A Period of Adjustment

Oops! That huge hissing audio is the gaming balloon that experienced been increasing over the years, slowly and gradually dropping air. But, it has not been a tide that reduced all ships even so, as some emerging and increasing gaming jurisdictions showed strong development in 2008.

Overall, the industrial and racetrack casino sectors (excluding Indian gaming), skilled 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 fall, as they showed a achieve of almost $one billion in 2008, thereby bringing the Commercial sector industry decline to $1.eight billion, or six.seven %. Nevada was the most significant loser in 2008, dropping practically $1.3 billion, far more than 50 % of which stemmed from the Las Vegas Strip phase.

Hunkering Down

For the most component, casino operators were caught reasonably flat-footed by the extent of the 2008 earnings downturn, as it was not until the third and fourth quarters when it truly nosedived. Driving the crest of 12 months over yr market growth throughout the nation and the availability of ample credit rating and equity funds, new development and enlargement proliferated in current years. Today, confronted with the realities of declining, or at ideal stagnant demand, many of these initiatives are now considered more than-leveraged and/or above-sized. As a end result several gaming companies are making an attempt to renegotiate their personal debt – made a lot more tough by reduce valuations – although also paring down operational charges. The latter has turn into a really problematic conundrum when working with the competition, especially in those jurisdictions that are now vying for industry shares with new rising on line casino assignments in neighboring places. A topic we go over far more fully in the Condition by State evaluation part of this publication.

As a result of these conditions the gaming business landscape is now strewn with impending fatalities. Amongst the far more notable troubled firms are Station Casinos, Empire Resorts, Harrah’s Amusement, Greektown Holdings, Legends Gaming, Tropicana Enjoyment, Herbst Gaming and the list grows each and every week.

“How extended will these financial situations persist, and are we at the base nevertheless?” are queries no 1 seems to be answering nevertheless. What is very clear nonetheless is that most gaming jurisdictions will have to find out how to offer with a scaled-down pie.

Note:
This investigation includes only gaming revenues of certified casinos and pari-mutuel outlets that provide casino video games, and not Indian gaming functions, card rooms, or tiny non-on line casino variety slot places. The total write-up, including income tables is offered on our world wide web web page.

Input/Output Product

A essential factor that would seem to have arisen from the ashes of this current development is that a lot of on line casino projects had been just also big to help them selves. The enter, in phrases of expense bucks, was not proportional to the output, in terms of web profit following credit card debt service, in contrast to formerly attained final results. More and/or larger is not often much better. Seeing the increase in non-gaming earnings at the Las Vegas Strip resorts, gave impetus to the improvement of much more extensive features in numerous other jurisdictions. The flaw in this approach however is that the costs related with widening industry penetration and occasioned-use, are drastically greater than people incurred to entice the foundation market place.

As daytripper marketplaces turn into a lot more competitive, casino venues will have to depend a lot more and a lot more on their in-home resort patrons, and dimensions their houses (and expectations) appropriately. While Steve Wynn started out a key craze in creating up-market place mega-destinations, there just was not ample demand on the Strip to warrant the numerous other related initiatives that adopted that aimed at the identical niche.

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Other Gaming Routines

Though there are no released detailed information of American Indian gaming revenues, anecdotal proof seems to propose that this segment has been as hard hit as the Industrial sector. The two Connecticut Indian gaming installations report slot profits of $one.six billion in 2008, representing a drop of about 7 per cent, or almost $114 million, a lot more than doubling the 3.5 percent fall from the year before. This industry is seemingly still reeling from the ripple-result of a on line casino expansion in Rhode Island, and the opening of slot functions in New York and Pennsylvania.

The Arizona Section of Gaming stories that contributions based mostly on a gaming earnings formulation from the state’s 23 Indian gaming casinos, have been declining each quarter in 2008 in contrast to the preceding yr lowering .8 % in the very first quarter, 7.5 p.c in the second quarter, 9.five p.c in the 3rd quarter, and sixteen.one percent in the fourth quarter.

Some SEC reporting Indian gaming houses report comparable decreases. Seneca Gaming, which operates a few Course III casinos in upstate New York, stories that while calendar yr 2008 showed an virtually two percent growth charge in gaming revenues, there was an 8.7 % drop in the 3rd quarter and an practically 10 percent decline in the fourth quarter of 2008, compared with 2007. Gaming earnings developments at nearby Niagara Falls, Ontario had been down one.five% in 2008 in contrast with 2007.

It really is been a mixed-bag for state lotteries across the nation. The North American Affiliation of Point out & Provincial Lotteries stories that U.S. lotteries produced a complete of $sixty.six billion in income in fiscal 2008, up about three per cent from the previous year but some jurisdictions noted decreases, most notably California, which showed an 8 percent fall. Inasmuch as some of these states are on a variety of fiscal year ends, it would appear that the info does not replicate the affect of third and/or fourth quarter outcomes.

