National Industrial Gambling casino and Racino Games Earnings Examination

A Period of Adjustment

Oops! That giant hissing seem is the gaming balloon that experienced been expanding more than the years, slowly shedding air. But, it has not been a tide that decreased all ships however, as some rising and growing gaming jurisdictions showed sturdy progress in 2008.

All round, the commercial and racetrack casino sectors (excluding Indian gaming), experienced a 3.5 percent drop in gaming revenues for 2008, making a whole of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they confirmed a obtain of nearly $one billion in 2008, thus bringing the Industrial sector industry decrease to $one.eight billion, or per cent. Nevada was the biggest loser in 2008, dropping almost $one.3 billion, more than fifty percent of which stemmed from the Las Vegas Strip phase.

Hunkering Down

For the most portion, casino operators had been caught relatively flat-footed by the extent of the 2008 earnings downturn, as it was not until finally the third and fourth quarters when it genuinely nosedived. Using the crest of yr over yr market growth across the nation and the availability of enough credit score and equity cash, new construction and growth proliferated in modern a long time. Today, confronted with the realities of declining, or at best stagnant demand from customers, several of these tasks are now regarded above-leveraged and/or above-sized. As a result a lot of gaming organizations are attempting to renegotiate their debt – created a lot more challenging by decrease valuations – even though also paring down operational fees. The latter has become a quite problematic conundrum when dealing with the opposition, specifically in people jurisdictions that are now vying for market place shares with new emerging on line casino tasks in neighboring locations. A subject matter we examine a lot more entirely in the State by State investigation segment of this publication.

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

“How lengthy will these financial situations persist, and are we at the bottom however?” are inquiries no one seems to be answering yet. What is very clear nevertheless is that most gaming jurisdictions will have to find out how to deal with a scaled-down pie.

This examination involves only gaming revenues of certified casinos and pari-mutuel retailers that provide on line casino video games, and not Indian gaming operations, card rooms, or modest non-on line casino sort slot spots. The whole article, which includes earnings tables is obtainable on our world wide web webpage.

Enter/Output Design

A key aspect that looks to have arisen from the ashes of this existing pattern is that several on line casino projects were just too large to help by themselves. The enter, in terms of investment bucks, was not proportional to the output, in conditions of net profit after personal debt support, in comparison to beforehand reached final results. More and/or bigger is not constantly better. Looking at the increase in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the growth of much more extensive features in many other jurisdictions. The flaw in this technique nonetheless is that the fees related with widening market penetration and occasioned-use, are significantly increased than individuals incurred to appeal to the foundation market place.

As daytripper marketplaces turn into far more competitive, on line casino venues will have to count a lot more and far more on their in-house resort patrons, and dimension their houses (and anticipations) accordingly. Even though Steve Wynn started a main craze in producing up-market mega-places, there basically was not enough need on the Strip to warrant the many other similar projects that adopted that aimed at the identical market.

The trick is to strike a content medium in task configurations which of system call for much less of a ‘seat-of-pants’ approach, and one particular that is far more examined. A shameless plug for growth consultants like ourselves.

Other Gaming Activities

Although there are no published in depth data of American Indian gaming revenues, anecdotal proof appears to propose that this section has been as challenging hit as the Professional sector. The two Connecticut Indian gaming installations report slot profits of $1.six billion in 2008, symbolizing a fall of about 7 %, or virtually $114 million, far more than doubling the three.5 per cent fall from the yr just before. This marketplace is apparently nonetheless reeling from the ripple-effect of a on line casino enlargement in Rhode Island, and the opening of slot operations in New York and Pennsylvania.

The Arizona Office of Gaming reports that contributions based mostly on a gaming revenue formula from the state’s 23 Indian gaming casinos, have been declining every single quarter in 2008 when compared to the preceding yr decreasing .8 % in the very first quarter, seven.5 percent in the 2nd quarter, nine.five per cent in the 3rd quarter, and 16.1 per cent in the fourth quarter.

Some SEC reporting Indian gaming homes report related decreases. Seneca Gaming, which operates three Course III casinos in upstate New York, stories that even though calendar 12 months 2008 confirmed an nearly 2 % growth fee in gaming revenues, there was an 8.7 per cent decline in the third quarter and an nearly 10 % decline in the fourth quarter of 2008, when compared with 2007. Gaming earnings traits at close by Niagara Falls, Ontario have been down 1.five% in 2008 when compared with 2007.

