2008 National Industrial Casino & Racino Games Earnings Analysis

A Interval of Adjustment

Oops! That huge hissing audio is the gaming balloon that had been developing over the a long time, slowly getting rid of air. But, it has not been a tide that lowered all ships nevertheless, as some emerging and growing gaming jurisdictions confirmed strong progress in 2008.

Total, the commercial and racetrack casino sectors (excluding Indian gaming), experienced a three.five per cent 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 fall, as they confirmed a acquire of almost $1 billion in 2008, thus bringing the Commercial sector marketplace drop to $one.8 billion, or 6.7 %. Nevada was the biggest loser in 2008, dropping almost $one.three billion, a lot more than half of which stemmed from the Las Vegas Strip section.

Hunkering Down

For the most portion, casino operators were caught fairly flat-footed by the extent of the 2008 profits downturn, as it was not until the third and fourth quarters when it actually nosedived. Riding the crest of yr above year market progress across the country and the availability of sufficient credit score and equity resources, new construction and expansion proliferated in latest several years. Nowadays, faced with the realities of declining, or at ideal stagnant demand, many of these projects are now deemed above-leveraged and/or above-sized. As a outcome numerous gaming businesses are making an attempt to renegotiate their credit card debt – manufactured more hard by reduce valuations – while also paring down operational fees. The latter has turn into a extremely problematic conundrum when working with the competitors, particularly in those jurisdictions that are now vying for marketplace shares with new emerging casino assignments in neighboring regions. A topic we go over more totally in the Point out by Point out examination section of this publication.

As a end result of these problems the gaming market landscape is now strewn with impending fatalities. Among the much more notable troubled corporations are Station Casinos, Empire Resorts, Harrah’s Leisure, Greektown Holdings, Legends Gaming, Tropicana Leisure, Herbst Gaming and the checklist grows each 7 days.

“How prolonged will these financial problems persist, and are we at the base yet?” are inquiries no one appears to be answering nevertheless. What is clear nonetheless is that most gaming jurisdictions will have to learn how to deal with a smaller pie.

This evaluation includes only gaming revenues of certified casinos and pari-mutuel stores that offer on line casino games, and not Indian gaming functions, card rooms, or tiny non-on line casino kind slot spots. The entire write-up, including earnings tables is obtainable on our web website page.

Input/Output Design

A crucial factor that would seem to have arisen from the ashes of this existing craze is that numerous on line casino assignments ended up just way too massive to help by themselves. The enter, in conditions of expenditure bucks, was not proportional to the output, in terms of internet profit soon after debt service, in comparison to beforehand attained outcomes. A lot more and/or even bigger is not usually greater. Viewing the rise in non-gaming income at the Las Vegas Strip resorts, gave impetus to the development of much more extensive amenities in many other jurisdictions. The flaw in this technique nonetheless is that the expenses linked with widening industry penetration and occasioned-use, are significantly higher than these incurred to attract the base marketplace.

As daytripper marketplaces become more competitive, casino venues will have to rely a lot more and more on their in-property lodge patrons, and measurement their houses (and expectations) accordingly. Although Steve Wynn started a main pattern in making up-market mega-places, there merely was not sufficient desire on the Strip to warrant the a lot of other related projects that followed that aimed at the same market.

The trick is to strike a pleased medium in project configurations which of course need considerably less of a ‘seat-of-pants’ method, and a single that is much more studied. A shameless plug for growth consultants like ourselves.

Other Gaming Activities

Despite the fact that there are no revealed comprehensive knowledge of American Indian gaming revenues, anecdotal proof seems to recommend that this segment has been as hard strike as the Commercial sector. The two Connecticut Indian gaming installations report slot profits of $1.six billion in 2008, representing a fall of about 7 per cent, or nearly $114 million, far more than doubling the three.5 percent fall from the 12 months before. This market is evidently 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 Section of Gaming studies that contributions dependent on a gaming income formula from the state’s 23 Indian gaming casinos, have been declining each and every quarter in 2008 in contrast to the prior calendar year decreasing .eight % in the very first quarter, seven.five percent in the second quarter, 9.5 % in the third quarter, and 16.1 % in the fourth quarter.

Some SEC reporting Indian gaming properties report equivalent decreases. Seneca Gaming, which operates 3 Course III casinos in upstate New York, reviews that even though calendar calendar year 2008 showed an almost 2 p.c progress price in gaming revenues, there was an eight.7 % decrease in the 3rd quarter and an almost 10 % decrease in the fourth quarter of 2008, in contrast with 2007. Gaming income tendencies at nearby Niagara Falls, Ontario ended up down one.5% in 2008 in comparison with 2007.

