2008 Countrywide Commercial Casino and Racino Online games Earnings Evaluation

A Time period of Adjustment

Oops! That huge hissing audio is the gaming balloon that experienced been growing in excess of the a long time, little by little shedding air. But, it has not been a tide that reduced all ships however, as some rising and increasing gaming jurisdictions showed robust progress in 2008.

General, the professional and racetrack casino sectors (excluding Indian gaming), seasoned a three.5 per cent decline in gaming revenues for 2008, creating a whole of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they showed a achieve of virtually $one billion in 2008, therefore bringing the Industrial sector industry drop to $1.eight billion, or 6.seven percent. Nevada was the most significant loser in 2008, dropping nearly $1.three billion, a lot more than 50 percent of which stemmed from the Las Vegas Strip section.

Hunkering Down

For the most portion, on line casino operators ended up caught comparatively flat-footed by the extent of the 2008 earnings downturn, as it was not till the 3rd and fourth quarters when it genuinely nosedived. Driving the crest of calendar year over yr marketplace development throughout the country and the availability of enough credit score and fairness resources, new development and expansion proliferated in current many years. Today, faced with the realities of declining, or at best stagnant desire, many of these initiatives are now deemed above-leveraged and/or over-sized. As a result numerous gaming businesses are making an attempt to renegotiate their credit card debt – created a lot more challenging by lower valuations – while also paring down operational fees. The latter has turn out to be a really problematic conundrum when working with the competitors, specially in these jurisdictions that are now vying for market shares with new emerging on line casino tasks in neighboring places. A subject matter we examine far more totally in the Point out by State analysis segment of this publication.

As a result of these problems the gaming market landscape is now strewn with impending fatalities. Between the far more noteworthy troubled firms are Station Casinos, Empire Resorts, Harrah’s Leisure, Greektown Holdings, Legends Gaming, Tropicana Enjoyment, Herbst Gaming and the listing grows every week.

“How long will these financial situations persist, and are we at the bottom nevertheless?” are inquiries no 1 seems to be answering but. What is distinct even so is that most gaming jurisdictions will have to find out how to offer with a scaled-down pie.

This analysis includes only gaming revenues of accredited casinos and pari-mutuel stores that offer on line casino games, and not Indian gaming operations, card rooms, or modest non-on line casino variety slot areas. The entire write-up, like profits tables is offered on our world wide web webpage.

Input/Output Model

A key aspect that seems to have arisen from the ashes of this recent trend is that many casino projects ended up just too huge to support them selves. The input, in phrases of investment decision bucks, was not proportional to the output, in conditions of internet income after financial debt service, in comparison to previously achieved benefits. Much more and/or bigger is not always far better. Seeing the increase in non-gaming income at the Las Vegas Strip resorts, gave impetus to the development of a lot more thorough amenities in several other jurisdictions. The flaw in this strategy even so is that the charges related with widening market penetration and occasioned-use, are drastically larger than those incurred to draw in the base market.

As daytripper markets turn out to be a lot more aggressive, casino venues will have to rely far more and far more on their in-home lodge patrons, and measurement their homes (and expectations) accordingly. Although Steve Wynn started out a major trend in generating up-market place mega-locations, there merely was not enough need on the Strip to warrant the several other related initiatives that adopted that aimed at the same area of interest.

The trick is to strike a content medium in task configurations which of course need considerably less of a ‘seat-of-pants’ technique, and 1 that is far more studied. A shameless plug for improvement consultants like ourselves.

Other Gaming Activities

Even though there are no published in depth info of American Indian gaming revenues, anecdotal proof seems to advise that this section has been as hard hit as the Professional sector. The two Connecticut Indian gaming installations report slot income of $1.6 billion in 2008, symbolizing a fall of about seven %, or virtually $114 million, far more than doubling the 3.5 per cent fall from the yr just before. This marketplace is seemingly even now reeling from the ripple-effect of a casino growth in Rhode Island, and the opening of slot functions in New York and Pennsylvania.

The Arizona Department of Gaming stories that contributions based mostly on a gaming earnings formulation from the state’s 23 Indian gaming casinos, have been declining each and every quarter in 2008 in contrast to the preceding calendar year reducing .8 percent in the first quarter, 7.five percent in the second quarter, 9.5 p.c in the 3rd quarter, and 16.1 p.c in the fourth quarter.

Some SEC reporting Indian gaming properties report comparable decreases. Seneca Gaming, which operates 3 Course III casinos in upstate New York, reports that whilst calendar yr 2008 showed an practically two % expansion rate in gaming revenues, there was an 8.7 per cent decline in the third quarter and an nearly ten per cent decline in the fourth quarter of 2008, in contrast with 2007. Gaming income trends at close by Niagara Falls, Ontario were down one.five% in 2008 in contrast with 2007.

