2008 Nationwide Industrial Casino & Racino Gaming Income Examination

A Time period of Adjustment

Oops! That big hissing audio is the gaming balloon that experienced been expanding more than the many years, slowly losing air. But, it has not been a tide that lowered all ships however, as some rising and increasing gaming jurisdictions showed powerful growth in 2008.

Total, the industrial and racetrack casino sectors (excluding Indian gaming), experienced a three.5 percent drop 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 drop, as they showed a gain of nearly $1 billion in 2008, therefore bringing the Industrial sector market drop to $one.eight billion, or six.seven p.c. Nevada was the biggest loser in 2008, dropping almost $one.3 billion, much more than 50 % of which stemmed from the Las Vegas Strip segment.

Hunkering Down

For the most portion, casino operators have been caught fairly flat-footed by the extent of the 2008 income downturn, as it was not till the third and fourth quarters when it truly nosedived. Driving the crest of year more than calendar year market progress throughout the country and the availability of sufficient credit rating and equity funds, new construction and growth proliferated in latest several years. These days, confronted with the realities of declining, or at ideal stagnant desire, numerous of these assignments are now considered in excess of-leveraged and/or in excess of-sized. As a consequence many gaming firms are making an attempt to renegotiate their personal debt – produced much more hard by decrease valuations – even though also paring down operational costs. The latter has turn out to be a very problematic conundrum when dealing with the opposition, especially in those jurisdictions that are now vying for marketplace shares with new emerging casino projects in neighboring locations. A subject matter we discuss more completely in the State by State evaluation segment of this publication.

As a result of these situations the gaming market landscape is now strewn with impending fatalities. Amid the more notable troubled corporations are Station Casinos, Empire Resorts, Harrah’s Amusement, Greektown Holdings, Legends Gaming, Tropicana Amusement, Herbst Gaming and the listing grows every single 7 days.

“How lengthy will these economic conditions persist, and are we at the base but?” are concerns no one appears to be answering yet. What is distinct nonetheless is that most gaming jurisdictions will have to understand how to offer with a smaller sized pie.

This analysis contains only gaming revenues of certified casinos and pari-mutuel stores that offer you casino games, and not Indian gaming functions, card rooms, or tiny non-casino type slot spots. The entire report, including profits tables is obtainable on our world wide web page.

Input/Output Model

A important element that seems to have arisen from the ashes of this present development is that several casino initiatives have been just way too huge to support themselves. The input, in terms of expenditure bucks, was not proportional to the output, in conditions of net revenue right after financial debt service, compared to previously reached benefits. Far more and/or larger is not usually much better. Viewing the rise in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the growth of far more extensive facilities in numerous other jurisdictions. The flaw in this method nevertheless is that the fees linked with widening marketplace penetration and occasioned-use, are significantly greater than these incurred to draw in the base market place.

As daytripper markets become more competitive, on line casino venues will have to count a lot more and far more on their in-property lodge patrons, and dimensions their homes (and expectations) appropriately. While Steve Wynn started a major pattern in making up-market mega-locations, there just was not sufficient demand from customers on the Strip to warrant the numerous other equivalent initiatives that followed that aimed at the identical market.

The trick is to strike a pleased medium in project configurations which of course require less of a ‘seat-of-pants’ approach, and 1 that is much more researched. A shameless plug for improvement consultants like ourselves.

Other Gaming Actions

Even though there are no released comprehensive data of American Indian gaming revenues, anecdotal proof appears to suggest that this section has been as hard hit as the Professional sector. The two Connecticut Indian gaming installations report slot earnings of $one.6 billion in 2008, symbolizing a fall of about seven percent, or nearly $114 million, far more than doubling the 3.five percent drop from the 12 months ahead of. This industry is seemingly nonetheless reeling from the ripple-influence of a casino growth in Rhode Island, and the opening of slot operations in New York and Pennsylvania.

The Arizona Department of Gaming reviews that contributions based on a gaming revenue system from the state’s 23 Indian gaming casinos, have been declining every quarter in 2008 when compared to the prior calendar year lowering .8 percent in the 1st quarter, 7.5 % in the 2nd quarter, nine.5 % in the 3rd quarter, and sixteen.1 p.c in the fourth quarter.

Some SEC reporting Indian gaming properties report related decreases. Seneca Gaming, which operates 3 Course III casinos in upstate New York, stories that while calendar yr 2008 confirmed an practically 2 percent growth charge in gaming revenues, there was an eight.seven percent drop in the third quarter and an practically 10 per cent decline in the fourth quarter of 2008, in contrast with 2007. Gaming income traits at nearby Niagara Falls, Ontario had been down 1.5% in 2008 in comparison with 2007.

