleven Indian casino assignments turned down by the DOI previous yr simply because of its new rule that casinos need to be in close proximity to enough to a reservation that tribal members can function at them. It has been suggested that the new Obama administration may possibly be more sympathetic to the development of Indian gaming assignments, but this issue has however to be addressed.
In the meantime, there are other Class III projects in the numerous stages of growth. The Seneca casino task in Buffalo, NY, while operating a modest temporary facility, has delayed an presently under construction long term facility until finally the industry rebounds. They have also expressed an fascination in establishing a casino in the Catskills. The point out gaming compact with Seminoles in Florida is becoming challenged, and could effect their ideas for larger initiatives. There are new Indian gaming tasks set to open up in Michigan and Oklahoma this year, and other folks are in the arranging phase. Texas could allow the reopening of Indian gaming services and permit other venue and there are ideas afoot by the Navajos in Arizona to construct additional casinos. California is poised to open up two to a few new Course III casinos in 2009/10.
The Nor’easter Squeeze
Complete gaming revenue in Atlantic Metropolis has declined seven.6 p.c, from $four.9 billion in 2007 to $4.five billion in 2008 with decreases continuing into 2009, as the town is obtaining by itself in an powerful comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast had been positioned in Atlantic Metropolis, the place it appeared as if it might really even eclipse the Las Vegas Strip’s annual gaming revenues.
Gradually nonetheless its marketplace share was being encroached upon, very first by the growth of a huge Course III gaming procedure 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 lately 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 close to Atlantic City’s long term potential customers. It’s reliance on day-trippers lulled it into a bogus feeling of security, and it now finds itself possessing to redefine its mission assertion to “location vacation resort.”
The only problem with this strategy nevertheless is that it is unwell-equipped to pull it off. For all intents and purposes, Atlantic Metropolis is below-roomed and/or more than-gamed. There is merely not ample day-tripper market to go around, and their successful investing region is tightening, as the peripheral populations northward now/will have far more all set accessibility to a widened supply in New York (Yonkers, and quickly 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 real competitive rewards are its resort capability and the availability of desk games, though the latter is most likely to eventuate in Pennsylvania, and perhaps Delaware. In buy to adequately compete as a vacation spot resort the city demands to build further guest rooms and not automatically gaming ability. By comparison, the Las Vegas Strip qualities – real gaming locations, in that they do not have a lot of a day-journey marketplace, besides for the ‘locals’ – have an regular of .87 gaming positions for every visitor place while Atlantic City’s common is two.74 positions for each guest place.
It is not a coincidence that Atlantic City’s two premier accommodations, the Borgata and Harrah’s Marina, each of which additional new rooms in 2008, were the the very least impacted by the most recent downturn. The Borgata experienced a gaming revenue fall of 1.6 p.c, although Harrah’s Marina noted a 4.nine percent enhance compared to 2007. In addition, 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, including the the Trump qualities and Resorts with the hoped for sale of the Tropicana has been further delayed, and losing valuation.
With a constant increase in gaming revenues via 2006, the metropolis appeared primary for even more advancement, which precipitated preparing for 4 new vacation resort tasks, every single of which have now been indefinitely delayed. Revel Enjoyment Group’s $2.five billion venture remains an iron skeleton, Pinnacle Entertainment has declared it might seek to promote its razed Sands internet site, MGM Mirage has shelved its on line casino strategies, and Penn Nationwide seems to have stopped its pursuit of the Bader Subject airport site.