A Interval of Adjustment
Oops! That enormous hissing sound is the gaming balloon that had been rising over time, slowly shedding air. However, it has not been a tide that lowered all ships nevertheless, as some rising and increasing gaming jurisdictions confirmed robust progress in 2008.
General, the business and racetrack on line casino sectors (excluding Indian gaming), skilled a 3.5 p.c decline in gaming revenues for 2008, producing a complete of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they confirmed a acquire of just about $1 billion in 2008, thereby bringing the Industrial sector market decline to $1.8 billion, or 6.7 p.c. Nevada was the most important loser in 2008, dropping nearly $1.3 billion, greater than half of which stemmed from the Las Vegas Strip phase.
Hunkering Down
For essentially the most half, on line casino operators had been caught comparatively flat-footed by the extent of the 2008 income downturn, because it was not till the third and fourth quarters when it actually nosedived. Driving the crest of 12 months over 12 months market progress throughout the nation and the supply of ample credit score and fairness funds, new building and enlargement proliferated lately. At this time, confronted with the realities of declining, or at greatest stagnant demand, many of those initiatives at the moment are thought of over-leveraged and/or over-sized. Consequently many gaming firms are trying to renegotiate their debt – made harder by decrease valuations – whereas additionally paring down operational prices. The latter has develop into a really problematic conundrum when coping with the competitors, particularly in these jurisdictions that at the moment are vying for market shares with new rising on line casino initiatives in neighboring areas. A subject we talk about extra absolutely within the State by State evaluation part of this publication.
Because of these situations the gaming business panorama is now strewn with impending fatalities. Among the many extra notable troubled companies are Station Casinos, Empire Resorts, Harrah’s Leisure, Greektown Holdings, Legends Gaming, Tropicana Leisure, Herbst Gaming; and the checklist grows every week.
“How lengthy will these financial situations persist, and are we on the backside but?” are questions nobody seems to be answering but. What is evident nevertheless is that almost all gaming jurisdictions must learn to take care of a smaller pie.
Word:
This evaluation consists of solely gaming revenues of licensed casinos and pari-mutuel retailers that supply on line casino video games, and never Indian gaming operations, card rooms, or small non-casino kind slot places. The entire article, together with income tables is accessible on our internet web page.
Enter/Output Mannequin
A key side that appears to have arisen from the ashes of this present development is that many on line casino initiatives had been simply too massive to assist themselves. The enter, by way of funding {dollars}, was not proportional to the output, by way of internet revenue after debt service, in comparison with beforehand achieved outcomes. Extra and/or greater just isn’t all the time higher. Seeing the rise in non-gaming income on the Las Vegas Strip resorts, gave impetus to the event of extra complete facilities in lots of different jurisdictions. The flaw on this technique nevertheless is that the prices related to widening market penetration and occasioned-use, are considerably larger than these incurred to draw the bottom market.
As daytripper markets develop into extra aggressive, on line casino venues must rely an increasing number of on their in-house lodge patrons, and measurement their properties (and expectations) accordingly. Whereas Steve Wynn began a significant development in creating up-market mega-destinations, there merely was not sufficient demand on the Strip to warrant the various different comparable initiatives that adopted that aimed on the similar area of interest.
The trick is to strike a contented medium in challenge configurations; which after all require much less of a ‘seat-of-pants’ strategy, and one that’s extra studied. A shameless plug for growth consultants like ourselves.
Different Gaming Actions
Though there aren’t any revealed detailed knowledge of American Indian gaming revenues, anecdotal proof seems to counsel that this phase has been as laborious hit because the Industrial sector. The 2 Connecticut Indian gaming installations report slot income of $1.6 billion in 2008, representing a drop of about 7 p.c, or nearly $114 million, greater than doubling the three.5 p.c drop from the 12 months earlier than. This market is seemingly 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 Division of Gaming reviews that contributions primarily based on a gaming income method from the state’s 23 Indian gaming casinos, have been declining each quarter in 2008 in comparison with the earlier 12 months; reducing .8 p.c within the first quarter, 7.5 p.c within the second quarter, 9.5 p.c within the third quarter, and 16.1 p.c within the fourth quarter.
