2008 Nationwide Professional Casino & Racino Gaming Profits Examination

A Period of time of Adjustment

Oops! That huge hissing sound is the gaming balloon that experienced been developing more than the years, slowly dropping air. But, it has not been a tide that decreased all ships even so, as some rising and increasing gaming jurisdictions confirmed robust expansion in 2008.

All round, the professional and racetrack casino sectors (excluding Indian gaming), seasoned a three.five percent drop in gaming revenues for 2008, generating a overall 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 $1 billion in 2008, therefore bringing the Business sector market place decrease to $1.eight billion, or six.seven p.c. Nevada was the greatest loser in 2008, dropping virtually $one.3 billion, far more than fifty percent of which stemmed from the Las Vegas Strip section.

Hunkering Down

For the most part, casino operators were caught fairly flat-footed by the extent of the 2008 profits downturn, as it was not until finally the 3rd and fourth quarters when it genuinely nosedived. Riding the crest of calendar year more than calendar year market development across the nation and the availability of sufficient credit rating and fairness money, new construction and enlargement proliferated in current a long time. Right now, faced with the realities of declining, or at very best stagnant demand from customers, several of these projects are now considered in excess of-leveraged and/or above-sized. As a outcome a lot of gaming companies are making an attempt to renegotiate their credit card debt – produced much more difficult by lower valuations – whilst also paring down operational charges. The latter has grow to be a extremely problematic conundrum when dealing with the competitiveness, especially in these jurisdictions that are now vying for industry shares with new rising casino tasks in neighboring regions. A subject we go over a lot more fully in the Condition by Point out investigation section of this publication.

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

“How prolonged will these financial circumstances persist, and are we at the base yet?” are concerns no a single seems to be answering nevertheless. What is very clear nevertheless is that most gaming jurisdictions will have to discover how to deal with a scaled-down pie.

This evaluation involves only gaming revenues of certified casinos and pari-mutuel retailers that supply on line casino video games, and not Indian gaming operations, card rooms, or modest non-on line casino type slot spots. The complete write-up, which includes earnings tables is obtainable on our net website page.

Enter/Output Product

A important aspect that seems to have arisen from the ashes of this present craze is that several on line casino projects have been just also big to support themselves. The enter, in terms of investment decision bucks, was not proportional to the output, in terms of web income after financial debt provider, compared to formerly accomplished benefits. Far more and/or even bigger is not often far better. Seeing the increase in non-gaming profits at the Las Vegas Strip resorts, gave impetus to the advancement of more comprehensive facilities in a lot of other jurisdictions. The flaw in this method even so is that the expenses connected with widening market penetration and occasioned-use, are considerably greater than people incurred to attract the base industry.

As daytripper marketplaces turn into far more aggressive, casino venues will have to count much more and a lot more on their in-property hotel patrons, and size their properties (and anticipations) appropriately. Although Steve Wynn commenced a major trend in making up-marketplace mega-locations, there merely was not ample desire on the Strip to warrant the numerous other comparable assignments that followed that aimed at the same area of interest.

The trick is to strike a satisfied medium in undertaking configurations which of program need significantly less of a ‘seat-of-pants’ strategy, and a single that is much more researched. A shameless plug for advancement consultants like ourselves.

Other Gaming Actions

Even though there are no released detailed information of American Indian gaming revenues, anecdotal evidence appears to advise that this section has been as tough hit as the Industrial sector. The two Connecticut Indian gaming installations report slot revenue of $1.six billion in 2008, representing a drop of about seven percent, or almost $114 million, a lot more than doubling the three.5 per cent fall from the calendar year ahead of. This industry is evidently nevertheless reeling from the ripple-influence of a on line casino growth in Rhode Island, and the opening of slot operations in New York and Pennsylvania.

The Arizona Department of Gaming reviews that contributions dependent on a gaming earnings method from the state’s 23 Indian gaming casinos, have been declining every quarter in 2008 compared to the prior year reducing .8 percent in the initial quarter, seven.five p.c in the 2nd quarter, nine.five p.c in the 3rd quarter, and 16.1 p.c in the fourth quarter.

Some SEC reporting Indian gaming houses report similar decreases. Seneca Gaming, which operates a few Class III casinos in upstate New York, reports that while calendar 12 months 2008 confirmed an nearly two % expansion fee in gaming revenues, there was an 8.seven per cent decrease in the third quarter and an almost 10 per cent drop in the fourth quarter of 2008, in contrast with 2007. Gaming earnings traits at close by Niagara Falls, Ontario have been down 1.five% in 2008 in contrast with 2007.

