Countrywide Professional Gambling casino and Racino Games Earnings Examination

A Interval of Adjustment

Oops! That big hissing audio is the gaming balloon that experienced been increasing in excess of the many years, little by little losing air. But, it has not been a tide that reduced all ships however, as some rising and expanding gaming jurisdictions confirmed strong expansion in 2008.

General, the commercial and racetrack on line casino sectors (excluding Indian gaming), seasoned a three.five p.c drop in gaming revenues for 2008, generating a total of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this fall, as they confirmed a obtain of almost $one billion in 2008, thereby bringing the Professional sector market decline to $one.8 billion, or %. Nevada was the biggest loser in 2008, dropping practically $1.three billion, far more than 50 percent of which stemmed from the Las Vegas Strip section.

Hunkering Down

For the most part, on line casino operators had been caught comparatively flat-footed by the extent of the 2008 revenue downturn, as it was not until the 3rd and fourth quarters when it genuinely nosedived. Driving the crest of year in excess of year industry development across the nation and the availability of enough credit and fairness cash, new building and enlargement proliferated in modern several years. Nowadays, faced with the realities of declining, or at very best stagnant need, a lot of of these projects are now regarded as more than-leveraged and/or over-sized. As a consequence numerous gaming organizations are attempting to renegotiate their debt – made far more challenging by reduced valuations – although also paring down operational fees. The latter has turn into a extremely problematic conundrum when working with the competition, especially in people jurisdictions that are now vying for market shares with new emerging on line casino assignments in neighboring regions. A subject matter we go over more completely in the State by State analysis segment of this publication.

As a result of these conditions the gaming market landscape is now strewn with impending fatalities. Among the a lot more noteworthy troubled firms are Station Casinos, Empire Resorts, Harrah’s Leisure, Greektown Holdings, Legends Gaming, Tropicana Enjoyment, Herbst Gaming and the list grows each and every 7 days.

“How prolonged will these financial situations persist, and are we at the bottom nevertheless?” are queries no 1 seems to be answering nevertheless. What is clear however is that most gaming jurisdictions will have to discover how to offer with a smaller sized pie.

This analysis involves only gaming revenues of certified casinos and pari-mutuel retailers that supply casino video games, and not Indian gaming functions, card rooms, or modest non-casino variety slot spots. The entire write-up, such as income tables is available on our net webpage.

Enter/Output Design

A essential facet that seems to have arisen from the ashes of this recent trend is that a lot of casino assignments were just too huge to support themselves. The input, in conditions of expense pounds, was not proportional to the output, in phrases of web profit soon after personal debt provider, when compared to earlier achieved final results. Far more and/or bigger is not always better. Observing the rise in non-gaming earnings at the Las Vegas Strip resorts, gave impetus to the advancement of a lot more thorough facilities in many other jurisdictions. The flaw in this strategy nonetheless is that the costs associated with widening market place penetration and occasioned-use, are significantly higher than individuals incurred to attract the foundation industry.

As daytripper marketplaces become far more aggressive, on line casino venues will have to rely far more and far more on their in-house hotel patrons, and measurement their houses (and anticipations) appropriately. Whilst Steve Wynn started out a key development in making up-industry mega-locations, there basically was not sufficient demand from customers on the Strip to warrant the several other comparable tasks that adopted that aimed at the exact same niche.

The trick is to strike a satisfied medium in project configurations which of training course require much less of a ‘seat-of-pants’ technique, and 1 that is more examined. A shameless plug for advancement consultants like ourselves.

Other Gaming Routines

Despite the fact that there are no released comprehensive knowledge of American Indian gaming revenues, anecdotal evidence appears to advise that this section has been as challenging strike as the Industrial sector. The two Connecticut Indian gaming installations report slot income of $one.6 billion in 2008, symbolizing a drop of about seven %, or practically $114 million, a lot more than doubling the three.five percent drop from the yr just before. This marketplace is apparently nevertheless reeling from the ripple-influence of a on line casino growth in Rhode Island, and the opening of slot functions in New York and Pennsylvania. The Arizona Department of Gaming reviews that contributions primarily based on a gaming revenue formulation from the state’s 23 Indian gaming casinos, have been declining every quarter in 2008 in contrast to the preceding yr reducing .8 p.c in the very first quarter, seven.5 % in the second quarter, nine.5 per cent in the 3rd quarter, and percent in the fourth quarter.

Some SEC reporting Indian gaming houses report similar decreases. Seneca Gaming, which operates 3 Course III casinos in upstate New York, reviews that even though calendar 12 months 2008 confirmed an almost two per cent expansion rate in gaming revenues, there was an eight.7 p.c drop in the third quarter and an almost 10 per cent drop in the fourth quarter of 2008, in contrast with 2007. Gaming income developments at close by Niagara Falls, Ontario have been down 1.five% in 2008 in comparison with 2007.