Some SEC reporting Indian gaming properties report comparable decreases. Seneca Gaming, which operates three Class III casinos in upstate New York, reviews that whereas calendar 12 months 2008 confirmed an nearly 2 p.c progress charge in gaming revenues, there was an 8.7 p.c decline within the third quarter and an nearly 10 p.c decline within the fourth quarter of 2008, in contrast with 2007. Gaming income tendencies at close by Niagara Falls, Ontario had been down 1.5% in 2008 in contrast with 2007.
It has been a mixed-bag for state lotteries throughout the nation. The North American Affiliation of State & Provincial Lotteries reviews that U.S. lotteries generated a complete of $60.6 billion in gross sales in fiscal 2008, up about 3 p.c from the earlier 12 months; but some jurisdictions reported decreases, most notably California, which confirmed an 8 p.c drop. Inasmuch as a few of these states are on numerous fiscal 12 months ends, it might appear that the info doesn’t mirror the affect of third and/or fourth quarter outcomes.
In response to knowledge supplied by Equibase, horse racing pari-mutuel revenues proceed their downward spiral, falling 7 p.c to $13.7 billion in 2008, versus $14.7 billion in 2007.
Deliberate & Proposed New Expansions
As beforehand famous, it has been new gaming jurisdictions which have spawned a lot of the expansion in annual on line casino/racino revenues over time, and their affect is apt to proceed into the close to future.
Florida
Miami Dade voters permitted a poll concern that permits every of three pari-mutuels to have a on line casino facility of as much as 2,000 slot machines. The Flagler Canine Observe and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, whereas the Calder set up in Miami Gardens has but to introduced its plans. There are quite a few different proposals being thought of that may additional increase on line casino growth all through the state.
Illinois
The state lastly obtained round to reissuing its tenth license, late in December, 2008; awarding it to Midwest Gaming & Leisure, LLC for a 1,200+ recreation on line casino positioned in Des Plaines simply east of O’Hare. The brand new facility just isn’t more likely to open till 2010. There has additionally been some dialogue about permitting a rise in per location gaming positions and slots at racetracks, though neither initiative seems to have any traction at the moment.
Kansas
The state’s expanded lottery program that permits for the event of 4 on line casino gaming zones and slots at present horse and canine tracks seems mired, as just one facility is presently underneath building, whereas three different proposals had been rescinded. The one bidder on the Cherokee County contract, claimed it couldn’t compete with the brand new Quapaw tribal on line casino in Oklahoma, which is positioned so near the state line that its parking zone is in Kansas. The Boot Hill On line casino Resort in Dodge Metropolis is planing a December 2009 opening with 575 slots and 10 desk video games, together with a second part attributable to open in 2011 with 875 slots and 20 desk video games. The state has prolonged the appliance course of for the opposite three zones till April, 2009.
Kentucky
There’s nonetheless plenty of ‘jockeying’ happening, however the prospect of as many as eight slot parlors and racinos seems to be again on the front-burner, however doubtless not resolved through the present legislative session.
Las Vegas
There are about 14,000 rooms scheduled to come back on line in 2009, with the newest being the 390 room M Resort in Henderson. There are expansions underway at each Caesars Palace and Onerous Rock; and new resorts embody two elements of the Metropolis Heart challenge, and the Fountainebleau.
Louisiana
Pinnacle Leisure’s new on line casino growth initiatives in Baton Rouge and Lake Charles, whereas delayed, are reported to nonetheless be on-track for opening this 12 months and/or early 2010.