In accordance to data presented by Equibase, horse racing pari-mutuel revenues carry on their downward spiral, falling seven p.c to $13.seven billion in 2008, compared to $fourteen.7 billion in 2007.

Planned & Proposed New Expansions

As beforehand noted, it has been new gaming jurisdictions that have spawned significantly of the growth in annual on line casino/racino revenues in excess of the many years, and their effect is apt to carry on into the close to potential.

Florida
Miami Dade voters accepted a ballot issue that permits each and every of 3 pari-mutuels to have a casino facility of up to two,000 slot machines. The Flagler Pet Keep track of and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, while the Calder set up in Miami Gardens has nevertheless to declared its ideas. There are quite a few other proposals currently being regarded as that would additional broaden on line casino development through the state.

Illinois
The point out finally acquired about 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 probably to open up right up until 2010. There has also been some discussion about making it possible for an boost in per spot gaming positions and slots at racetracks, though neither initiative appears to have any traction at this time.

Kansas
The state’s expanded lottery plan that permits for the improvement of four casino gaming zones and slots at present horse and pet tracks seems mired, as only one particular facility is presently under design, whilst a few 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 located so close to the state line that its parking good deal is in Kansas. The Boot Hill On line casino Vacation resort in Dodge Town is planing a December 2009 opening with 575 slots and ten desk video games, alongside with a next period because of to open up in 2011 with 875 slots and twenty desk games. The point out has extended the application method for the other 3 zones right up until April, 2009.

Kentucky
There is still a whole lot of ‘jockeying’ going on, but the prospect of as many as eight slot parlors and racinos seems to be back again on the entrance-burner, but very likely not resolved throughout the current legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to come on line in 2009, with the most current being the 390 place M Vacation resort in Henderson. There are expansions underway at equally Caesars Palace and Challenging Rock and new resorts incorporate two factors of the Town Middle task, and the Fountainebleau.

Louisiana
Pinnacle Entertainment’s new on line casino growth tasks in Baton Rouge and Lake Charles, even though delayed, are noted to even now be on-keep track of for opening this yr and/or early 2010.

Maine
There is a monthly bill below consideration that could a lot more than double Penn National’s slot machines to three,000, as properly as a proposal that would eliminate the restriction that slots be found in 5 miles of the observe. Scarborough Downs, which has been unsuccessful in convincing nearby residents to allow slots, may possibly be taking into consideration transferring to a far more hospitable town.

Maryland
A referendum was approved in November, 2008 that allows for the growth of 5 casinos with a overall of fifteen,000 slots, and now the bidding war is afoot even though it is not as powerful as the state had expected.

Mississippi
Grand Soleil On line casino Vacation resort in Natchez had been slated to open in 2008, but has run into a variety of funding problems and while the lodge portion is open, the riverboat is reported to open in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, even though scaled back fairly, is nevertheless on monitor to open up this calendar year.

New England
Massachusetts, a sleeping-large in terms of marketplace prospective, is nonetheless maneuvering to open casinos/racinos, and/or a Course III Indian gaming facility, but are not able to look to muster the political assist. A recent review concluded by Dartmouth College estimates that Massachusetts resident spent far more than $920 million last calendar year at Connecticut casinos and slot equipment parlors in Rhode Island and Maine. The New Hampshire legislature recently declined an alternative to create casinos, nonetheless the topic is most likely to be revisited, specifically if Massachusetts decides to go ahead. There are also attempts in Maine to reconsider its alternatives.

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 keep on augmenting purses with an further tax. The governor however, has appointed a new panel to study the state’s sagging racing program which ironically, can only be preserved by making it possible for the tracks to have slot machines especially at the Meadowlands. (See The Nor’easter Squeeze area)

New York
Just when it appeared as if Aqueduct’s 4,500 VLT facility would ultimately be designed, the profitable bidder indicated an inability to make the essential $370 million price, citing the present lending weather, and throwing the project back into the lap of the governor. Although the marketplace desire in the region could be regarded as quite sturdy, the prospect of further competitiveness from close by Belmont could have an effect on Aqueduct’s underlining economic feasibility, specifically taking into consideration that somewhat less than 30% of the internet earn is retained by the operator.

Strategies to relocate Monticello Raceway into a resort complex are currently being reconsidered maybe owing to each the possible opening of at least one particular or probably two racino functions in the NY metro location, and the resurfacing of initiatives to development a Class III Indian gaming facility in the Catskills.