It really is been a mixed-bag for state lotteries across the region. The North American Affiliation of Point out & Provincial Lotteries reviews that U.S. lotteries created a total of $60.6 billion in revenue in fiscal 2008, up about 3 p.c from the prior yr however some jurisdictions noted decreases, most notably California, which showed an eight p.c drop. Inasmuch as some of these states are on numerous fiscal year finishes, it would seem to be that the info does not reflect the affect of 3rd and/or fourth quarter final results.

According to information supplied by Equibase, horse racing pari-mutuel revenues carry on their downward spiral, slipping seven percent to $thirteen.7 billion in 2008, as opposed to $fourteen.7 billion in 2007.

Prepared & Proposed New Expansions

As earlier famous, it has been new gaming jurisdictions that have spawned much of the progress in yearly on line casino/racino revenues above the several years, and their influence is apt to keep on into the around future.

Miami Dade voters accepted a ballot concern that allows each of three pari-mutuels to have a casino facility of up to 2,000 slot machines. The Flagler Dog Keep track of and Miami Jai-Alai are reportedly organizing opening in late 2009 or early 2010, even though the Calder set up in Miami Gardens has yet to declared its strategies. There are several other proposals currently being considered that would additional increase on line casino advancement all through the condition.

The state last but not least acquired close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Amusement, LLC for a one,two hundred+ match on line casino found in Des Plaines just east of O’Hare. The new facility is not likely to open up until finally 2010. There has also been some discussion about permitting an improve in for each area gaming positions and slots at racetracks, although neither initiative seems to have any traction at this time.

The state’s expanded lottery plan that enables for the development of 4 casino gaming zones and slots at present horse and puppy tracks appears mired, as only a single facility is presently below design, even though three other proposals ended up rescinded. The only bidder on the Cherokee County agreement, claimed it could not compete with the new Quapaw tribal casino in Oklahoma, which is positioned so close to the point out line that its parking great deal is in Kansas. The Boot Hill On line casino Resort in Dodge City is planing a December 2009 opening with 575 slots and ten desk games, along with a second period owing to open up in 2011 with 875 slots and twenty table games. The point out has extended the software approach for the other 3 zones right up until April, 2009.

There is nonetheless a good deal of ‘jockeying’ heading on, but the prospect of as many as eight slot parlors and racinos appears to be back on the front-burner, but most likely not solved throughout the present legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to come on line in 2009, with the most recent getting the 390 place M Vacation resort in Henderson. There are expansions underway at both Caesars Palace and Tough Rock and new hotels incorporate two factors of the City Middle venture, and the Fountainebleau.

Pinnacle Entertainment’s new on line casino development assignments in Baton Rouge and Lake Charles, while delayed, are noted to even now be on-track for opening this year and/or early 2010.

There is a invoice underneath thought that could a lot more than double Penn National’s slot devices to three,000, as well as a proposal that would take away the restriction that slots be situated inside of five miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing regional inhabitants to permit slots, might be taking into consideration shifting to a more hospitable town.

A referendum was authorized in November, 2008 that permits for the growth of five casinos with a whole of fifteen,000 slots, and now the bidding war is afoot although it is not as powerful as the state experienced anticipated.

Grand Soleil On line casino Resort in Natchez experienced been slated to open up in 2008, but has operate into various funding issues and although the lodge portion is open, the riverboat is reported to open up in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, although scaled back again somewhat, is still on track to open up this year.

New England
Massachusetts, a sleeping-large in conditions of industry likely, is even now maneuvering to open casinos/racinos, and/or a Course III Indian gaming facility, but cannot look to muster the political assist. A modern examine completed by Dartmouth University estimates that Massachusetts resident expended more than $920 million final yr at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature not too long ago declined an choice to create casinos, however the topic is likely to be revisited, specially if Massachusetts decides to go forward. There are also attempts in Maine to reconsider its options.

New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot machines at racetracks by recently agreeing to proceed augmenting purses with an extra tax. The governor even so, has appointed a new panel to examine the state’s sagging racing plan which ironically, can only be preserved by enabling the tracks to have slot devices specially at the Meadowlands. (See The Nor’easter Squeeze area)

New York
Just when it looked as if Aqueduct’s 4,five hundred VLT facility would last but not least be designed, the winning bidder indicated an incapacity to make the needed $370 million fee, citing the current lending climate, and throwing the project back into the lap of the governor. Even though the market desire in the spot could be considered quite strong, the prospect of extra competition from close by Belmont could have an influence on Aqueduct’s underlining financial feasibility, particularly considering that somewhat significantly less than 30% of the web win is retained by the operator.

Programs to relocate Monticello Raceway into a resort intricate are currently being reconsidered perhaps owing to the two the probable opening of at least one particular or perhaps two racino functions in the NY metro spot, and the resurfacing of initiatives to growth a Class III Indian gaming facility in the Catskills.