It truly is been a blended-bag for point out lotteries across the place. The North American Association of Point out & Provincial Lotteries studies that U.S. lotteries created a overall of $sixty.six billion in sales in fiscal 2008, up about three per cent from the earlier yr however some jurisdictions described decreases, most notably California, which confirmed an eight percent fall. Inasmuch as some of these states are on various fiscal 12 months ends, it would seem that the data does not reflect the impact of third and/or fourth quarter benefits.

In accordance to info presented by Equibase, horse racing pari-mutuel revenues carry on their downward spiral, falling 7 percent to $thirteen.seven billion in 2008, compared to $fourteen.seven billion in 2007.

Planned & Proposed New Expansions

As formerly noted, it has been new gaming jurisdictions that have spawned significantly of the expansion in yearly casino/racino revenues in excess of the many years, and their influence is apt to keep on into the in close proximity to potential.

Miami Dade voters accredited a ballot concern that makes it possible for each and every of three pari-mutuels to have a casino facility of up to two,000 slot devices. The Flagler Canine Monitor and Miami Jai-Alai are reportedly arranging opening in late 2009 or early 2010, although the Calder set up in Miami Gardens has however to introduced its plans. There are quite a few other proposals getting considered that would more increase casino advancement through the point out.

The state last but not least received close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Leisure, LLC for a 1,two hundred+ recreation on line casino located in Des Plaines just east of O’Hare. The new facility is not probably to open until 2010. There has also been some dialogue about allowing an boost in for each place gaming positions and slots at racetracks, though neither initiative appears to have any traction at this time.

The state’s expanded lottery software that allows for the improvement of four casino gaming zones and slots at present horse and dog tracks seems mired, as only 1 facility is presently under design, even though 3 other proposals had been rescinded. The only bidder on the Cherokee County contract, claimed it could not compete with the new Quapaw tribal casino in Oklahoma, which is situated so close to the condition line that its parking good deal is in Kansas. The Boot Hill On line casino Vacation resort in Dodge City is planing a December 2009 opening with 575 slots and ten desk video games, along with a second section thanks to open in 2011 with 875 slots and twenty desk games. The condition has extended the software approach for the other three zones till April, 2009.

There is even now a whole lot of ‘jockeying’ likely on, but the prospect of as a lot of as 8 slot parlors and racinos seems to be back on the front-burner, but likely not resolved during the existing legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to come on line in 2009, with the most recent currently being the 390 room M Vacation resort in Henderson. There are expansions underway at the two Caesars Palace and Hard Rock and new lodges contain two parts of the Metropolis Heart undertaking, and the Fountainebleau.

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

There is a invoice underneath thought that could more than double Penn National’s slot machines to three,000, as well as a proposal that would remove the restriction that slots be positioned in five miles of the track. Scarborough Downs, which has been unsuccessful in convincing local citizens to let slots, may possibly be taking into consideration shifting to a far more hospitable city.

A referendum was authorized in November, 2008 that enables for the development of five casinos with a whole of 15,000 slots, and now the bidding war is afoot though it is not as powerful as the state had predicted.

Grand Soleil On line casino Vacation resort in Natchez experienced been slated to open in 2008, but has operate into different funding troubles and even though the lodge portion is open up, the riverboat is documented to open in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, although scaled again fairly, is still on track to open this yr.

New England
Massachusetts, a sleeping-big in terms of market place potential, is nonetheless maneuvering to open casinos/racinos, and/or a Course III Indian gaming facility, but cannot look to muster the political support. A latest examine finished by Dartmouth University estimates that Massachusetts resident put in much more than $920 million very last yr at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature just lately declined an choice to create casinos, nonetheless the subject matter is most likely to be revisited, especially if Massachusetts decides to go forward. There are also attempts in Maine to rethink its choices.

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

New York
Just when it seemed as if Aqueduct’s 4,five hundred VLT facility would lastly be created, the winning bidder indicated an inability to make the required $370 million charge, citing the recent lending local climate, and throwing the venture again into the lap of the governor. Although how to win on pokies in the spot could be deemed quite strong, the prospect of further opposition from nearby Belmont could have an affect on Aqueduct’s underlining financial feasibility, especially taking into consideration that slightly significantly less than 30% of the web get is retained by the operator.

Programs to relocate Monticello Raceway into a vacation resort complex are currently being reconsidered perhaps owing to both the probable opening of at least a single or probably two racino operations in the NY metro area, and the resurfacing of initiatives to development a Course III Indian gaming facility in the Catskills.

But another gaming proposal is getting put forth in Ohio, following previous year’s model was turned down by the voters. This prepare calls for 1 on line casino every single in the state’s biggest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimum investment decision necessary of $250 million, as properly as an first licensing payment of $50 million, and a 33 p.c tax on gaming earnings.