Ohio
But yet another gaming proposal is being set forth in Ohio, after very last year’s variation was turned down by the voters. This plan calls for 1 casino each in the state’s largest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a bare minimum investment decision required of $250 million, as effectively as an initial licensing fee of $50 million, and a 33 p.c tax on gaming profits.

Pennsylvania
The Sands in Bethlehem is owing to open in the Spring of ’09, and the new Rivers undertaking in Pittsburgh is predicted to be operational in August, ’09 whilst Philadelphia’s two slot amenities nevertheless wallow in a political mire, but are expected to commence development this year.

South Dakota
The Lodge at Deadwood is slated to open in the Slide of 2009, and include three hundred games, one hundred forty rooms and a extensive range of amenities.

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

West Virginia
The Greenbriar, the state’s venerable resort facility has filed for individual bankruptcy, but has a new suitor in Marriott Accommodations, who have reportedly tendered an supply. State government has proffered the notion of allowing the resort to supply on line casino game titles, but this hard work is in also early a stage to have any traction one way or one more.

Indian Gaming
A modern Supreme Court ruling that restricts the having of lands into trust on behalf of federally recognized American Indian tribes has additional stymied some new Class III gaming initiatives across the country. Furthermore, there have been eleven Indian on line casino assignments rejected by the DOI previous year because of its new rule that casinos should be around ample to a reservation that tribal users can perform at them. It has been advised that the new Obama administration may be far more sympathetic to the growth of Indian gaming initiatives, but this problem has but to be resolved.

In the meantime, there are other Course III initiatives in the various stages of development. The Seneca on line casino task in Buffalo, NY, while working a small momentary facility, has delayed an already below design everlasting facility until the market place rebounds. They have also expressed an desire in developing a casino in the Catskills. The state gaming compact with Seminoles in Florida is getting challenged, and could impact their strategies for greater projects. There are new Indian gaming tasks set to open up in Michigan and Oklahoma this calendar year, and others are in the preparing stage. Texas may possibly enable the reopening of Indian gaming facilities and allow other location and there are plans afoot by the Navajos in Arizona to assemble extra casinos. California is poised to open up two to three new Course III casinos in 2009/10.

The Nor’easter Squeeze

Total gaming profits in Atlantic City has declined seven.6 p.c, from $four.nine billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the town is locating alone in an intense comp-war with the Pennsylvania venues. At a single time the only casinos in the Northeast have been found in Atlantic City, in which it appeared as if it may really even eclipse the Las Vegas Strip’s yearly gaming revenues.

Slowly however its industry share was becoming encroached upon, very first by the growth of a huge Class III gaming operation 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 recently Pennsylvania.

Now, with the planned opening of slot functions in Maryland, the impending opening of a new on line casino in Bethlehem, PA, and at some point two functions in Philadelphia, the noose is tightening all around Atlantic City’s potential potential clients. It’s reliance on working day-trippers lulled it into a bogus perception of safety, and it now finds alone getting to redefine its mission assertion to “location resort.”

The only difficulty with this technique nevertheless is that it is sick-outfitted to pull it off. For all intents and functions, Atlantic City is under-roomed and/or above-gamed. There is just not ample working day-tripper market place to go close to, and their effective buying and selling region is tightening, as the peripheral populations northward now/will have much more completely ready accessibility to a widened source in New York (Yonkers, and shortly at Aqueduct and perhaps Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean accessibility, the city’s only true competitive advantages are its resort capability and the availability of table game titles, even though the latter is most likely to eventuate in Pennsylvania, and perhaps Delaware. In order to adequately contend as a spot vacation resort the town demands to produce additional visitor rooms and not necessarily gaming potential. By comparison, the Las Vegas Strip homes – real gaming places, in that they do not have considerably of a working day-vacation marketplace, apart from for the ‘locals’ – have an typical of .87 gaming positions for each visitor place while Atlantic City’s average is two.seventy four positions for each guest place.

It is not a coincidence that Atlantic City’s two greatest lodges, the Borgata and Harrah’s Marina, both of which included new rooms in 2008, have been the the very least impacted by the latest downturn. The Borgata skilled a gaming profits drop of 1.6 p.c, while Harrah’s Marina noted a four.9 percent enhance when compared to 2007. Moreover, the most difficult 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, such as the the Trump houses and Resorts with the hoped for sale of the Tropicana has been even more delayed, and getting rid of valuation.

With a constant increase in gaming revenues by way of 2006, the metropolis appeared primary for even more growth, which precipitated preparing for 4 new vacation resort assignments, each and every of which have now been indefinitely delayed. Revel Amusement Group’s $two.5 billion task stays an iron skeleton, Pinnacle Enjoyment has announced it may look for to offer its razed Sands internet site, MGM Mirage has shelved its on line casino plans, and Penn National appears to have stopped its pursuit of the Bader Area airport site.