A Period of time of Adjustment

Oops! That large hissing sound is the gaming balloon that experienced been developing over the years, little by little shedding air. But, it has not been a tide that reduced all ships however, as some rising and increasing gaming jurisdictions confirmed powerful growth in 2008.

Total, the industrial and racetrack on line casino sectors (excluding Indian gaming), skilled a three.five p.c decrease 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 fall, as they confirmed a obtain of virtually $1 billion in 2008, therefore bringing the Commercial sector market place decline to $1.8 billion, or p.c. Nevada was the greatest loser in 2008, dropping nearly $1.3 billion, more than 50 percent of which stemmed from the Las Vegas Strip phase.

Hunkering Down

For the most portion, casino operators were caught reasonably flat-footed by the extent of the 2008 profits downturn, as it was not right up until the 3rd and fourth quarters when it truly nosedived. Driving the crest of year above calendar year market development across the region and the availability of enough credit history and fairness cash, new design and growth proliferated in modern a long time. Right now, confronted with the realities of declining, or at greatest stagnant demand, many of these projects are now considered above-leveraged and/or in excess of-sized. As a outcome numerous gaming companies are trying to renegotiate their debt – manufactured much more challenging by lower valuations – although also paring down operational expenses. The latter has become a extremely problematic conundrum when dealing with the opposition, specially in people jurisdictions that are now vying for market place shares with new emerging on line casino assignments in neighboring locations. A topic we discuss a lot more fully in the Condition by Condition investigation section of this publication.

As a consequence of these conditions the gaming industry landscape is now strewn with impending fatalities. Among the much more noteworthy troubled corporations are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Enjoyment, Herbst Gaming and the list grows every 7 days.

“How lengthy will these financial conditions persist, and are we at the base yet?” are concerns no 1 appears to be answering however. What is obvious however is that most gaming jurisdictions will have to learn how to offer with a smaller pie.

This analysis involves only gaming revenues of accredited casinos and pari-mutuel outlets that supply casino video games, and not Indian gaming operations, card rooms, or small non-casino kind slot spots. The whole report, including profits tables is accessible on our world wide web webpage.

Enter/Output Product

A crucial factor that looks to have arisen from the ashes of this recent craze is that a lot of on line casino initiatives were just also massive to help them selves. The enter, in phrases of expenditure bucks, was not proportional to the output, in conditions of net income after credit card debt service, compared to earlier accomplished results. Far more and/or even bigger is not usually better. Observing the increase in non-gaming income at the Las Vegas Strip resorts, gave impetus to the advancement of more thorough amenities in numerous other jurisdictions. The flaw in this approach even so is that the costs connected with widening market penetration and occasioned-use, are significantly greater than those incurred to entice the foundation market.

As daytripper markets become far more aggressive, casino venues will have to depend far more and far more on their in-residence lodge patrons, and dimensions their homes (and expectations) accordingly. While Steve Wynn commenced a key craze in producing up-industry mega-destinations, there simply was not enough demand on the Strip to warrant the many other equivalent initiatives that followed that aimed at the same area of interest.

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

Other Gaming Routines

Although there are no released thorough info of American Indian gaming revenues, anecdotal proof appears to recommend that this phase has been as tough hit as the Industrial sector. The two Connecticut Indian gaming installations report slot earnings of $1.six billion in 2008, symbolizing a drop of about seven p.c, or nearly $114 million, far more than doubling the three.five % fall from the yr ahead of. This market is evidently even now reeling from the ripple-effect of a on line casino expansion in Rhode Island, and the opening of slot operations in New York and Pennsylvania.

The Arizona Office of Gaming studies that contributions based on a gaming profits system from the state’s 23 Indian gaming casinos, have been declining every quarter in 2008 in comparison to the earlier year reducing .eight percent in the 1st quarter, 7.5 p.c in the 2nd quarter, nine.5 p.c in the 3rd quarter, and p.c in the fourth quarter.

Some SEC reporting Indian gaming qualities report equivalent decreases. Seneca Gaming, which operates a few Course III casinos in upstate New York, stories that while calendar yr 2008 confirmed an nearly 2 percent growth fee in gaming revenues, there was an per cent decline in the 3rd quarter and an nearly ten p.c decrease in the fourth quarter of 2008, when compared with 2007. Gaming earnings trends at close by Niagara Falls, Ontario have been down 1.5% in 2008 compared with 2007.

It’s been a mixed-bag for point out lotteries throughout the country. The North American Affiliation of State & Provincial Lotteries reports that U.S. lotteries produced a overall of $60.six billion in revenue in fiscal 2008, up about 3 percent from the earlier yr but some jurisdictions described decreases, most notably California, which confirmed an 8 p.c drop. Inasmuch as some of these states are on numerous fiscal year ends, it would seem to be that the information does not replicate the effect of third and/or fourth quarter benefits.

