A Period of Adjustment
Oops! That giant hissing sound is the gaming balloon that had been developing more than the years, gradually losing air. But, it has not been a tide that lowered all ships nonetheless, as some emerging and expanding gaming jurisdictions showed powerful development in 2008.
General, the industrial and racetrack casino sectors (excluding Indian gaming), seasoned a three.five % decline in gaming revenues for 2008, producing a total 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 practically $1 billion in 2008, thereby bringing the Industrial sector marketplace decline to $1.eight billion, or six.7 %. Nevada was the most significant loser in 2008, dropping practically $1.three billion, much more than half of which stemmed from the Las Vegas Strip segment.
Hunkering Down
For the most aspect, casino operators have been caught reasonably flat-footed by the extent of the 2008 income downturn, as it was not till the third and fourth quarters when it definitely nosedived. Riding the crest of year more than year marketplace development across the nation and the availability of ample credit and equity funds, new building and expansion proliferated in current years. Nowadays, faced with the realities of declining, or at finest stagnant demand, lots of of these projects are now viewed as more than-leveraged and/or more than-sized. As a outcome lots of gaming firms are attempting to renegotiate their debt – created much more hard by reduce valuations – although also paring down operational charges. The latter has turn out to be a incredibly problematic conundrum when dealing with the competitors, specifically in these jurisdictions that are now vying for marketplace shares with new emerging casino projects in neighboring places. A subject we talk about much more completely in the State by State evaluation section of this publication.
As a outcome of these circumstances the gaming business landscape is now strewn with impending fatalities. Amongst the much more notable troubled firms are Station Casinos, Empire Resorts, Harrah's Entertainment, Greektown Holdings, Legends Gaming, Tropicana Entertainment, Herbst Gaming and the list grows each and every week.
“How extended will these financial circumstances persist, and are we at the bottom but?” are concerns no one particular seems to be answering but. What is clear nonetheless is that most gaming jurisdictions will have to understand how to deal with a smaller sized pie.
Note: This evaluation contains only gaming revenues of licensed casinos and pari-mutuel outlets that supply casino games, and not Indian gaming operations, card rooms, or tiny non-casino sort slot places. The entire report, like income tables is obtainable on our internet web page.
Input/Output Model
A essential aspect that appears to have arisen from the ashes of this existing trend is that lots of casino projects have been just also huge to help themselves. The input, in terms of investment dollars, was not proportional to the output, in terms of net profit immediately after debt service, compared to previously accomplished benefits. Much more and/or larger is not usually superior. Seeing the rise in non-gaming income at the Las Vegas Strip resorts, gave impetus to the improvement of much more complete amenities in lots of other jurisdictions. The flaw in this approach nonetheless is that the charges related with widening marketplace penetration and occasioned-use, are substantially greater than these incurred to attract the base marketplace.
As daytripper markets turn out to be much more competitive, casino venues will have to rely much more and much more on their in-property hotel patrons, and size their properties (and expectations) accordingly. Even though Steve Wynn began a important trend in developing up-marketplace mega-destinations, there merely was not adequate demand on the Strip to warrant the lots of other related projects that followed that aimed at the exact same niche.
The trick is to strike a content medium in project configurations which of course call for significantly less of a 'seat-of-pants' strategy, and one particular that is much more studied. A shameless plug for improvement consultants like ourselves.
Other Gaming Activities
Even though there are no published detailed information of American Indian gaming revenues, anecdotal proof seems to recommend that this segment has been as really hard hit as the Industrial sector. The two Connecticut Indian gaming installations report slot income of $1.six billion in 2008, representing a drop of about 7 %, or practically $114 million, much more than doubling the three.five % drop from the year prior to. This marketplace is apparently nonetheless reeling from the ripple-impact of a casino expansion in Rhode Island, and the opening of slot operations in New York and Pennsylvania.
The Arizona Division of Gaming reports that contributions primarily based on a gaming income formula from the state's 23 Indian gaming casinos, have been declining each quarter in 2008 compared to the prior year decreasing .eight % in the initial quarter, 7.five % in the second quarter, 9.five % in the third quarter, and 16.1 % in the fourth quarter.
Some SEC reporting Indian gaming properties report related decreases. Seneca Gaming, which operates 3 Class III casinos in upstate New York, reports that although calendar year 2008 showed an practically two % development price in gaming revenues, there was an eight.7 % decline in the third quarter and an practically 10 % decline in the fourth quarter of 2008, compared with 2007. Gaming income trends at nearby Niagara Falls, Ontario have been down 1.five% in 2008 compared with 2007.