Maine
There’s a invoice into consideration that would greater than double Penn Nationwide’s slot machines to three,000, in addition to a proposal that may take away the restriction that slots be positioned inside 5 miles of the observe. Scarborough Downs, which has been unsuccessful in convincing native residents to permit slots, could also be contemplating transferring to a extra hospitable city.
Maryland
A referendum was permitted in November, 2008 that permits for the event of 5 casinos with a complete of 15,000 slots, and now the bidding battle is afoot; though it’s not as intense because the state had anticipated.
Mississippi
Grand Soleil On line casino Resort in Natchez had been slated to open in 2008, however has run into numerous financing points; and whereas the lodge portion is open, the riverboat is reported to open within the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, whereas scaled again considerably, continues to be on observe to open this 12 months.
New England
Massachusetts, a sleeping-giant by way of market potential, continues to be maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, however can not appear to muster the political assist. A current examine accomplished by Dartmouth College estimates that Massachusetts resident spent greater than $920 million final 12 months at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature just lately declined an choice to develop casinos, nevertheless the subject is more likely to be revisited, particularly if Massachusetts decides to go ahead. There are additionally makes an attempt in Maine to rethink its choices.
New Jersey
Atlantic Metropolis’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 extra tax. The governor nevertheless, has appointed a brand new panel to check the state’s sagging racing program; which paradoxically, can solely be preserved by permitting the tracks to have slot machines; particularly on the Meadowlands. (See The Nor’easter Squeeze part)
New York
Simply when it appeared as if Aqueduct’s 4,500 VLT facility would lastly be developed, the successful bidder indicated an lack of ability to make the required $370 million payment, citing the present lending local weather, and throwing the challenge again into the lap of the governor. Though the market demand within the space might be thought of fairly robust, the prospect of further competitors from close by Belmont may have an effect on Aqueduct’s underlining financial feasibility, particularly contemplating that barely lower than 30% of the online win is retained by the operator.
Plans to relocate Monticello Raceway right into a resort complicated are being reconsidered; maybe owing to each the possible opening of at the very least one or maybe two racino operations within the NY metro space, and the resurfacing of initiatives to growth a Class III Indian gaming facility within the Catskills.
Ohio
One more gaming proposal is being put forth in Ohio, after final 12 months’s model was turned down by the voters. This plan requires one on line casino every within the state’s largest cities: Cleveland, Columbus, Cincinnati and Toledo. There can be a minimal funding required of $250 million, in addition to an preliminary licensing payment of $50 million, and a 33 p.c tax on gaming income.
Pennsylvania
The Sands in Bethlehem is because of open within the Spring of ’09, and the brand new Rivers challenge in Pittsburgh is predicted to be operational in August, ’09; whereas Philadelphia’s two slot services nonetheless wallow in a political mire, however are anticipated to begin building this 12 months.
South Dakota
The Lodge at Deadwood is slated to open within the Fall of 2009, and embody 300 video games, 140 rooms and all kinds of facilities.
Texas
Legislators are proposing a voter referendum that may amend the state structure to permit on line casino playing in designated areas, in addition to permit playing on American Indian lands in Texas and at present racetracks.
West Virginia
The Greenbriar, the state’s venerable resort facility has filed for chapter, however has a brand new suitor in Marriott Accommodations, who’ve reportedly tendered a suggestion. State authorities has proffered the notion of permitting the resort to supply on line casino video games, however this effort is in too early a stage to have any traction a method or one other.
Indian Gaming
A current Supreme Courtroom ruling that restricts the taking of lands into belief on behalf of federally acknowledged American Indian tribes has additional stymied some new Class III gaming initiatives throughout the nation. Furthermore, there have been eleven Indian on line casino initiatives rejected by the DOI final 12 months due to its new rule that casinos should be close to sufficient to a reservation that tribal members can work at them. It has been instructed that the brand new Obama administration could be extra sympathetic to the event of Indian gaming initiatives, however this concern has but to be addressed.