In accordance to data presented by Equibase, horse racing pari-mutuel revenues proceed their downward spiral, falling seven per cent to $thirteen.7 billion in 2008, vs . $fourteen.7 billion in 2007.

Prepared & Proposed New Expansions

As earlier mentioned, it has been new gaming jurisdictions that have spawned significantly of the progress in once-a-year casino/racino revenues above the a long time, and their effect is apt to proceed into the near foreseeable future.

Miami Dade voters authorized a ballot problem that permits every single of three pari-mutuels to have a casino facility of up to 2,000 slot equipment. The Flagler Canine Observe and Miami Jai-Alai are reportedly organizing opening in late 2009 or early 2010, even though the Calder set up in Miami Gardens has nevertheless to introduced its programs. There are quite a few other proposals becoming regarded that would further expand casino growth through the point out.

The point out last but not least received all around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Enjoyment, LLC for a one,200+ match on line casino located in Des Plaines just east of O’Hare. The new facility is not very likely to open till 2010. There has also been some dialogue about enabling an increase in per spot gaming positions and slots at racetracks, despite the fact that neither initiative seems to have any traction at this time.

The state’s expanded lottery software that makes it possible for for the growth of four on line casino gaming zones and slots at present horse and canine tracks appears mired, as only 1 facility is presently under development, whilst 3 other proposals had been rescinded. The only bidder on the Cherokee County deal, claimed it could not compete with the new Quapaw tribal on line casino in Oklahoma, which is situated so near to the point out line that its parking good deal is in Kansas. The Boot Hill Casino Resort in Dodge Metropolis is planing a December 2009 opening with 575 slots and 10 desk online games, along with a second section because of to open in 2011 with 875 slots and 20 table games. The state has prolonged the software procedure for the other a few zones until finally April, 2009.

There is even now a lot of ‘jockeying’ heading on, but the prospect of as many as eight slot parlors and racinos seems to be back on the entrance-burner, but likely not resolved in the course of the existing legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to appear on line in 2009, with the most latest currently being the 390 room M Vacation resort in Henderson. There are expansions underway at both Caesars Palace and Challenging Rock and new lodges include two parts of the Town Center venture, and the Fountainebleau.

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

There is a bill beneath thing to consider that could more than double Penn National’s slot devices to 3,000, as nicely as a proposal that would eliminate the restriction that slots be situated within five miles of the monitor. Scarborough Downs, which has been unsuccessful in convincing nearby inhabitants to permit slots, may possibly be considering relocating to a a lot more hospitable city.

A referendum was authorized in November, 2008 that makes it possible for for the advancement of 5 casinos with a total of fifteen,000 slots, and now the bidding war is afoot although it is not as powerful as the point out had expected.

Grand Soleil Casino Vacation resort in Natchez had been slated to open in 2008, but has operate into numerous funding issues and while the hotel portion is open, the riverboat is described to open up in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, whilst scaled back again considerably, is even now on monitor to open this 12 months.

New England
Massachusetts, a sleeping-giant in conditions of market prospective, is even now maneuvering to open up casinos/racinos, and/or a Course III Indian gaming facility, but can not appear to muster the political assistance. A latest review concluded by Dartmouth College estimates that Massachusetts resident invested far more than $920 million very last year at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature just lately declined an alternative to develop casinos, nonetheless the matter is likely to be revisited, especially if Massachusetts decides to go forward. There are also makes an attempt in Maine to rethink its alternatives.

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

New York
Just when it appeared as if Aqueduct’s 4,500 VLT facility would finally be produced, the successful bidder indicated an inability to make the required $370 million fee, citing the present lending climate, and throwing the project again into the lap of the governor. Though the marketplace desire in the location could be regarded fairly robust, the prospect of further opposition from close by Belmont could have an effect on Aqueduct’s underlining financial feasibility, especially thinking about that somewhat much less than 30% of the internet win is retained by the operator.

Ideas to relocate Monticello Raceway into a vacation resort complicated are getting reconsidered probably owing to the two the possible opening of at the very least one particular or perhaps two racino functions in the NY metro spot, and the resurfacing of initiatives to improvement a Course III Indian gaming facility in the Catskills.

However yet another gaming proposal is becoming put forth in Ohio, after last year’s edition was turned down by the voters. This program calls for a single casino each and every in the state’s premier metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a least investment decision needed of $250 million, as nicely as an original licensing charge of $fifty million, and a 33 percent tax on gaming income.

The Sands in Bethlehem is owing to open up in the Spring of ’09, and the new Rivers task in Pittsburgh is expected to be operational in August, ’09 even though Philadelphia’s two slot amenities nevertheless wallow in a political mire, but are expected to start off development this yr.

