A Period of Adjustment

Oops! That large hissing sound is the gaming balloon that experienced been developing over the many years, little by little losing air. But, it has not been a tide that reduced all ships even so, as some emerging and expanding gaming jurisdictions showed robust progress in 2008.

Total, the professional and racetrack on line casino sectors (excluding Indian gaming), experienced a three.5 p.c decline in gaming revenues for 2008, creating a total of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they confirmed a obtain of virtually $one billion in 2008, therefore bringing the Professional sector market place drop to $1.8 billion, or 6.7 per cent. Nevada was the largest loser in 2008, dropping almost $one.3 billion, far more than 50 % of which stemmed from the Las Vegas Strip phase.

Hunkering Down

For the most element, casino operators have been caught reasonably flat-footed by the extent of the 2008 revenue downturn, as it was not until finally the third and fourth quarters when it genuinely nosedived. Riding the crest of 12 months in excess of 12 months industry development across the country and the availability of ample credit rating and fairness cash, new building and enlargement proliferated in modern several years. These days, faced with the realities of declining, or at best stagnant demand, several of these tasks are now regarded more than-leveraged and/or in excess of-sized. As a consequence a lot of gaming companies are making an attempt to renegotiate their credit card debt – produced more difficult by lower valuations – even though also paring down operational fees. The latter has become a very problematic conundrum when working with the opposition, specially in individuals jurisdictions that are now vying for industry shares with new rising on line casino initiatives in neighboring locations. A topic we talk about far more completely in the State by State investigation part of this publication.

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

“How prolonged will these financial problems persist, and are we at the base however?” are queries no one appears to be answering yet. What is very clear nonetheless is that most gaming jurisdictions will have to learn how to offer with a scaled-down pie.

Notice:
This analysis contains only gaming revenues of accredited casinos and pari-mutuel stores that supply casino online games, and not Indian gaming operations, card rooms, or tiny non-casino variety slot areas. The total post, which includes profits tables is accessible on our world wide web page.

Enter/Output Design

A key factor that looks to have arisen from the ashes of this existing pattern is that several casino assignments ended up just as well large to assistance on their own. The input, in conditions of investment decision bucks, was not proportional to the output, in phrases of internet profit after personal debt support, in contrast to earlier accomplished results. Far more and/or larger is not usually greater. Looking at the rise in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the development of far more extensive features in a lot of other jurisdictions. The flaw in this technique nonetheless is that the charges connected with widening industry penetration and occasioned-use, are significantly greater than people incurred to entice the base marketplace.

As daytripper marketplaces turn out to be far more competitive, on line casino venues will have to depend much more and much more on their in-property hotel patrons, and measurement their properties (and expectations) appropriately. Whilst Steve Wynn began a major development in generating up-industry mega-destinations, there just was not sufficient demand on the Strip to warrant the numerous other related assignments that adopted that aimed at the identical area of interest.

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

Other Gaming Activities

Even though there are no released thorough data of American Indian gaming revenues, anecdotal proof appears to suggest that this phase has been as challenging hit as the Commercial sector. The two Connecticut Indian gaming installations report slot profits of $1.6 billion in 2008, representing a drop of about 7 per cent, or practically $114 million, far more than doubling the 3.five p.c fall from the calendar year prior to. This market is seemingly nonetheless reeling from the ripple-effect of a casino enlargement in Rhode Island, and the opening of slot operations in New York and Pennsylvania.

The Arizona Department of Gaming reports that contributions dependent on a gaming income formula from the state’s 23 Indian gaming casinos, have been declining each quarter in 2008 in comparison to the earlier calendar year decreasing .eight p.c in the very first quarter, seven.5 % in the second quarter, nine.five per cent in the 3rd quarter, and sixteen.one p.c in the fourth quarter.

Some SEC reporting Indian gaming houses report similar decreases. Seneca Gaming, which operates 3 Class III casinos in upstate New York, studies that although calendar calendar year 2008 confirmed an practically 2 percent development price in gaming revenues, there was an 8.7 p.c decline in the 3rd quarter and an practically ten % decline in the fourth quarter of 2008, in comparison with 2007. Gaming revenue developments at close by Niagara Falls, Ontario had been down 1.5% in 2008 compared with 2007.

It really is been a mixed-bag for condition lotteries across the country. The North American Affiliation of State & Provincial Lotteries stories that U.S. lotteries created a overall of $60.six billion in revenue in fiscal 2008, up about three percent from the preceding 12 months nevertheless some jurisdictions documented decreases, most notably California, which confirmed an 8 per cent drop. Inasmuch as some of these states are on different fiscal 12 months finishes, it would seem to be that the info does not reflect the effect of third and/or fourth quarter outcomes.