It is been a mixed-bag for state lotteries across the nation. The North American Association of State & Provincial Lotteries reports that U.S. lotteries generated a total of $60.six billion in sales in fiscal 2008, up about three % from the prior year but some jurisdictions reported decreases, most notably California, which showed an eight % drop. Inasmuch as some of these states are on different fiscal year ends, it would look that the information does not reflect the influence of third and/or fourth quarter benefits.
According to information offered by Equibase, horse racing pari-mutuel revenues continue their downward spiral, falling 7 % to $13.7 billion in 2008, versus $14.7 billion in 2007.
Planned & Proposed New Expansions
As previously noted, it has been new gaming jurisdictions that have spawned a great deal of the development in annual casino/racino revenues more than the years, and their influence is apt to continue into the close to future.
Florida Miami Dade voters authorized a ballot situation that permits each and every of 3 pari-mutuels to have a casino facility of up to two,000 slot machines. The Flagler Dog Track and Miami Jai-Alai are reportedly arranging opening in late 2009 or early 2010, although the Calder installation in Miami Gardens has but to announced its plans. There are many other proposals getting viewed as that would additional expand casino improvement all through the state.
Illinois The state ultimately got about to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a 1,200+ game casino positioned in Des Plaines just east of O'Hare. The new facility is not probably to open till 2010. There has also been some discussion about permitting an enhance in per place gaming positions and slots at racetracks, even though neither initiative seems to have any traction at this time.
Kansas The state's expanded lottery system that permits for the improvement of 4 casino gaming zones and slots at current horse and dog tracks seems mired, as only one particular facility is presently beneath building, although 3 other proposals have 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 positioned so close to the state line that its parking lot is in Kansas. The Boot Hill Casino Resort in Dodge City is planing a December 2009 opening with 575 slots and 10 table games, along with a second phase due to open in 2011 with 875 slots and 20 table games. The state has extended the application method for the other 3 zones till April, 2009.
Kentucky There is nonetheless a lot of 'jockeying' going on, but the prospect of as lots of as eight slot parlors and racinos seems to be back on the front-burner, but probably not resolved in the course of the existing legislative session.
Las Vegas There are about 14,000 rooms scheduled to come on line in 2009, with the most current getting the 390 area M Resort in Henderson. There are expansions underway at each Caesars Palace and Tough Rock and new hotels involve two elements of the City Center project, and the Fountainebleau.
Louisiana Pinnacle Entertainment's new casino improvement projects in Baton Rouge and Lake Charles, although delayed, are reported to nonetheless be on-track for opening this year and/or early 2010.
Maine There is a bill beneath consideration that could much more than double Penn National's slot machines to three,000, as nicely as a proposal that would eliminate the restriction that slots be positioned inside 5 miles of the track. Scarborough Downs, which has been unsuccessful in convincing neighborhood residents to permit slots, could be taking into consideration moving to a much more hospitable town.
Maryland A referendum was authorized in November, 2008 that permits for the improvement of 5 casinos with a total of 15,000 slots, and now the bidding war is afoot even though it is not as intense as the state had anticipated.
Mississippi Grand Soleil Casino Resort in Natchez had been slated to open in 2008, but has run into different financing concerns and although the hotel portion is open, the riverboat is reported to open in the Spring of '09. Harrah's Margaritaville Casino in Biloxi, although scaled back somewhat, is nonetheless on track to open this year.
New England Massachusetts, a sleeping-giant in terms of marketplace possible, is nonetheless maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but can't look to muster the political help. A current study completed by Dartmouth University estimates that Massachusetts resident spent much more than $920 million final year at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an alternative to create casinos, nonetheless 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 machines at racetracks by lately agreeing to continue augmenting purses with an more tax. The governor nonetheless, has appointed a new panel to study the state's sagging racing system which ironically, can only be preserved by permitting the tracks to have slot machines specifically at the Meadowlands. (See The Nor'easter Squeeze section)
New York Just when it looked as if Aqueduct's four,500 VLT facility would ultimately be created, the winning bidder indicated an inability to make the essential $370 million charge, citing the existing lending climate, and throwing the project back into the lap of the governor. Even though the marketplace demand in the location could be viewed as really powerful, the prospect of more competitors from nearby Belmont could have an influence on Aqueduct's underlining financial feasibility, specifically taking into consideration that slightly significantly less than 30% of the net win is retained by the operator.
Plans to relocate Monticello Raceway into a resort complicated are getting reconsidered maybe owing to each the probable opening of at least one particular 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.