It is been a combined-bag for condition lotteries across the place. The North American Affiliation of Point out & Provincial Lotteries reviews that U.S. lotteries produced a complete of $sixty.6 billion in product sales in fiscal 2008, up about 3 % from the previous 12 months but some jurisdictions described decreases, most notably California, which confirmed an 8 per cent drop. Inasmuch as some of these states are on numerous fiscal 12 months finishes, it would appear that the information does not replicate the affect of third and/or fourth quarter outcomes.

In accordance to info supplied by Equibase, horse racing pari-mutuel revenues continue their downward spiral, slipping seven per cent to $13.7 billion in 2008, vs . $fourteen.7 billion in 2007.

Prepared & Proposed New Expansions

As beforehand noted, it has been new gaming jurisdictions that have spawned much of the development in once-a-year casino/racino revenues more than the several years, and their impact is apt to keep on into the close to foreseeable future.

Miami Dade voters accredited a ballot situation that allows each and every of 3 pari-mutuels to have a on line casino facility of up to 2,000 slot machines. The Flagler Puppy Track and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, while the Calder installation in Miami Gardens has nevertheless to introduced its programs. There are several other proposals getting considered that would additional grow casino development all through the condition.

The point out lastly received about to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Amusement, LLC for a one,two hundred+ sport on line casino found in Des Plaines just east of O’Hare. The new facility is not most likely to open up right up until 2010. There has also been some discussion about permitting an enhance in per spot 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 system that allows for the advancement of 4 casino gaming zones and slots at current horse and dog tracks seems mired, as only one facility is presently below construction, although 3 other proposals have been rescinded. The only bidder on the Cherokee County agreement, claimed it could not contend with the new Quapaw tribal casino in Oklahoma, which is found so shut to the condition line that its parking lot is in Kansas. The Boot Hill On line casino Resort in Dodge Town is planing a December 2009 opening with 575 slots and 10 desk video games, along with a 2nd stage owing to open in 2011 with 875 slots and 20 table games. The condition has prolonged the software approach for the other 3 zones till April, 2009.

There is nonetheless a lot of ‘jockeying’ likely on, but the prospect of as several as 8 slot parlors and racinos seems to be again on the front-burner, but probably not solved throughout the present legislative session.

Las Vegas
There are about 14,000 rooms scheduled to appear on line in 2009, with the most modern being the 390 room M Resort in Henderson. There are expansions underway at the two Caesars Palace and Difficult Rock and new resorts consist of two elements of the Town Heart venture, and the Fountainebleau.

Pinnacle Entertainment’s new casino growth assignments in Baton Rouge and Lake Charles, although delayed, are reported to nonetheless be on-track for opening this 12 months and/or early 2010.

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There is a bill beneath thing to consider that could a lot more than double Penn National’s slot equipment to 3,000, as nicely as a proposal that would eliminate the restriction that slots be situated in 5 miles of the observe. Scarborough Downs, which has been unsuccessful in convincing local inhabitants to allow slots, could be contemplating relocating to a a lot more hospitable city.

A referendum was authorized in November, 2008 that allows for the development of five casinos with a whole of 15,000 slots, and now the bidding war is afoot despite the fact that it is not as intensive as the condition had expected.

Grand Soleil Casino Resort in Natchez experienced been slated to open in 2008, but has operate into numerous funding problems and even though the lodge portion is open, the riverboat is described to open in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, while scaled back relatively, is even now on keep track of to open up this year.

New England
Massachusetts, a sleeping-huge in conditions of marketplace likely, is nevertheless maneuvering to open up casinos/racinos, and/or a Course III Indian gaming facility, but are not able to appear to muster the political assist. A recent examine finished by Dartmouth University estimates that Massachusetts resident spent a lot more than $920 million previous calendar year at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature not too long ago declined an choice to develop casinos, however the subject matter is likely to be revisited, especially if Massachusetts decides to go ahead. There are also attempts in Maine to rethink its possibilities.

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 proceed augmenting purses with an extra tax. The governor even so, has appointed a new panel to research the state’s sagging racing plan which ironically, can only be preserved by permitting 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 four,five hundred VLT facility would lastly be created, the profitable bidder indicated an inability to make the needed $370 million fee, citing the current lending local climate, and throwing the project back into the lap of the governor. Although the industry demand from customers in the area could be deemed fairly strong, the prospect of additional opposition from nearby Belmont could have an effect on Aqueduct’s underlining financial feasibility, especially thinking about that somewhat much less than 30% of the internet acquire is retained by the operator.