It really is been a combined-bag for state lotteries across the country. The North American Association of Point out & Provincial Lotteries reports that U.S. lotteries generated a complete of $sixty.6 billion in revenue in fiscal 2008, up about 3 per cent from the earlier calendar year nevertheless some jurisdictions described decreases, most notably California, which showed an 8 percent drop. Inasmuch as some of these states are on different fiscal calendar year finishes, it would look that the information does not mirror the influence of 3rd and/or fourth quarter benefits.

According to information presented by Equibase, horse racing pari-mutuel revenues continue their downward spiral, slipping seven % to $ billion in 2008, versus $14.7 billion in 2007.

Prepared & Proposed New Expansions

As formerly observed, it has been new gaming jurisdictions that have spawned considerably of the progress in annual on line casino/racino revenues over the several years, and their impact is apt to carry on into the near future.

Miami Dade voters approved a ballot situation that allows every single of a few pari-mutuels to have a on line casino facility of up to two,000 slot equipment. The Flagler Canine Keep track of and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, whilst the Calder set up in Miami Gardens has yet to introduced its plans. There are several other proposals being deemed that would additional expand on line casino growth all through the point out. got close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Leisure, LLC for a 1,200+ recreation on line casino situated in Des Plaines just east of O’Hare. The new facility is not likely to open until finally 2010. There has also been some dialogue about enabling an improve in per location gaming positions and slots at racetracks, despite the fact that neither initiative appears to have any traction at this time.

The state’s expanded lottery software that enables for the growth of 4 casino gaming zones and slots at present horse and dog tracks appears mired, as only a single facility is presently beneath development, even though three other proposals were rescinded. The only bidder on the Cherokee County contract, claimed it could not contend with the new Quapaw tribal on line casino in Oklahoma, which is situated so shut to the state 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 table game titles, alongside with a second phase due to open in 2011 with 875 slots and twenty table video games. The state has prolonged the application process for the other a few zones right up until April, 2009.

There is even now a whole lot of ‘jockeying’ likely on, but the prospect of as a lot of as eight slot parlors and racinos seems to be back again on the entrance-burner, but likely not solved during the recent legislative session.

Las Vegas
There are about 14,000 rooms scheduled to occur on line in 2009, with the most latest currently being the 390 space M Resort in Henderson. There are expansions underway at the two Caesars Palace and Tough Rock and new accommodations contain two factors of the City Center project, and the Fountainebleau.

Pinnacle Entertainment’s new on line casino improvement projects in Baton Rouge and Lake Charles, while delayed, are described to still be on-monitor for opening this calendar year and/or early 2010.

There is a bill below consideration that could far more than double Penn National’s slot devices to 3,000, as nicely as a proposal that would remove the restriction that slots be located in 5 miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing local residents to permit slots, might be taking into consideration relocating to a much more hospitable town.

A referendum was accepted in November, 2008 that permits for the growth of five casinos with a total of 15,000 slots, and now the bidding war is afoot even though it is not as powerful as the condition experienced predicted.

Grand Soleil On line casino Vacation resort in Natchez experienced been slated to open in 2008, but has run into different financing troubles and whilst the resort part is open, the riverboat is documented to open in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, even though scaled back relatively, is even now on track to open up this year.

New England
Massachusetts, a sleeping-giant in terms of marketplace potential, is nevertheless maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but can’t look to muster the political support. A latest study concluded by Dartmouth University estimates that Massachusetts resident put in much more than $920 million last calendar year at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature just lately declined an option to create casinos, nonetheless the subject is probably to be revisited, specifically if Massachusetts decides to go ahead. There are also tries in Maine to rethink its possibilities.

New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot devices at racetracks by not too long ago agreeing to carry on 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 making it possible for the tracks to have slot machines particularly at the Meadowlands. (See The Nor’easter Squeeze segment)

New York
Just when it looked as if Aqueduct’s 4,500 VLT facility would lastly be developed, the profitable bidder indicated an lack of ability to make the essential $370 million charge, citing the existing lending climate, and throwing the project back again into the lap of the governor. Although the marketplace demand from customers in the region could be regarded quite sturdy, the prospect of added competitiveness from nearby Belmont could have an impact on Aqueduct’s underlining financial feasibility, especially considering that somewhat significantly less than 30% of the internet earn is retained by the operator.

Programs to relocate Monticello Raceway into a vacation resort sophisticated are becoming reconsidered maybe owing to each the probable opening of at minimum a single or probably two racino functions in the NY metro location, and the resurfacing of initiatives to development a Course III Indian gaming facility in the Catskills.

Yet an additional gaming proposal is getting put forth in Ohio, right after very last year’s edition was turned down by the voters. This prepare calls for 1 on line casino every in the state’s largest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimum investment necessary of $250 million, as nicely as an preliminary licensing charge of $50 million, and a 33 per cent tax on gaming earnings.