In accordance to info offered by Equibase, horse racing pari-mutuel revenues continue their downward spiral, slipping seven p.c to $13.7 billion in 2008, vs . $fourteen.seven billion in 2007.

Planned & Proposed New Expansions

As earlier famous, it has been new gaming jurisdictions that have spawned significantly of the expansion in annual on line casino/racino revenues above the many years, and their effect is apt to keep on into the close to potential.

Florida
Miami Dade voters authorized a ballot concern that enables every single of a few pari-mutuels to have a casino facility of up to 2,000 slot machines. The Flagler Canine Monitor and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, whilst the Calder installation in Miami Gardens has nevertheless to announced its ideas. There are many other proposals currently being regarded that would additional expand casino advancement all through the state.

Illinois
The point out lastly acquired around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Enjoyment, LLC for a one,200+ game on line casino found in Des Plaines just east of O’Hare. The new facility is not probably to open until finally 2010. There has also been some discussion about making it possible for an increase in for every location gaming positions and slots at racetracks, although neither initiative seems to have any traction at this time.

Kansas
The state’s expanded lottery plan that allows for the growth of 4 casino gaming zones and slots at current horse and pet tracks appears mired, as only a single facility is presently under development, while three other proposals ended up 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 good 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 table video games, together with a next period because of to open up in 2011 with 875 slots and 20 table online games. The state has prolonged the application procedure for the other 3 zones until finally April, 2009.

Kentucky
There is even now a lot of ‘jockeying’ likely on, but the prospect of as several as eight slot parlors and racinos seems to be back again on the front-burner, but very likely not fixed in the course of the current legislative session.

Las Vegas
There are about 14,000 rooms scheduled to occur on line in 2009, with the most modern currently being the 390 room M Resort in Henderson. There are expansions underway at both Caesars Palace and Challenging Rock and new resorts include two components of the Town Heart project, and the Fountainebleau.

Louisiana
Pinnacle Entertainment’s new casino improvement tasks in Baton Rouge and Lake Charles, even though delayed, are noted to still be on-monitor for opening this 12 months and/or early 2010.

Maine
There is a bill under thing to consider that could more than double Penn National’s slot devices to three,000, as nicely as a proposal that would get rid of the restriction that slots be situated inside of 5 miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing nearby inhabitants to permit slots, could be thinking about transferring to a far more hospitable town.

Maryland
A referendum was authorized in November, 2008 that allows for the development of five casinos with a complete of fifteen,000 slots, and now the bidding war is afoot although it is not as intensive as the point out experienced expected.

Mississippi
Grand Soleil Casino Vacation resort in Natchez had been slated to open up in 2008, but has run into different funding concerns and whilst the resort part is open up, the riverboat is noted to open in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, even though scaled back relatively, is even now on observe to open this calendar year.

New England
Massachusetts, a sleeping-giant in phrases of marketplace prospective, is nevertheless maneuvering to open casinos/racinos, and/or a Course III Indian gaming facility, but can’t look to muster the political support. A latest study completed by Dartmouth University estimates that Massachusetts resident expended much more than $920 million last calendar year 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 subject matter is most likely to be revisited, particularly if Massachusetts decides to go forward. There are also tries in Maine to rethink its alternatives.

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

New York
Just when it appeared as if Aqueduct’s 4,five hundred VLT facility would finally be created, the successful bidder indicated an inability to make the essential $370 million price, citing the current lending local weather, and throwing the task back into the lap of the governor. Despite the fact that the marketplace demand from customers in the region could be regarded quite strong, the prospect of further competition from nearby Belmont could have an effect on Aqueduct’s underlining economic feasibility, specially taking into consideration that somewhat less than 30% of the web win is retained by the operator.

Programs to relocate Monticello Raceway into a vacation resort complicated are becoming reconsidered possibly owing to equally the probable opening of at least a single or maybe two racino functions in the NY metro location, and the resurfacing of initiatives to growth a Class III Indian gaming facility in the Catskills.

Ohio
Nevertheless yet another gaming proposal is getting put forth in Ohio, following last year’s variation was turned down by the voters. This strategy calls for a single on line casino each in the state’s biggest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimal expense essential of $250 million, as properly as an preliminary licensing price of $50 million, and a 33 % tax on gaming earnings.

