A Period of time of Adjustment

Oops! That giant hissing audio is the gaming balloon that experienced been developing more than the years, slowly losing air. But, it has not been a tide that decreased all ships even so, as some emerging and increasing gaming jurisdictions showed robust development in 2008.

General, the industrial and racetrack on line casino sectors (excluding Indian gaming), skilled a 3.5 % decline in gaming revenues for 2008, creating a overall of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they confirmed a achieve of nearly $one billion in 2008, thus bringing the Commercial sector marketplace decrease to $1.eight billion, or six.seven per cent. Nevada was the most significant loser in 2008, dropping almost $1.3 billion, more than 50 % of which stemmed from the Las Vegas Strip phase.

Hunkering Down

For the most component, on line casino operators have been caught comparatively flat-footed by the extent of the 2008 earnings downturn, as it was not until the 3rd and fourth quarters when it actually nosedived. Riding the crest of calendar year above yr market place expansion throughout the place and the availability of enough credit rating and equity cash, new development and growth proliferated in current several years. Today, faced with the realities of declining, or at greatest stagnant need, a lot of of these projects are now regarded more than-leveraged and/or over-sized. As a consequence many gaming companies are trying to renegotiate their debt – created much more difficult by lower valuations – although also paring down operational expenses. The latter has grow to be a really problematic conundrum when dealing with the competitors, specially in those jurisdictions that are now vying for market shares with new emerging on line casino initiatives in neighboring places. A topic we talk about more entirely in the Condition by State analysis part of this publication.

As a result of these situations the gaming industry landscape is now strewn with impending fatalities. Among the more noteworthy troubled corporations are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Leisure, Herbst Gaming and the record grows every week.

“How prolonged will these financial situations persist, and are we at the base but?” are questions no a single seems to be answering yet. What is clear even so is that most gaming jurisdictions will have to learn how to offer with a scaled-down pie.

Be aware:
This investigation consists of only gaming revenues of licensed casinos and pari-mutuel shops that provide on line casino game titles, and not Indian gaming operations, card rooms, or little non-casino type slot spots. The complete report, such as profits tables is available on our world wide web website page.

Enter/Output Model

A important factor that appears to have arisen from the ashes of this recent pattern is that many casino projects have been just way too huge to support by themselves. The enter, in terms of expenditure pounds, was not proportional to the output, in phrases of net income following debt service, when compared to formerly achieved outcomes. A lot more and/or bigger is not often far better. Observing the rise in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the growth of a lot more thorough amenities in a lot of other jurisdictions. The flaw in this strategy nevertheless is that the charges associated with widening marketplace penetration and occasioned-use, are substantially increased than those incurred to attract the foundation marketplace.

As daytripper marketplaces turn into much more aggressive, on line casino venues will have to count far more and more on their in-house lodge patrons, and size their properties (and expectations) accordingly. Whilst Steve Wynn began a main development in producing up-industry mega-locations, there merely was not enough demand on the Strip to warrant the several other similar initiatives that adopted that aimed at the exact same specialized niche.

The trick is to strike a pleased medium in undertaking configurations which of course call for much less of a ‘seat-of-pants’ method, and one that is much more researched. A shameless plug for development consultants like ourselves.

Other Gaming Actions

Despite the fact that there are no published detailed knowledge of American Indian gaming revenues, anecdotal evidence appears to recommend that this section has been as tough strike as the Professional sector. The two Connecticut Indian gaming installations report slot earnings of $1.six billion in 2008, symbolizing a fall of about 7 percent, or practically $114 million, much more than doubling the three.5 % drop from the calendar year before. This marketplace is apparently nonetheless reeling from the ripple-impact of a on line casino enlargement in Rhode Island, and the opening of slot functions in New York and Pennsylvania.

The Arizona Division of Gaming reviews that contributions based mostly on a gaming profits method from the state’s 23 Indian gaming casinos, have been declining each quarter in 2008 when compared to the preceding calendar year lowering .8 per cent in the first quarter, seven.five p.c in the next quarter, nine.5 percent in the third quarter, and 16.1 percent in the fourth quarter.

Some SEC reporting Indian gaming homes report related decreases. Seneca Gaming, which operates three Class III casinos in upstate New York, reports that while calendar calendar year 2008 confirmed an nearly 2 per cent expansion fee in gaming revenues, there was an 8.seven per cent decline in the 3rd quarter and an nearly ten % decrease in the fourth quarter of 2008, compared with 2007. Gaming profits developments at nearby Niagara Falls, Ontario had been down 1.5% in 2008 in contrast with 2007.