In the meantime, there are different Class III initiatives within the numerous phases of growth. The Seneca on line casino challenge in Buffalo, NY, whereas working a small non permanent facility, has delayed an already underneath building everlasting facility till the market rebounds. They’ve additionally expressed an curiosity in creating a on line casino within the Catskills. The state gaming compact with Seminoles in Florida is being challenged, and will affect their plans for bigger initiatives. There are new Indian gaming initiatives set to open in Michigan and Oklahoma this 12 months, and others are within the strategy planning stage. Texas could permit the reopening of Indian gaming services and permit different venue; and there are plans afoot by the Navajos in Arizona to assemble further casinos. California is poised to open two to 3 new Class III casinos in 2009/10.
The Nor’easter Squeeze
Complete gaming income in Atlantic Metropolis has declined 7.6 p.c, from $4.9 billion in 2007 to $4.5 billion in 2008; with decreases persevering with into 2009, as town is discovering itself in an intense comp-war with the Pennsylvania venues. At one time the one casinos within the Northeast had been positioned in Atlantic Metropolis, the place it appeared as if it would truly even eclipse the Las Vegas Strip’s annual gaming revenues.
Slowly nevertheless its market share was being encroached upon, first by the event of a big Class III gaming operation in Connecticut, after which one other; slots operations in Rhode Island, after which video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most just lately Pennsylvania.
Now, with the deliberate opening of slot operations in Maryland, the upcoming opening of a brand new on line casino in Bethlehem, PA, and ultimately two operations in Philadelphia, the noose is tightening round Atlantic Metropolis’s future prospects. It is reliance on day-trippers lulled it right into a false sense of safety, and it now finds itself having to redefine its mission assertion to “vacation spot resort.”
The one downside with this technique nevertheless is that it’s ill-equipped to drag it off. For all intents and functions, Atlantic Metropolis is under-roomed and/or over-gamed. There’s merely not sufficient day-tripper market to go round, and their efficient buying and selling space is tightening, because the peripheral populations northward now/can have extra prepared entry to a widened provide in New York (Yonkers, and shortly at Aqueduct and probably Belmont), westward in Pennsylvania; and southward in Delaware, West Virginia and Maryland.
Apart from the ocean entry, town’s solely actual aggressive benefits are its lodge capability and the supply of desk video games, though the latter is more likely to eventuate in Pennsylvania, and probably Delaware. With a view to adequately compete as a vacation spot resort town must develop further visitor rooms and never essentially gaming capability. By comparability, the Las Vegas Strip properties – true gaming locations, in that they don’t have a lot of a day-trip market, apart from the ‘locals’ – have a median of .87 gaming positions per visitor room; whereas Atlantic Metropolis’s common is 2.74 positions per visitor room.
It isn’t a coincidence that Atlantic Metropolis’s two largest resorts, the Borgata and Harrah’s Marina, each of which added new rooms in 2008, had been the least impacted by the newest downturn. The Borgata skilled a gaming income drop of 1.6 p.c, whereas Harrah’s Marina reported a 4.9 p.c improve in comparison with 2007. Furthermore, the toughest hit venues, particularly the AC Hilton, Resorts and the Trump Marina, even have the smallest variety of rooms. Within the meantime a number of the venues are teetering on viability, together with the the Trump properties and Resorts; with the hoped on the market of the Tropicana has been additional delayed, and shedding valuation.
With a gradual rise in gaming revenues by 2006, town appeared prime for additional growth, which precipitated planning for 4 new resort initiatives, every of which have now been indefinitely delayed. Revel Leisure Group’s $2.5 billion challenge stays an iron skeleton, Pinnacle Leisure has introduced it would search to promote its razed Sands web site, MGM Mirage has shelved its on line casino plans, and Penn Nationwide seems to have stopped its pursuit of the Bader Subject airport web site.
Maybe town ought to search to return to its roots, leveraging its beachfront, and create extra leisure actions and particular occasions.
A full state by state evaluation is accessible at our web page.