Pennsylvania
The Sands in Bethlehem is because of to open in the Spring of ’09, and the new Rivers project in Pittsburgh is predicted to be operational in August, ’09 although Philadelphia’s two slot facilities even now wallow in a political mire, but are expected to commence construction this yr.

South Dakota
The Lodge at Deadwood is slated to open up in the Drop of 2009, and incorporate 300 games, 140 rooms and a extensive selection of amenities.

Texas
Legislators are proposing a voter referendum that would amend the point out structure to let on line casino gambling in designated regions, as properly as allow gambling on American Indian lands in Texas and at current 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 offer you. State government has proffered the idea of permitting the vacation resort to provide casino online games, but this energy is in as well early a phase to have any traction a single way or one more.

Indian Gaming
A modern Supreme Court docket ruling that restricts the using of lands into believe in on behalf of federally acknowledged American Indian tribes has even more stymied some new Course III gaming initiatives throughout the country. Furthermore, there ended up eleven Indian on line casino initiatives turned down by the DOI final calendar year simply because of its new rule that casinos should be close to enough to a reservation that tribal customers can function at them. It has been advised that the new Obama administration may possibly be more sympathetic to the improvement of Indian gaming initiatives, but this problem has but to be dealt with.

Meanwhile, there are other Course III projects in the different stages of advancement. The Seneca casino task in Buffalo, NY, although working a little short-term facility, has delayed an already underneath construction everlasting facility till the market rebounds. www.fishtonga.com have also expressed an interest in building a on line casino in the Catskills. The state gaming compact with Seminoles in Florida is currently being challenged, and could impact their plans for greater assignments. There are new Indian gaming assignments established to open in Michigan and Oklahoma this 12 months, and others are in the arranging phase. Texas may possibly let the reopening of Indian gaming facilities and allow other venue and there are plans afoot by the Navajos in Arizona to assemble extra casinos. California is poised to open up two to a few new Class III casinos in 2009/ten.

The Nor’easter Squeeze

Total gaming revenue in Atlantic Town has declined seven.6 %, from $4.9 billion in 2007 to $four.five 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 particular time the only casinos in the Northeast had been found in Atlantic Metropolis, where it looked as if it may well truly even eclipse the Las Vegas Strip’s yearly gaming revenues.

Slowly nevertheless its industry share was currently being encroached on, 1st by the advancement of a massive Course III gaming operation in Connecticut, and then yet another slots functions in Rhode Island, and then movie lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most recently Pennsylvania.

Now, with the prepared opening of slot operations in Maryland, the impending opening of a new casino in Bethlehem, PA, and at some point two functions in Philadelphia, the noose is tightening close to Atlantic City’s potential prospects. It’s reliance on working day-trippers lulled it into a fake feeling of protection, and it now finds itself obtaining to redefine its mission statement to “spot vacation resort.”

The only issue with this strategy nonetheless is that it is sick-equipped to pull it off. For all intents and functions, Atlantic City is beneath-roomed and/or in excess of-gamed. There is just not ample day-tripper industry to go all around, and their efficient investing area is tightening, as the peripheral populations northward now/will have more prepared access 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 genuine competitive benefits are its hotel ability and the availability of table video games, though the latter is probably to eventuate in Pennsylvania, and possibly Delaware. In purchase to adequately compete as a vacation spot vacation resort the town wants to build further visitor rooms and not essentially gaming capacity. By comparison, the Las Vegas Strip properties – real gaming destinations, in that they do not have considerably of a day-journey market place, besides for the ‘locals’ – have an average of .87 gaming positions for each visitor place whilst Atlantic City’s average is two.74 positions for each visitor area.

It is not a coincidence that Atlantic City’s two biggest accommodations, the Borgata and Harrah’s Marina, each of which included new rooms in 2008, were the least impacted by the most current downturn. The Borgata seasoned a gaming profits fall of one.6 per cent, whilst Harrah’s Marina described a four.9 p.c increase in contrast to 2007. In addition, 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 houses and Resorts with the hoped for sale of the Tropicana has been more delayed, and dropping valuation.

With a constant rise in gaming revenues via 2006, the city appeared primary for more improvement, which precipitated planning for 4 new vacation resort initiatives, every single of which have now been indefinitely delayed. Revel Enjoyment Group’s $two.five billion task stays an iron skeleton, Pinnacle Entertainment has announced it may well seek to sell its razed Sands web site, MGM Mirage has shelved its casino programs, and Penn Nationwide appears to have stopped its pursuit of the Bader Field airport website.