The Sands in Bethlehem is due to open up in the Spring of ’09, and the new Rivers undertaking in Pittsburgh is expected to be operational in August, ’09 although Philadelphia’s two slot services still wallow in a political mire, but are predicted to start off building this 12 months.

South Dakota
The Lodge at Deadwood is slated to open up in the Drop of 2009, and consist of 300 games, 140 rooms and a wide range of features.

Legislators are proposing a voter referendum that would amend the condition constitution to allow casino gambling in selected locations, as effectively as let gambling on American Indian lands in Texas and at current racetracks.

West Virginia
The Greenbriar, the state’s venerable vacation resort facility has filed for individual bankruptcy, but has a new suitor in Marriott Accommodations, who have reportedly tendered an supply. State govt has proffered the notion of permitting the vacation resort to offer you casino online games, but this work is in as well early a phase to have any traction one particular way or yet another.

Indian Gaming
A current Supreme Courtroom ruling that restricts the getting of lands into trust on behalf of federally identified American Indian tribes has additional stymied some new Course III gaming assignments across the nation. Furthermore, there were eleven Indian casino projects turned down by the DOI very last yr since of its new rule that casinos need to be around ample to a reservation that tribal members can work at them. It has been proposed that the new Obama administration may be a lot more sympathetic to the improvement of Indian gaming tasks, but this situation has but to be dealt with.

Meanwhile, there are other Course III tasks in the various levels of improvement. The Seneca on line casino project in Buffalo, NY, whilst working a small short-term facility, has delayed an previously below design long lasting facility right up until the marketplace rebounds. They have also expressed an desire in building a casino in the Catskills. The state gaming compact with Seminoles in Florida is becoming challenged, and could impact their plans for greater tasks. There are new Indian gaming initiatives established to open in Michigan and Oklahoma this year, and other people are in the planning stage. Texas may possibly enable the reopening of Indian gaming facilities and permit other location and there are plans afoot by the Navajos in Arizona to construct extra casinos. California is poised to open two to a few new Class III casinos in 2009/10.

The Nor’easter Squeeze

Total gaming revenue in Atlantic Metropolis has declined seven.6 per cent, from $4.nine billion in 2007 to $four.five billion in 2008 with decreases continuing into 2009, as the city is finding by itself in an intensive comp-war with the Pennsylvania venues. At 1 time the only casinos in the Northeast ended up found in Atlantic Metropolis, exactly where it seemed as if it may well really even eclipse the Las Vegas Strip’s annual gaming revenues.

Gradually even so its market place share was getting encroached upon, first by the improvement of a massive Course III gaming procedure in Connecticut, and then another slots functions in Rhode Island, and then video clip 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 ultimately two functions in Philadelphia, the noose is tightening about Atlantic City’s foreseeable future prospective customers. It truly is reliance on working day-trippers lulled it into a untrue perception of protection, and it now finds itself getting to redefine its mission statement to “destination vacation resort.”

The only difficulty with this method even so is that it is sick-geared up to pull it off. For all intents and needs, Atlantic Town is underneath-roomed and/or more than-gamed. There is basically not enough working day-tripper market to go close to, and their effective investing location is tightening, as the peripheral populations northward now/will have much more ready access to a widened provide 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 access, the city’s only genuine aggressive rewards are its lodge capability and the availability of desk online games, despite the fact that the latter is likely to eventuate in Pennsylvania, and perhaps Delaware. In purchase to adequately contend as a spot vacation resort the city requirements to create further visitor rooms and not always gaming capacity. By comparison, the Las Vegas Strip properties – correct gaming places, in that they do not have considerably of a day-vacation industry, besides for the ‘locals’ – have an regular of .87 gaming positions for each guest area even though Atlantic City’s typical is two.seventy four positions for each guest room.

It is not a coincidence that Atlantic City’s two largest hotels, the Borgata and Harrah’s Marina, the two of which additional new rooms in 2008, were the the very least impacted by the newest downturn. The Borgata skilled a gaming profits fall of 1.six p.c, even though Harrah’s Marina described a 4.nine percent increase in contrast to 2007. In addition, the toughest hit venues, namely the AC Hilton, Resorts and the Trump Marina, also have the smallest quantity 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 additional delayed, and shedding valuation.

With a continual rise in gaming revenues by way of 2006, the town seemed key for further improvement, which precipitated planning for 4 new vacation resort assignments, every of which have now been indefinitely delayed. Revel Leisure Group’s $2.five billion venture stays an iron skeleton, Pinnacle Amusement has introduced it may well find to offer its razed Sands site, MGM Mirage has shelved its on line casino plans, and Penn National seems to have stopped its pursuit of the Bader Field airport internet site.