It is been a blended-bag for point out lotteries across the place. The North American Affiliation of Point out & Provincial Lotteries stories that U.S. lotteries created a complete of $60.6 billion in income in fiscal 2008, up about three per cent from the prior year yet some jurisdictions described decreases, most notably California, which confirmed an 8 p.c fall. Inasmuch as some of these states are on numerous fiscal yr ends, it would appear that the knowledge does not replicate the affect of third and/or fourth quarter results.

According to knowledge offered by Equibase, horse racing pari-mutuel revenues carry on their downward spiral, falling 7 per cent to $13.7 billion in 2008, versus $fourteen.7 billion in 2007.

Planned & Proposed New Expansions

As formerly noted, it has been new gaming jurisdictions that have spawned significantly of the development in once-a-year casino/racino revenues over the many years, and their influence is apt to proceed into the close to long term.

Miami Dade voters authorized a ballot situation that makes it possible for each of three pari-mutuels to have a casino facility of up to 2,000 slot equipment. The Flagler Pet Observe and Miami Jai-Alai are reportedly arranging opening in late 2009 or early 2010, even though the Calder installation in Miami Gardens has however to introduced its strategies. There are quite a few other proposals being regarded that would further expand casino advancement throughout the point out.

The point out ultimately received around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Leisure, LLC for a one,two hundred+ game on line casino found in Des Plaines just east of O’Hare. The new facility is not likely to open right up until 2010. There has also been some dialogue about permitting an increase in for every place gaming positions and slots at racetracks, despite the fact that neither initiative appears to have any traction at this time.

The state’s expanded lottery program that makes it possible for for the development of four on line casino gaming zones and slots at existing horse and dog tracks appears mired, as only 1 facility is presently underneath building, even though 3 other proposals ended up rescinded. The only bidder on the Cherokee County deal, claimed it could not compete with the new Quapaw tribal casino in Oklahoma, which is positioned so close to the condition line that its parking great deal is in Kansas. The Boot Hill Casino Resort in Dodge City is planing a December 2009 opening with 575 slots and 10 table video games, together with a next period thanks to open up in 2011 with 875 slots and 20 table video games. The condition has prolonged the application method for the other three zones till April, 2009.

There is nonetheless a great deal of ‘jockeying’ going 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 probably not fixed during the recent legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to occur on line in 2009, with the most modern being the 390 room M Resort in Henderson. There are expansions underway at both Caesars Palace and Hard Rock and new resorts consist of two components of the City Centre venture, and the Fountainebleau.

Pinnacle Entertainment’s new on line casino advancement projects in Baton Rouge and Lake Charles, although delayed, are noted to nevertheless be on-monitor for opening this year and/or early 2010.

There is a monthly bill underneath thing to consider that could much more than double Penn National’s slot devices to three,000, as properly as a proposal that would remove the restriction that slots be located inside of 5 miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing local inhabitants to allow slots, could be taking into consideration shifting to a far more hospitable town.

A referendum was authorized in November, 2008 that allows for the improvement of five casinos with a total of fifteen,000 slots, and now the bidding war is afoot despite the fact that it is not as intensive as the point out experienced expected.

Grand Soleil Casino Resort in Natchez experienced been slated to open in 2008, but has run into different funding troubles and whilst the resort part is open, the riverboat is described to open in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, even though scaled back again somewhat, is nonetheless on monitor to open this 12 months.

New England
Massachusetts, a sleeping-big in phrases of market likely, is even now maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but are not able to look to muster the political support. A recent review concluded by Dartmouth University estimates that Massachusetts resident invested far more than $920 million very last 12 months at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature not too long ago declined an selection to create casinos, even so the subject is likely to be revisited, particularly if Massachusetts decides to go ahead. There are also makes an attempt in Maine to rethink its possibilities.

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

New York
Just when it seemed as if Aqueduct’s 4,500 VLT facility would last but not least be developed, the winning bidder indicated an incapability to make the essential $370 million price, citing the recent lending local weather, and throwing the task again into the lap of the governor. Despite the fact that the market demand in the location could be considered very robust, the prospect of further opposition from close by Belmont could have an impact on Aqueduct’s underlining financial feasibility, especially contemplating that a bit significantly less than thirty% of the net acquire is retained by the operator.

Strategies to relocate Monticello Raceway into a resort sophisticated are currently being reconsidered probably owing to each the possible opening of at least a single or maybe two racino functions in the NY metro area, and the resurfacing of initiatives to growth a Course III Indian gaming facility in the Catskills.

But yet another gaming proposal is currently being set forth in Ohio, soon after last year’s version was turned down by the voters. This prepare calls for one particular on line casino each and every in the state’s biggest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimum expenditure required of $250 million, as properly as an preliminary licensing price of $50 million, and a 33 % tax on gaming earnings.