South Dakota
The Lodge at Deadwood is slated to open in the Tumble of 2009, and contain 300 game titles, one hundred forty rooms and a extensive variety of facilities.

Legislators are proposing a voter referendum that would amend the condition structure to enable casino gambling in selected areas, as well as permit gambling on American Indian lands in Texas and at present racetracks.

West Virginia
The Greenbriar, the state’s venerable vacation resort facility has submitted for individual bankruptcy, but has a new suitor in Marriott Lodges, who have reportedly tendered an supply. Point out federal government has proffered the notion of enabling the resort to offer on line casino video games, but this work is in way too early a stage to have any traction one way or another.

Indian Gaming
A current Supreme Court docket ruling that restricts the having of lands into believe in on behalf of federally acknowledged American Indian tribes has more stymied some new Course III gaming initiatives throughout the place. In addition, there had been eleven Indian on line casino projects turned down by the DOI very last yr simply because of its new rule that casinos should be around enough to a reservation that tribal users can perform at them. It has been proposed that the new Obama administration might be much more sympathetic to the advancement of Indian gaming projects, but this issue has however to be resolved.

Meanwhile, there are other Class III initiatives in the various stages of development. The Seneca on line casino undertaking in Buffalo, NY, even though operating a tiny short term facility, has delayed an presently underneath development everlasting facility until finally the industry rebounds. They have also expressed an fascination in developing a on line casino in the Catskills. The condition gaming compact with Seminoles in Florida is getting challenged, and could affect their strategies for greater initiatives. There are new Indian gaming assignments set to open in Michigan and Oklahoma this calendar year, and others are in the preparing stage. Texas may possibly let the reopening of Indian gaming facilities and allow other location and there are plans afoot by the Navajos in Arizona to assemble further casinos. California is poised to open up two to 3 new Course III casinos in 2009/10.

The Nor’easter Squeeze

Total gaming earnings in Atlantic City has declined 7.6 per cent, from $four.9 billion in 2007 to $4.five billion in 2008 with decreases continuing into 2009, as the metropolis is locating itself in an powerful comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast ended up positioned in Atlantic Metropolis, where it appeared as if it may well actually even eclipse the Las Vegas Strip’s yearly gaming revenues.

Little by little nevertheless its industry share was currently being encroached upon, first by the growth of a massive Course III gaming procedure in Connecticut, and then yet another slots functions in Rhode Island, and then video clip lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most lately Pennsylvania.

Now, with planned opening of slot operations in Maryland, the impending opening of a new casino in Bethlehem, PA, and eventually two operations in Philadelphia, the noose is tightening close to Atlantic City’s long term prospects. It really is reliance on working day-trippers lulled it into a untrue sense of security, and it now finds itself getting to redefine its mission assertion to “destination resort.”

The only issue with this method however is that it is ill-outfitted to pull it off. For all intents and purposes, Atlantic Metropolis is below-roomed and/or over-gamed. There is merely not ample working day-tripper market place to go around, and their efficient buying and selling location is tightening, as the peripheral populations northward now/will have much more prepared access to a widened source in New York (Yonkers, and quickly 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 aggressive positive aspects are its resort potential and the availability of table games, despite the fact that the latter is most likely to eventuate in Pennsylvania, and possibly Delaware. In purchase to sufficiently contend as a vacation spot resort the metropolis demands to produce further guest rooms and not necessarily gaming ability. By comparison, the Las Vegas Strip properties – real gaming locations, in that they do not have significantly of a working day-vacation marketplace, apart from for the ‘locals’ – have an regular of .87 gaming positions for every guest place although Atlantic City’s common is two.74 positions for every guest place.

It is not a coincidence that Atlantic City’s two largest accommodations, the Borgata and Harrah’s Marina, each of which extra new rooms in 2008, ended up the least impacted by the most current downturn. The Borgata knowledgeable a gaming earnings drop of one.6 %, whilst Harrah’s Marina reported a four.nine p.c increase in contrast to 2007. Moreover, the hardest strike venues, namely 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, which includes the the Trump homes and Resorts with the hoped for sale of the Tropicana has been even more delayed, and dropping valuation.

With a regular rise in gaming revenues via 2006, the metropolis seemed prime for even more improvement, which precipitated arranging for 4 new vacation resort tasks, each and every of which have now been indefinitely delayed. Revel Leisure Group’s $two.five billion task remains an iron skeleton, Pinnacle Enjoyment has declared it might find to market its razed Sands site, MGM Mirage has shelved its on line casino ideas, and Penn Nationwide seems to have stopped its pursuit of the Bader Area airport site.