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

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

Legislators are proposing a voter referendum that would amend the state structure to let on line casino gambling in selected places, as properly as permit gambling on American Indian lands in Texas and at existing racetracks.

West Virginia
The Greenbriar, the state’s venerable resort facility has submitted for personal bankruptcy, but has a new suitor in Marriott Lodges, who have reportedly tendered an provide. State govt has proffered the idea of making it possible for the resort to provide on line casino video games, but this hard work is in too early a phase to have any traction one particular way or one more.

Indian Gaming
A modern Supreme Courtroom ruling that restricts the getting of lands into believe in on behalf of federally acknowledged American Indian tribes has even more stymied some new Class III gaming assignments across the country. Additionally, there had been eleven Indian casino initiatives rejected by the DOI last calendar year due to the fact of its new rule that casinos need to be close to ample to a reservation that tribal customers can perform at them. It has been suggested that the new Obama administration may well be much more sympathetic to the development of Indian gaming initiatives, but this issue has nevertheless to be resolved.

Meanwhile, there are other Class III assignments in the different phases of advancement. The Seneca casino task in Buffalo, NY, while functioning a little short-term facility, has delayed an presently underneath construction long term facility till the marketplace rebounds. They have also expressed an desire in creating a on line casino in the Catskills. The state gaming compact with Seminoles in Florida is being challenged, and could impact their strategies for more substantial initiatives. There are new Indian gaming initiatives set to open in Michigan and Oklahoma this year, and other people are in the organizing phase. Texas could permit the reopening of Indian gaming amenities and permit other location and there are plans afoot by the Navajos in Arizona to build further casinos. California is poised to open two to a few new Class III casinos in 2009/10.

The Nor’easter Squeeze

Complete gaming earnings in Atlantic Town has declined seven.six p.c, from $4.nine billion in 2007 to $four.5 billion in 2008 with decreases continuing into 2009, as the city is finding itself in an extreme comp-war with the Pennsylvania venues. At a single time the only casinos in the Northeast were found in Atlantic City, the place it appeared as if it may well in fact even eclipse the Las Vegas Strip’s once-a-year gaming revenues.

Slowly however its marketplace share was currently being encroached on, first by the improvement of a massive Class III gaming procedure in Connecticut, and then yet another slots functions in Rhode Island, and then 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 on line casino in Bethlehem, PA, and eventually two operations in Philadelphia, the noose is tightening around Atlantic City’s foreseeable future potential clients. It is reliance on working day-trippers lulled it into a false sense of stability, and it now finds itself having to redefine its mission statement to “destination resort.”

The only dilemma with this method nevertheless is that it is sick-geared up to pull it off. For all intents and reasons, Atlantic Town is below-roomed and/or in excess of-gamed. There is simply not ample day-tripper market to go all around, and their efficient buying and selling location is tightening, as the peripheral populations northward now/will have a lot more all set obtain to a widened offer in New York (Yonkers, and before long at Aqueduct and perhaps Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean entry, the city’s only genuine aggressive positive aspects are its hotel potential and the availability of table video games, despite the fact that the latter is likely to eventuate in Pennsylvania, and perhaps Delaware. In get to sufficiently compete as a vacation spot resort the city needs to produce extra visitor rooms and not automatically gaming ability. By comparison, the Las Vegas Strip qualities – accurate gaming locations, in that they do not have a lot of a working day-trip market place, other than for the ‘locals’ – have an regular of .87 gaming positions for each guest place although Atlantic City’s regular is 2.seventy four positions for each guest area.

It is not a coincidence that Atlantic City’s two premier lodges, the Borgata and Harrah’s Marina, both of which added new rooms in 2008, have been the minimum impacted by the most recent downturn. The Borgata seasoned a gaming income fall of 1.6 p.c, whilst Harrah’s Marina described a four.nine % enhance in contrast to 2007. Moreover, the most difficult hit venues, namely the AC Hilton, Resorts and the Trump Marina, also have the smallest variety 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 further delayed, and shedding valuation.

With a regular rise in gaming revenues by way of 2006, the town seemed prime for additional growth, which precipitated preparing for four new resort initiatives, each and every of which have now been indefinitely delayed. Revel Leisure Group’s $2.five billion project continues to be an iron skeleton, Pinnacle Enjoyment has declared it might look for to promote its razed Sands website, MGM Mirage has shelved its casino programs, and Penn Countrywide appears to have stopped its pursuit of the Bader Area airport internet site.

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