It is been a blended-bag for condition lotteries across the nation. The North American Affiliation of Point out & Provincial Lotteries reviews that U.S. lotteries produced a overall of $60.6 billion in income in fiscal 2008, up about three % from the earlier yr nevertheless some jurisdictions reported decreases, most notably California, which showed an eight percent drop. Inasmuch as some of these states are on various fiscal 12 months ends, it would look that the knowledge does not mirror the influence of third and/or fourth quarter results.

In accordance to data supplied by Equibase, horse racing pari-mutuel revenues keep on their downward spiral, falling seven % to $thirteen.7 billion in 2008, as opposed to $fourteen.7 billion in 2007.

Prepared & Proposed Bandarq

As formerly famous, it has been new gaming jurisdictions that have spawned much of the expansion in once-a-year casino/racino revenues more than the years, and their influence is apt to proceed into the close to foreseeable future.

Miami Dade voters accepted a ballot problem that allows every 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 arranging opening in late 2009 or early 2010, while the Calder set up in Miami Gardens has nevertheless to announced its plans. There are several other proposals being regarded that would additional grow on line casino development all through the point out.

The point out finally acquired about to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a 1,two hundred+ game on line casino situated in Des Plaines just east of O’Hare. The new facility is not likely to open till 2010. There has also been some discussion about enabling an improve in for each place gaming positions and slots at racetracks, although neither initiative seems to have any traction at this time.

The state’s expanded lottery system that allows for the improvement of 4 on line casino gaming zones and slots at existing horse and canine tracks seems mired, as only 1 facility is presently under design, although three other proposals were rescinded. The only bidder on the Cherokee County deal, claimed it could not contend with the new Quapaw tribal casino in Oklahoma, which is situated so near to the point out line that its parking good deal is in Kansas. The Boot Hill On line casino Resort in Dodge Metropolis is planing a December 2009 opening with 575 slots and ten table games, along with a second phase owing to open in 2011 with 875 slots and twenty table game titles. The point out has prolonged the software method for the other 3 zones until finally April, 2009.

There is still a whole lot of ‘jockeying’ heading on, but the prospect of as a lot of as eight slot parlors and racinos appears to be back again on the entrance-burner, but very likely not solved during the present legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to occur on line in 2009, with the most latest being the 390 area M Resort in Henderson. There are expansions underway at each Caesars Palace and Difficult Rock and new lodges incorporate two components of the Metropolis Center venture, and the Fountainebleau.

Pinnacle Entertainment’s new on line casino growth projects in Baton Rouge and Lake Charles, although delayed, are reported to still be on-keep track of for opening this yr and/or early 2010.

There is a invoice beneath thought that could far more than double Penn National’s slot machines to 3,000, as effectively as a proposal that would eliminate the restriction that slots be positioned inside of five miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing local citizens to enable slots, may be considering shifting to a more hospitable city.

A referendum was accepted in November, 2008 that permits for the growth of 5 casinos with a overall of 15,000 slots, and now the bidding war is afoot despite the fact that it is not as intense as the point out had expected.

Grand Soleil Casino Vacation resort in Natchez experienced been slated to open up in 2008, but has run into different funding concerns and while the hotel part is open, the riverboat is noted to open up in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, while scaled again relatively, is still on observe to open up this calendar year.

New England
Massachusetts, a sleeping-huge in conditions of industry prospective, is nonetheless maneuvering to open up casinos/racinos, and/or a Class III Indian gaming facility, but cannot look to muster the political help. A modern research finished by Dartmouth University estimates that Massachusetts resident spent far more than $920 million final calendar year at Connecticut casinos and slot equipment parlors in Rhode Island and Maine. The New Hampshire legislature recently declined an alternative to develop casinos, even so the subject is probably to be revisited, specifically if Massachusetts decides to go forward. There are also attempts in Maine to reconsider its choices.

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

New York
Just when it looked as if Aqueduct’s four,five hundred VLT facility would ultimately be created, the winning bidder indicated an incapability to make the essential $370 million fee, citing the existing lending local weather, and throwing the venture back again into the lap of the governor. Even though the market place demand in the spot could be deemed very strong, the prospect of additional competition from nearby Belmont could have an affect on Aqueduct’s underlining financial feasibility, particularly taking into consideration that slightly less than 30% of the net earn is retained by the operator.

Programs to relocate Monticello Raceway into a vacation resort complex are becoming reconsidered perhaps owing to equally the possible opening of at minimum a single or maybe two racino operations in the NY metro location, and the resurfacing of initiatives to improvement a Class III Indian gaming facility in the Catskills.

