2008 Countrywide Professional Casino & Racino Gaming Earnings Examination

A Period of Adjustment

Oops! That big hissing audio is the gaming balloon that had been developing more than the years, slowly and gradually shedding air. But, it has not been a tide that lowered all ships nonetheless, as some emerging and growing gaming jurisdictions showed strong expansion in 2008.

All round, the industrial and racetrack on line casino sectors (excluding Indian gaming), seasoned a three.five percent decline in gaming revenues for 2008, creating a whole 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 practically $one billion in 2008, thus bringing the Professional sector market drop to $one.eight billion, or six.seven p.c. Nevada was the greatest loser in 2008, dropping nearly $1.3 billion, far more than 50 % of which stemmed from the Las Vegas Strip section.

Hunkering Down

For the most element, casino operators ended up caught reasonably flat-footed by the extent of the 2008 revenue downturn, as it was not till the third and fourth quarters when it actually nosedived. Riding the crest of calendar year above 12 months market place expansion throughout the region and the availability of enough credit score and equity funds, new construction and expansion proliferated in modern years. Nowadays, faced with the realities of declining, or at best stagnant need, many of these initiatives are now regarded in excess of-leveraged and/or in excess of-sized. As a consequence several gaming businesses are trying to renegotiate their financial debt – manufactured a lot more tough by lower valuations – while also paring down operational expenses. The latter has grow to be a extremely problematic conundrum when dealing with the competition, specifically in these jurisdictions that are now vying for market shares with new rising on line casino projects in neighboring areas. A topic we examine far more completely in the State by Point out analysis section of this publication.

As a result of these circumstances the gaming sector landscape is now strewn with impending fatalities. Amid the a lot more notable troubled companies are Station Casinos, Empire Resorts, Harrah’s Leisure, Greektown Holdings, Legends Gaming, Tropicana Leisure, Herbst Gaming and the record grows each 7 days.

“How lengthy will these economic situations persist, and are we at the bottom nevertheless?” are queries no a single appears to be answering yet. What is clear however is that most gaming jurisdictions will have to learn how to deal with a smaller pie.

Observe:
This evaluation includes only gaming revenues of licensed casinos and pari-mutuel stores that offer you casino game titles, and not Indian gaming operations, card rooms, or modest non-casino sort slot areas. The entire post, such as revenue tables is available on our internet website page.

Enter/Output Model

A key aspect that seems to have arisen from the ashes of this existing pattern is that a lot of casino assignments had been just as well massive to assistance themselves. The enter, in phrases of expense bucks, was not proportional to the output, in terms of web revenue following debt provider, when compared to earlier accomplished benefits. Far more and/or even bigger is not usually greater. Observing the rise in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the advancement of far more thorough features in many other jurisdictions. The flaw in this technique however is that the charges connected with widening market penetration and occasioned-use, are considerably greater than those incurred to entice the foundation industry.

As daytripper markets become more aggressive, casino venues will have to rely far more and more on their in-house resort patrons, and measurement their properties (and anticipations) appropriately. While Steve Wynn started out a key development in producing up-industry mega-locations, there just was not adequate demand from customers on the Strip to warrant the many other equivalent assignments that followed that aimed at the same market.

The trick is to strike a happy medium in undertaking configurations which of training course require considerably less of a ‘seat-of-pants’ strategy, and one that is more studied. A shameless plug for growth consultants like ourselves.

Other Gaming Pursuits

Even though there are no printed thorough data of American Indian gaming revenues, anecdotal proof appears to propose that this segment has been as challenging hit as the Business sector. The two Connecticut Indian gaming installations report slot revenue of $one.six billion in 2008, representing a drop of about 7 percent, or nearly $114 million, far more than doubling the 3.5 % fall from the yr just before. This market is evidently still reeling from the ripple-effect of a casino expansion in Rhode Island, and the opening of slot functions in New York and Pennsylvania.

The Arizona Section of Gaming reviews that contributions dependent on a gaming income formulation from the state’s 23 Indian gaming casinos, have been declining every single quarter in 2008 in contrast to the prior yr decreasing .8 percent in the initial quarter, seven.five per cent in the next quarter, 9.five percent in the third quarter, and 16.1 percent in the fourth quarter.

Some SEC reporting Indian gaming qualities report equivalent decreases. Seneca Gaming, which operates a few Class III casinos in upstate New York, reports that although calendar calendar year 2008 confirmed an virtually 2 percent growth charge in gaming revenues, there was an 8.7 % drop in the 3rd quarter and an nearly 10 % drop in the fourth quarter of 2008, in contrast with 2007. Gaming revenue developments at close by Niagara Falls, Ontario were down 1.5% in 2008 when compared with 2007.