It is been a blended-bag for condition lotteries throughout the region. The North American Affiliation of Condition & Provincial Lotteries studies that U.S. lotteries generated a overall of $sixty.six billion in income in fiscal 2008, up about three per cent from the earlier year yet some jurisdictions noted decreases, most notably California, which showed an eight p.c fall. Inasmuch as some of these states are on a variety of fiscal calendar year finishes, it would look that the data does not replicate the effect of 3rd and/or fourth quarter benefits.

In accordance to info supplied by Equibase, horse racing pari-mutuel revenues continue their downward spiral, falling seven % to $thirteen.7 billion in 2008, vs . $ billion in 2007.

Planned & Proposed New Expansions

As formerly famous, it has been new gaming jurisdictions that have spawned a lot of the development in yearly on line casino/racino revenues in excess of the several years, and their effect is apt to keep on into the near long term.

Miami Dade voters approved a ballot issue that makes it possible for each and every of three pari-mutuels to have a on line casino facility of up to two,000 slot machines. The Flagler Pet Observe and Miami Jai-Alai are reportedly organizing opening in late 2009 or early 2010, even though the Calder set up in Miami Gardens has yet to introduced its programs. There are numerous other proposals becoming regarded that would additional increase on line casino growth throughout the point out.

The state finally got close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a one,200+ match on line casino situated in Des Plaines just east of O’Hare. The new facility is not probably to open right up until 2010. There has also been some discussion about making it possible for an increase in per place gaming positions and slots at racetracks, even though neither initiative seems to have any traction at this time.

The state’s expanded lottery software that makes it possible for for the improvement of four on line casino gaming zones and slots at existing horse and puppy tracks appears mired, as only one particular facility is presently beneath building, even though 3 other proposals were rescinded. The only bidder on the Cherokee County contract, claimed it could not compete with the new Quapaw tribal on line casino in Oklahoma, which is situated so close to the point out line that its parking great 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 game titles, alongside with a next section due to open in 2011 with 875 slots and twenty table game titles. 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 several as eight slot parlors and racinos appears to be back again on the entrance-burner, but most likely not fixed throughout the recent legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to arrive on line in 2009, with the most recent getting the 390 space M Vacation resort in Henderson. There are expansions underway at each Caesars Palace and Hard Rock and new resorts include two elements of the Metropolis Middle venture, and the Fountainebleau.

Pinnacle Entertainment’s new on line casino development projects in Baton Rouge and Lake Charles, while delayed, are documented to nonetheless be on-keep track of for opening this 12 months and/or early 2010.

There is a invoice underneath thing to consider that could much more than double Penn National’s slot devices to 3,000, as well as a proposal that would eliminate the restriction that slots be located inside of five miles of the track. Scarborough Downs, which has been unsuccessful in convincing local people to allow slots, could be thinking about moving to a far more hospitable city.

A referendum was accredited in November, 2008 that allows for the growth of five casinos with a complete of fifteen,000 slots, and now the bidding war is afoot even though it is not as intense as the point out experienced expected.

Grand Soleil Casino Resort in Natchez had been slated to open in 2008, but has run into various funding problems and while the resort portion is open, the riverboat is described to open up in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, even though scaled back somewhat, is even now on monitor to open up this 12 months.

New England
Massachusetts, a sleeping-large in terms of marketplace possible, is even now maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but are not able to appear to muster the political help. A latest research concluded by Dartmouth College estimates that Massachusetts resident invested a lot more than $920 million final calendar year at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an selection to develop casinos, nevertheless the subject is most likely to be revisited, specially 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 devices at racetracks by lately agreeing to continue augmenting purses with an added tax. The governor even so, has appointed a new panel to review the state’s sagging racing software which ironically, can only be preserved by allowing the tracks to have slot equipment especially at the Meadowlands. (See The Nor’easter Squeeze area)

New York
Just when it looked as if Aqueduct’s 4,500 VLT facility would finally be produced, the profitable bidder indicated an lack of ability to make the necessary $370 million payment, citing the recent lending climate, and throwing the venture again into the lap of the governor. Even though the market place demand in the area could be deemed quite sturdy, the prospect of added competitiveness from close by Belmont could have an impact on Aqueduct’s underlining financial feasibility, specifically contemplating that slightly much less than 30% of the internet earn is retained by the operator.

Programs to relocate Monticello Raceway into a vacation resort sophisticated are currently being reconsidered probably owing to the two the probable opening of at minimum a single or perhaps two racino functions in the NY metro region, and the resurfacing of initiatives to advancement a Class III Indian gaming facility in the Catskills.