Ohio However a further gaming proposal is getting place forth in Ohio, immediately after final year's version was turned down by the voters. This strategy calls for one particular casino each and every in the state's biggest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimum investment essential of $250 million, as nicely as an initial licensing charge of $50 million, and a 33 % tax on gaming income.
Pennsylvania The Sands in Bethlehem is due to open in the Spring of '09, and the new Rivers project in Pittsburgh is anticipated to be operational in August, '09 although Philadelphia's two slot facilities nonetheless wallow in a political mire, but are anticipated to commence building this year.
South Dakota The Lodge at Deadwood is slated to open in the Fall of 2009, and involve 300 games, 140 rooms and a wide selection of amenities.
Texas Legislators are proposing a voter referendum that would amend the state constitution to permit casino gambling in designated places, as nicely as permit 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 Hotels, who have reportedly tendered an supply. State government has proffered the notion of permitting the resort to supply casino games, but this work is in also early a stage to have any traction one particular way or a further.
Indian Gaming A current Supreme Court ruling that restricts the taking of lands into trust on behalf of federally recognized American Indian tribes has additional stymied some new Class III gaming projects across the nation. Furthermore, there have been eleven Indian casino projects rejected by the DOI final year mainly because of its new rule that casinos will have to be close to adequate to a reservation that tribal members can function at them. It has been recommended that the new Obama administration could be much more sympathetic to the improvement of Indian gaming projects, but this situation has but to be addressed.
Meanwhile, there are other Class III projects in the different stages of improvement. The Seneca casino project in Buffalo, NY, although operating a tiny short-term facility, has delayed an currently beneath building permanent facility till the marketplace rebounds. They have also expressed an interest in building a casino in the Catskills. The state gaming compact with Seminoles in Florida is getting challenged, and could influence their plans for bigger projects. There are new Indian gaming projects set to open in Michigan and Oklahoma this year, and other folks are in the arranging stage. Texas could permit the reopening of Indian gaming facilities and permit other venue and there are plans afoot by the Navajos in Arizona to construct more 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 $four.9 billion in 2007 to $four.five billion in 2008 with decreases continuing into 2009, as the city is getting itself in an intense comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast have been positioned in Atlantic City, exactly where it looked as if it could in fact even eclipse the Las Vegas Strip's annual gaming revenues.
Gradually nonetheless its marketplace share was getting encroached upon, initial by the improvement of a huge Class III gaming operation in Connecticut, and then a further slots operations in Rhode Island, and then video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most lately Pennsylvania.
Now, with the planned opening of slot operations in Maryland, the impending opening of a new casino in Bethlehem, PA, and sooner or later two operations in Philadelphia, the noose is tightening about Atlantic City's future prospects. It is reliance on day-trippers lulled it into a false sense of safety, and it now finds itself obtaining to redefine its mission statement to “location resort.”
The only challenge with this approach nonetheless is that it is ill-equipped to pull it off. For all intents and purposes, Atlantic City is beneath-roomed and/or more than-gamed. There is merely not adequate day-tripper marketplace to go about, and their helpful trading location is tightening, as the peripheral populations northward now/will have much more prepared access to a widened provide 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 access, the city's only genuine competitive positive aspects are its hotel capacity and the availability of table games, even though the latter is probably to eventuate in Pennsylvania, and possibly Delaware. In order to adequately compete as a location resort the city demands to create more guest rooms and not necessarily gaming capacity. By comparison, the Las Vegas Strip properties – accurate gaming destinations, in that they do not have a great deal of a day-trip marketplace, except for the 'locals' – have an typical of .87 gaming positions per guest area although Atlantic City's typical is two.74 positions per guest area.
It is not a coincidence that Atlantic City's two biggest hotels, the Borgata and Harrah's Marina, each of which added new rooms in 2008, have been the least impacted by the newest downturn. The Borgata seasoned a gaming income drop of 1.six %, although Harrah's Marina reported a four.9 % enhance compared to 2007. Furthermore, the hardest 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, like the the Trump properties and Resorts with the hoped for sale of the Tropicana has been additional delayed, and losing valuation.
With a steady rise in gaming revenues by way of 2006, the city seemed prime for additional improvement, which precipitated arranging for 4 new resort projects, each and every of which have now been indefinitely delayed. Revel Entertainment Group's $two.five billion project remains an iron skeleton, Pinnacle Entertainment has announced it could seek to sell its razed Sands website, MGM Mirage has shelved its casino plans, and Penn National seems to have stopped its pursuit of the Bader Field airport website.
Possibly the city need to seek to return to its roots, leveraging its beachfront, and produce much more recreational activities and particular events.
A complete state by state evaluation is obtainable at our internet website.