It truly is been a combined-bag for point out lotteries across the region. https://foxz24.com/slotxo/ of Condition & Provincial Lotteries reviews that U.S. lotteries produced a complete of $sixty.six billion in sales in fiscal 2008, up about three percent from the prior yr nevertheless some jurisdictions reported decreases, most notably California, which confirmed an eight per cent fall. Inasmuch as some of these states are on different fiscal yr ends, it would appear that the knowledge does not replicate the effect of third and/or fourth quarter results.

In accordance to data offered by Equibase, horse racing pari-mutuel revenues continue their downward spiral, falling 7 p.c to $thirteen.seven billion in 2008, compared to $14.7 billion in 2007.

Planned & Proposed New Expansions

As earlier famous, it has been new gaming jurisdictions that have spawned considerably of the growth in annual casino/racino revenues more than the many years, and their effect is apt to keep on into the close to foreseeable future.

Florida
Miami Dade voters authorized a ballot situation that permits each of 3 pari-mutuels to have a on line casino facility of up to 2,000 slot machines. The Flagler Canine 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 declared its ideas. There are numerous other proposals becoming considered that would even more grow on line casino development through the point out.

Illinois
The state last but not least obtained close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Amusement, LLC for a one,two hundred+ recreation on line casino found in Des Plaines just east of O’Hare. The new facility is not very likely to open up until 2010. There has also been some dialogue about enabling an boost in for each area gaming positions and slots at racetracks, although neither initiative seems to have any traction at this time.

Kansas
The state’s expanded lottery software that permits for the development of 4 on line casino gaming zones and slots at existing horse and puppy tracks appears mired, as only 1 facility is presently under design, while 3 other proposals were rescinded. The only bidder on the Cherokee County deal, claimed it could not contend with the new Quapaw tribal casino in Oklahoma, which is found so close to the point out line that its parking whole lot is in Kansas. The Boot Hill On line casino Resort in Dodge City is planing a December 2009 opening with 575 slots and 10 table games, together with a second section thanks to open up in 2011 with 875 slots and 20 table game titles. The point out has prolonged the application process for the other a few zones until finally April, 2009.

Kentucky
There is nevertheless a lot of ‘jockeying’ likely on, but the prospect of as numerous as eight slot parlors and racinos appears to be back again on the front-burner, but probably not resolved during the present legislative session.

Las Vegas
There are about 14,000 rooms scheduled to appear on line in 2009, with the most latest being the 390 place M Vacation resort in Henderson. There are expansions underway at both Caesars Palace and Tough Rock and new resorts include two elements of the City Heart project, and the Fountainebleau.

Louisiana
Pinnacle Entertainment’s new casino advancement tasks in Baton Rouge and Lake Charles, although delayed, are documented to even now be on-keep track of for opening this calendar year and/or early 2010.

Maine
There is a monthly bill beneath thing to consider that could more than double Penn National’s slot devices to 3,000, as properly as a proposal that would get rid of the restriction that slots be positioned inside of five miles of the observe. Scarborough Downs, which has been unsuccessful in convincing regional people to enable slots, may possibly be thinking about shifting to a far more hospitable city.

Maryland
A referendum was authorized in November, 2008 that permits for the growth of 5 casinos with a whole of 15,000 slots, and now the bidding war is afoot although it is not as intense as the condition had anticipated.

Mississippi
Grand Soleil On line casino Vacation resort in Natchez had been slated to open up in 2008, but has run into various financing problems and although the hotel portion is open up, the riverboat is reported to open up in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, while scaled again somewhat, is nevertheless on monitor to open this calendar year.

New England
Massachusetts, a sleeping-giant in terms of marketplace potential, is even now maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but are not able to seem to muster the political assist. A recent review concluded by Dartmouth University estimates that Massachusetts resident invested a lot more than $920 million very last year at Connecticut casinos and slot equipment parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an alternative to produce casinos, nevertheless the subject matter is probably to be revisited, specifically if Massachusetts decides to go ahead. There are also attempts in Maine to reconsider its options.

New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot devices at racetracks by not too long ago agreeing to proceed augmenting purses with an further tax. The governor nonetheless, has appointed a new panel to examine 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 section)

New York
Just when it appeared as if Aqueduct’s four,500 VLT facility would ultimately be designed, the profitable bidder indicated an lack of ability to make the needed $370 million price, citing the recent lending local weather, and throwing the task back into the lap of the governor. Despite the fact that the marketplace demand from customers in the area could be deemed fairly powerful, the prospect of extra competition from close by Belmont could have an impact on Aqueduct’s underlining financial feasibility, specifically thinking about that somewhat considerably less than 30% of the net win is retained by the operator.

Ideas to relocate Monticello Raceway into a vacation resort complex are being reconsidered maybe owing to equally the probable opening of at minimum one particular or maybe two racino functions in the NY metro location, and the resurfacing of initiatives to improvement a Class III Indian gaming facility in the Catskills.