But yet another gaming proposal is getting put forth in Ohio, after final year’s model was turned down by the voters. This program calls for a single on line casino each in the state’s premier towns: Cleveland, Columbus, Cincinnati and Toledo. There would be a bare minimum expenditure necessary of $250 million, as effectively as an first licensing fee of $50 million, and a 33 p.c tax on gaming income.

The Sands in Bethlehem is due to open in the Spring of ’09, and the new Rivers task in Pittsburgh is anticipated to be operational in August, ’09 while Philadelphia’s two slot amenities nonetheless wallow in a political mire, but are expected to start off design this calendar year.

South Dakota
The Lodge at Deadwood is slated to open up in the Slide of 2009, and include 300 games, a hundred and forty rooms and a broad selection of features.

Legislators are proposing a voter referendum that would amend the condition constitution to permit on line casino gambling in designated locations, 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 Resorts, who have reportedly tendered an offer you. Condition govt has proffered the notion of permitting the vacation resort to provide on line casino games, but this hard work is in as well early a stage to have any traction one way or yet another.

Indian Gaming
A latest Supreme Court ruling that restricts the having of lands into have confidence in on behalf of federally acknowledged American Indian tribes has further stymied some new Class III gaming assignments throughout the country. Moreover, there were eleven Indian on line casino initiatives turned down by the DOI very last calendar year simply because of its new rule that casinos need to be around sufficient to a reservation that tribal users can perform at them. It has been suggested that the new Obama administration may possibly be much more sympathetic to the advancement of Indian gaming initiatives, but this problem has nevertheless to be addressed.

In the meantime, there are other Course III assignments in the various levels of development. The Seneca casino task in Buffalo, NY, although functioning a tiny short-term facility, has delayed an previously below design long lasting facility till the industry rebounds. They have also expressed an fascination in developing a on line casino in the Catskills. The point out gaming compact with Seminoles in Florida is currently being challenged, and could influence their ideas for bigger projects. There are new Indian gaming initiatives set to open in Michigan and Oklahoma this calendar year, and others are in the organizing phase. Texas could allow the reopening of Indian gaming services and let other location and there are plans afoot by the Navajos in Arizona to build further casinos. California is poised to open two to three new Course III casinos in 2009/ten.

The Nor’easter Squeeze

Whole gaming profits in Atlantic Metropolis has declined 7.six percent, from $4.nine billion in 2007 to $four.5 billion in 2008 with decreases continuing into 2009, as the city is discovering by itself in an extreme comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast have been situated in Atlantic Metropolis, in which it appeared as if it may possibly in fact even eclipse the Las Vegas Strip’s annual gaming revenues.

Gradually nevertheless its marketplace share was getting encroached upon, 1st by the development of a huge Course III gaming operation in Connecticut, and then yet another slots operations in Rhode Island, and then video 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 casino in Bethlehem, PA, and eventually two operations in Philadelphia, the noose is tightening close to Atlantic City’s future prospects. It’s reliance on day-trippers lulled it into a untrue feeling of stability, and it now finds itself obtaining to redefine its mission assertion to “vacation spot vacation resort.”

The only dilemma with this strategy nevertheless is that it is sick-equipped to pull it off. For all intents and purposes, Atlantic City is below-roomed and/or above-gamed. There is basically not sufficient working day-tripper industry to go all around, and their efficient buying and selling area is tightening, as the peripheral populations northward now/will have a lot more ready obtain 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.

Other than the ocean entry, the city’s only actual aggressive advantages are its hotel potential and the availability of desk video games, despite the fact that the latter is very likely to eventuate in Pennsylvania, and possibly Delaware. In order to adequately contend as a spot vacation resort the town wants to build added guest rooms and not automatically gaming ability. By comparison, the Las Vegas Strip homes – correct gaming locations, in that they do not have a lot of a working day-trip market, besides for the ‘locals’ – have an typical of .87 gaming positions for each visitor place even though Atlantic City’s average is 2.seventy four positions per visitor area.

It is not a coincidence that Atlantic City’s two greatest lodges, the Borgata and Harrah’s Marina, each of which added new rooms in 2008, were the the very least impacted by the latest downturn. The Borgata skilled a gaming revenue drop of one.six percent, whilst Harrah’s Marina documented a 4.9 % boost when compared to 2007. In addition, the hardest strike venues, specifically 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 properties and Resorts with the hoped for sale of the Tropicana has been further delayed, and shedding valuation.

With a constant rise in gaming revenues by means of 2006, the town seemed prime for even more improvement, which precipitated planning for 4 new resort projects, each of which have now been indefinitely delayed. Revel Entertainment Group’s $two.5 billion task stays an iron skeleton, Pinnacle Amusement has introduced it may possibly seek out to sell its razed Sands internet site, MGM Mirage has shelved its casino strategies, and Penn Countrywide seems to have stopped its pursuit of the Bader Area airport site.

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