Nevertheless an additional gaming proposal is being place forth in Ohio, soon after final year’s model was turned down by the voters. This plan calls for a single on line casino each in the state’s greatest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a bare minimum investment decision essential of $250 million, as properly as an original licensing price of $fifty million, and a 33 per cent tax on gaming income.

The Sands in Bethlehem is thanks to open up in the Spring of ’09, and the new Rivers project in Pittsburgh is envisioned to be operational in August, ’09 although Philadelphia’s two slot services even now wallow in a political mire, but are predicted to begin construction this year.

South Dakota
The Lodge at Deadwood is slated to open up in the Fall of 2009, and contain 300 video games, a hundred and forty rooms and a extensive range of amenities.

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

West Virginia
The Greenbriar, the state’s venerable resort facility has submitted for individual bankruptcy, but has a new suitor in Marriott Hotels, who have reportedly tendered an offer you. Point out federal government has proffered the idea of allowing the vacation resort to provide on line casino online games, but this effort is in way too early a stage to have any traction a single way or another.

Indian Gaming
A modern Supreme Courtroom ruling that restricts the taking of lands into trust on behalf of federally identified American Indian tribes has even more stymied some new Course III gaming assignments across the region. Additionally, there have been eleven Indian casino projects turned down by the DOI final yr due to the fact of its new rule that casinos should be around sufficient to a reservation that tribal associates can work at them. It has been recommended that the new Obama administration may well be much more sympathetic to the improvement of Indian gaming assignments, but this concern has but to be dealt with.

Meanwhile, there are other Course III assignments in the various stages of development. The Seneca casino task in Buffalo, NY, while operating a modest momentary facility, has delayed an currently underneath development everlasting facility until finally the industry rebounds. They have also expressed an curiosity in building a casino in the Catskills. The point out gaming compact with Seminoles in Florida is currently being challenged, and could impact their strategies for greater projects. There are mpo777 login gaming projects established to open in Michigan and Oklahoma this 12 months, and other folks are in the planning stage. Texas might enable the reopening of Indian gaming amenities and enable other location and there are ideas afoot by the Navajos in Arizona to build added casinos. California is poised to open two to 3 new Course III casinos in 2009/ten.

The Nor’easter Squeeze

Total gaming income in Atlantic Town has declined 7.6 %, from $4.9 billion in 2007 to $4.five billion in 2008 with decreases continuing into 2009, as the metropolis is obtaining by itself in an intense comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast have been positioned in Atlantic Metropolis, in which it appeared as if it might really even eclipse the Las Vegas Strip’s annual gaming revenues.

Gradually however its market place share was becoming encroached upon, very first by the improvement of a big Course III gaming operation 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 just lately Pennsylvania.

Now, with the prepared opening of slot functions in Maryland, the impending opening of a new casino in Bethlehem, PA, and at some point two functions in Philadelphia, the noose is tightening about Atlantic City’s long term prospective customers. It truly is reliance on day-trippers lulled it into a untrue feeling of protection, and it now finds alone obtaining to redefine its mission assertion to “vacation spot vacation resort.”

The only difficulty with this approach nonetheless is that it is ill-geared up to pull it off. For all intents and functions, Atlantic City is below-roomed and/or above-gamed. There is merely not sufficient day-tripper marketplace to go close to, and their efficient trading region is tightening, as the peripheral populations northward now/will have much more all set obtain to a widened offer in New York (Yonkers, and soon at Aqueduct and possibly Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean obtain, the city’s only real aggressive positive aspects are its hotel capacity and the availability of desk online games, though the latter is very likely to eventuate in Pennsylvania, and probably Delaware. In purchase to adequately contend as a location vacation resort the metropolis requirements to create additional guest rooms and not always gaming capability. By comparison, the Las Vegas Strip qualities – correct gaming places, in that they do not have a lot of a day-vacation market, other than for the ‘locals’ – have an average of .87 gaming positions for every guest space although Atlantic City’s regular is two.seventy four positions for each guest area.

It is not a coincidence that Atlantic City’s two biggest resorts, the Borgata and Harrah’s Marina, the two of which added new rooms in 2008, were the minimum impacted by the newest downturn. The Borgata skilled a gaming profits fall of one.six per cent, while Harrah’s Marina reported a 4.9 p.c enhance compared to 2007. Furthermore, the hardest hit venues, namely 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 properties and Resorts with the hoped for sale of the Tropicana has been further delayed, and losing valuation.

With a constant rise in gaming revenues by means of 2006, the city appeared primary for more advancement, which precipitated planning for 4 new vacation resort tasks, every single of which have now been indefinitely delayed. Revel Amusement Group’s $two.five billion project continues to be an iron skeleton, Pinnacle Entertainment has announced it may well look for to offer its razed Sands website, MGM Mirage has shelved its on line casino strategies, and Penn Countrywide seems to have stopped its pursuit of the Bader Field airport web site.

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