The Sands in Bethlehem is thanks to open up in the Spring of ’09, and the new Rivers venture in Pittsburgh is predicted to be operational in August, ’09 while Philadelphia’s two slot facilities still wallow in a political mire, but are predicted to begin building this calendar year.

South Dakota
The Lodge at Deadwood is slated to open up in the Drop of 2009, and incorporate three hundred video games, one hundred forty rooms and a vast selection of amenities.

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

West Virginia
The Greenbriar, the state’s venerable vacation resort facility has filed for personal bankruptcy, but has a new suitor in Marriott Hotels, who have reportedly tendered an provide. State federal government has proffered the notion of allowing the vacation resort to supply on line casino video games, but this effort is in as well early a stage to have any traction 1 way or another.

Indian Gaming
A modern Supreme Court ruling that restricts the using of lands into believe in on behalf of federally recognized American Indian tribes has even more stymied some new Course III gaming assignments across the place. Moreover, there had been eleven Indian on line casino projects rejected by the DOI last 12 months since of its new rule that casinos need to be in close proximity to enough to a reservation that tribal associates can perform at them. It has been advised that the new Obama administration might be far more sympathetic to the growth of Indian gaming projects, but this situation has but to be dealt with.

In the meantime, there are other Class III projects in the numerous stages of development. The Seneca casino project in Buffalo, NY, even though operating a modest momentary facility, has delayed an previously under design everlasting facility right up until the marketplace rebounds. They have also expressed an interest in developing a casino in the Catskills. The condition gaming compact with Seminoles in Florida is currently being challenged, and could impact their ideas for more substantial tasks. There are new Indian gaming initiatives set to open up in Michigan and Oklahoma this calendar year, and other people are in the arranging phase. Texas could enable the reopening of Indian gaming amenities and enable other venue and there are programs afoot by the Navajos in Arizona to construct further casinos. California is poised to open up two to 3 new Class III casinos in 2009/ten.

The Nor’easter Squeeze

Overall gaming profits in Atlantic Metropolis has declined 7.6 %, from $4.9 billion in 2007 to $four.five billion in 2008 with decreases continuing into 2009, as the town is finding itself in an powerful comp-war with the Pennsylvania venues. At one time the only casinos in the Northeast were found in Atlantic Town, the place it looked as if it might in fact even eclipse the Las Vegas Strip’s yearly gaming revenues.

Slowly and gradually nevertheless its market place share was getting encroached on, initial by the growth of a large Class III gaming procedure in Connecticut, and then an additional slots operations 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 functions in Maryland, the impending opening of a new casino in Bethlehem, PA, and eventually two functions in Philadelphia, the noose is tightening about Atlantic City’s potential potential customers. It truly is reliance on working day-trippers lulled it into a bogus perception of safety, and it now finds by itself getting to redefine its mission assertion to “destination vacation resort.”

The only dilemma with this strategy even so is that it is sick-equipped to pull it off. For all intents and functions, Atlantic Town is beneath-roomed and/or over-gamed. There is simply not ample working day-tripper marketplace to go around, and their successful investing region is tightening, as the peripheral populations northward now/will have a lot more prepared obtain to a widened offer in New York (Yonkers, and soon at Aqueduct and probably Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean entry, the city’s only actual competitive advantages are its hotel potential and the availability of desk online games, although the latter is likely to eventuate in Pennsylvania, and possibly Delaware. In get to sufficiently contend as a vacation spot vacation resort the city requirements to develop further guest rooms and not automatically gaming capacity. By californiavisit , the Las Vegas Strip houses – accurate gaming destinations, in that they do not have much of a day-excursion market, besides for the ‘locals’ – have an common of .87 gaming positions for every visitor room even though Atlantic City’s typical is two.74 positions per visitor area.

It is not a coincidence that Atlantic City’s two greatest accommodations, the Borgata and Harrah’s Marina, both of which added new rooms in 2008, have been the least impacted by the latest downturn. The Borgata knowledgeable a gaming revenue fall of 1.6 p.c, whilst Harrah’s Marina noted a four.9 % enhance compared to 2007. In addition, the most difficult hit venues, namely 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, such as the the Trump properties and Resorts with the hoped for sale of the Tropicana has been further delayed, and shedding valuation.

With a regular increase in gaming revenues by means of 2006, the metropolis appeared primary for even more advancement, which precipitated arranging for 4 new vacation resort projects, every single of which have now been indefinitely delayed. Revel Enjoyment Group’s $two.5 billion venture stays an iron skeleton, Pinnacle Enjoyment has declared it may well seek out to offer its razed Sands web site, MGM Mirage has shelved its casino ideas, and Penn National appears to have stopped its pursuit of the Bader Field airport internet site.


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