Ohio
But another gaming proposal is getting put forth in Ohio, right after very last year’s version was turned down by the voters. This program phone calls for a single casino each and every in the state’s biggest towns: Cleveland, Columbus, Cincinnati and Toledo. There would be a bare minimum investment necessary of $250 million, as effectively as an original licensing charge of $50 million, and a 33 per cent tax on gaming earnings.

Pennsylvania
The Sands in Bethlehem is owing to open in the Spring of ’09, and the new Rivers task in Pittsburgh is expected to be operational in August, ’09 while Philadelphia’s two slot amenities nevertheless wallow in a political mire, but are predicted to start construction this yr.

South Dakota
The Lodge at Deadwood is slated to open in the Drop of 2009, and incorporate 300 online games, one hundred forty rooms and a vast range of facilities.

Texas
Legislators are proposing a voter referendum that would amend the state structure to enable on line casino gambling in specified locations, as properly as allow gambling on American Indian lands in Texas and at existing 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 provide. State federal government has proffered the idea of allowing the vacation resort to offer you casino video games, but this work is in way too early a stage to have any traction a single way or an additional.

Indian Gaming
A current Supreme Court docket ruling that restricts the taking of lands into trust on behalf of federally regarded American Indian tribes has additional stymied some new Course III gaming projects throughout the region. Furthermore, there were eleven Indian on line casino initiatives rejected by the DOI very last calendar year since of its new rule that casinos have to be around adequate to a reservation that tribal associates can operate at them. It has been proposed that the new Obama administration may well be a lot more sympathetic to the growth of Indian gaming projects, but this issue has but to be dealt with.

In the meantime, there are other Class III projects in the numerous stages of development. The Seneca on line casino project in Buffalo, NY, although running a modest short-term facility, has delayed an presently below building long term facility till the market place rebounds. They have also expressed an curiosity in creating a on line casino in the Catskills. The state gaming compact with Seminoles in Florida is becoming challenged, and could impact their programs for greater projects. There are new Indian gaming initiatives established to open up in Michigan and Oklahoma this yr, and others are in the planning stage. Texas could enable the reopening of Indian gaming facilities and enable other venue and there are plans afoot by the Navajos in Arizona to assemble additional casinos. California is poised to open up two to a few new Course III casinos in 2009/ten.

The Nor’easter Squeeze

Overall gaming profits in Atlantic City has declined seven.six %, from $4.9 billion in 2007 to $four.5 billion in 2008 with decreases continuing into 2009, as the metropolis is obtaining by itself in an powerful comp-war with the Pennsylvania venues. At a single time the only casinos in the Northeast have been located in Atlantic City, the place it seemed as if it might really even eclipse the Las Vegas Strip’s annual gaming revenues.

Little by little nonetheless its industry share was becoming encroached upon, 1st by the advancement of a big Course III gaming operation in Connecticut, and then one more slots operations in Rhode Island, and then video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most recently Pennsylvania.

Now, with the prepared opening of slot functions in Maryland, the impending opening of a new casino in Bethlehem, PA, and ultimately two functions in Philadelphia, the noose is tightening about Atlantic City’s long term prospective customers. It really is reliance on day-trippers lulled it into a bogus perception of stability, and it now finds by itself having to redefine its mission assertion to “vacation spot vacation resort.”

The only dilemma with this method even so is that it is sick-geared up to pull it off. For all intents and functions, Atlantic Town is below-roomed and/or in excess of-gamed. There is merely not sufficient day-tripper industry to go all around, and their successful investing location is tightening, as the peripheral populations northward now/will have a lot more completely ready obtain to a widened source in New York (Yonkers, and soon at Aqueduct and potentially Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean entry, the city’s only true competitive rewards are its resort capacity and the availability of table online games, although the latter is likely to eventuate in Pennsylvania, and possibly Delaware. In get to adequately compete as a vacation spot resort the town needs to create extra guest rooms and not automatically gaming capability. By comparison, the Las Vegas Strip qualities – true gaming places, in that they do not have much of a day-journey market place, other than for the ‘locals’ – have an typical of .87 gaming positions for each visitor space whilst Atlantic City’s common is 2.74 positions per visitor room.

It is not a coincidence that Atlantic City’s two largest hotels, the Borgata and Harrah’s Marina, the two of which included new rooms in 2008, were the least impacted by the latest downturn. The Borgata experienced a gaming profits drop of 1.6 percent, although Harrah’s Marina noted a 4.nine p.c boost in comparison to 2007. Moreover, the hardest strike venues, particularly 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 qualities and Resorts with the hoped for sale of the Tropicana has been even more delayed, and dropping valuation.

With a steady increase in gaming revenues through 2006, the town seemed primary for more growth, which precipitated preparing for 4 new resort projects, every of which have now been indefinitely delayed. Revel Entertainment Group’s $2.5 billion undertaking continues to be an iron skeleton, Pinnacle Enjoyment has declared it may well look for to offer its razed Sands internet site, MGM Mirage has shelved its on line casino ideas, and Penn National seems to have stopped its pursuit of the Bader Discipline airport web site.

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