But an additional gaming proposal is currently being place forth in Ohio, after previous year’s model was turned down by the voters. This strategy phone calls for one casino each in the state’s largest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimum expenditure required of $250 million, as effectively as an original licensing fee of $fifty million, and a 33 % tax on gaming income.

The Sands in Bethlehem is owing to open up in the Spring of ’09, and the new Rivers venture in Pittsburgh is predicted to be operational in August, ’09 whilst Philadelphia’s two slot services nevertheless wallow in a political mire, but are predicted to begin construction this calendar year.

South Dakota
The Lodge at Deadwood is slated to open in the Drop of 2009, and consist of three hundred video games, 140 rooms and a wide selection of facilities.

Legislators are proposing a voter referendum that would amend the condition structure to let on line casino gambling in selected places, as properly as let 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 Accommodations, who have reportedly tendered an offer you. State govt has proffered the notion of enabling the vacation resort to offer on line casino game titles, but this energy is in also early a phase to have any traction a single way or one more.

Indian Gaming
A latest Supreme Court ruling that restricts the taking of lands into trust on behalf of federally identified American Indian tribes has additional stymied some new Course III gaming projects throughout the nation. Moreover, there have been eleven Indian on line casino assignments rejected by the DOI last year since of its new rule that casinos must be around enough to a reservation that tribal members can operate at them. It has been advised that the new Obama administration might be a lot more sympathetic to the improvement of Indian gaming initiatives, but this issue has nevertheless to be tackled.

In the meantime, there are other Course III projects in the numerous phases of growth. The Seneca casino task in Buffalo, NY, while operating a modest temporary facility, has delayed an presently under building long term facility till the marketplace rebounds. They have also expressed an curiosity in establishing a on line casino in the Catskills. The state gaming compact with Seminoles in Florida is currently being challenged, and could influence their programs for greater tasks. There are new Indian gaming tasks set to open in Michigan and Oklahoma this year, and other people are in the organizing phase. Texas may let the reopening of Indian gaming services and allow other venue and there are programs afoot by the Navajos in Arizona to build additional casinos. California is poised to open two to 3 new Class III casinos in 2009/10.

The Nor’easter Squeeze

Total gaming income in Atlantic City has declined 7.six %, from $4.9 billion in 2007 to $four.five billion in 2008 with decreases continuing into 2009, as the metropolis is discovering itself in an powerful comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast have been situated in Atlantic Metropolis, in which it seemed as if it might in fact even eclipse the Las Vegas Strip’s yearly gaming revenues.

Slowly however its market share was getting encroached on, first by the development of a huge Course III gaming procedure in Connecticut, and then yet another slots operations in Rhode Island, and then movie 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 about Atlantic City’s long term potential clients. It really is reliance on day-trippers lulled it into a false feeling of safety, and it now finds itself possessing to redefine its mission statement to “spot resort.”

The only dilemma with this strategy however is that it is unwell-equipped to pull it off. For all intents and functions, Atlantic City is beneath-roomed and/or in excess of-gamed. There is basically not sufficient working day-tripper marketplace to go around, and their powerful investing area is tightening, as the peripheral populations northward now/will have a lot more prepared entry to a widened offer in New York (Yonkers, and shortly at Aqueduct and potentially Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean accessibility, the city’s only true aggressive benefits are its lodge ability and the availability of table games, despite the fact that the latter is very likely to eventuate in Pennsylvania, and potentially Delaware. In buy to sufficiently compete as a vacation spot resort the metropolis requirements to build added visitor rooms and not always gaming capacity. By comparison, the Las Vegas Strip houses – accurate gaming locations, in that they do not have significantly of a working day-vacation industry, except for the ‘locals’ – have an regular of .87 gaming positions for each visitor place whilst Atlantic City’s typical is two.seventy four positions for every guest room.

It is not a coincidence that Atlantic City’s two biggest resorts, the Borgata and Harrah’s Marina, equally of which added new rooms in 2008, ended up the least impacted by the latest downturn. The Borgata skilled a gaming revenue drop of one.six %, while Harrah’s Marina described a four.nine p.c enhance in contrast to 2007. Furthermore, the toughest strike venues, particularly 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, including the the Trump houses and Resorts with the hoped for sale of the Tropicana has been further delayed, and dropping valuation.

With a continual increase in gaming revenues via 2006, the city seemed prime for additional advancement, which precipitated planning for four new vacation resort projects, each and every of which have now been indefinitely delayed. Revel Leisure Group’s $2.5 billion undertaking remains an iron skeleton, Pinnacle Enjoyment has declared it might find to offer its razed Sands site, MGM Mirage has shelved its on line casino ideas, and Penn National seems to have stopped its pursuit of the Bader Subject airport site.

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