Strategies to relocate Monticello Raceway into a vacation resort complex are being reconsidered possibly owing to each the probable opening of at the very least a single or perhaps two racino functions in the NY metro area, and the resurfacing of initiatives to advancement a Course III Indian gaming facility in the Catskills.

However one more gaming proposal is getting set forth in Ohio, soon after very last year’s model was turned down by the voters. This prepare calls for a single casino each and every in the state’s greatest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimum investment decision essential of $250 million, as nicely as an initial licensing fee of $50 million, and a 33 p.c tax on gaming profits.

The Sands in Bethlehem is thanks to open up in the Spring of ’09, and the new Rivers task in Pittsburgh is envisioned to be operational in August, ’09 even though Philadelphia’s two slot amenities even now wallow in a political mire, but are anticipated to start development this 12 months.

South Dakota
The Lodge at Deadwood is slated to open in the Slide of 2009, and incorporate three hundred video games, one hundred forty rooms and a extensive selection of facilities.

Legislators are proposing a voter referendum that would amend the point out constitution to permit casino gambling in specified locations, as effectively as enable gambling on American Indian lands in Texas and at current racetracks.

West Virginia
The Greenbriar, the state’s venerable resort facility has submitted for personal bankruptcy, but has a new suitor in Marriott Hotels, who have reportedly tendered an offer you. Condition authorities has proffered the notion of permitting the resort to provide on line casino game titles, but this effort is in also early a phase to have any traction a single way or another.

Indian Gaming
A modern Supreme Court ruling that restricts the taking of lands into have faith in on behalf of federally identified American Indian tribes has further stymied some new Class III gaming projects throughout the nation. Additionally, there have been eleven Indian casino tasks rejected by the DOI final 12 months because of its new rule that casinos must be around enough to a reservation that tribal members can perform at them. It has been recommended that the new Obama administration may be a lot more sympathetic to the growth of Indian gaming assignments, but this problem has however to be resolved.

Meanwhile, there are other Class III projects in the numerous stages of advancement. The Seneca on line casino undertaking in Buffalo, NY, although functioning a small temporary facility, has delayed an previously beneath design everlasting facility until finally the marketplace 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 becoming challenged, and could effect their strategies for bigger tasks. There are new Indian gaming assignments established to open in Michigan and Oklahoma this 12 months, and other folks are in the preparing stage. Texas may let the reopening of Indian gaming services and allow other location and there are programs afoot by the Navajos in Arizona to construct added casinos. California is poised to open up two to three new Course III casinos in 2009/10.

The Nor’easter Squeeze

Whole gaming revenue in Atlantic Town has declined 7.6 percent, from $4.9 billion in 2007 to $4.five billion in 2008 with decreases continuing into 2009, as the town is obtaining by itself in an intense comp-war with the Pennsylvania venues. At one time the only casinos in the Northeast had been situated in Atlantic Town, in which it seemed as if it may well actually even eclipse the Las Vegas Strip’s annual gaming revenues.

Slowly and gradually even so its market share was getting encroached on, very first by the development of a big Class III gaming procedure 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 lately Pennsylvania.

Now, with the planned opening of slot functions in Maryland, the impending opening of a new casino in Bethlehem, PA, and sooner or later two functions in Philadelphia, the noose is tightening about Atlantic City’s foreseeable future potential customers. It is reliance on working day-trippers lulled it into a bogus feeling of security, and it now finds itself obtaining to redefine its mission statement to “vacation spot vacation resort.”

The only dilemma with this method however is that it is sick-outfitted to pull it off. For all intents and reasons, Atlantic Metropolis is under-roomed and/or above-gamed. There is basically not enough working day-tripper market place to go around, and their effective investing area is tightening, as the peripheral populations northward now/will have more ready accessibility to a widened provide 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 accessibility, the city’s only true aggressive positive aspects are its lodge capacity and the availability of table video games, although the latter is likely to eventuate in Pennsylvania, and probably Delaware. In buy to sufficiently compete as a destination vacation resort the metropolis needs to create extra visitor rooms and not essentially gaming ability. By comparison, the Las Vegas Strip properties – true gaming destinations, in that they do not have a lot of a working day-trip market, apart from for the ‘locals’ – have an typical of .87 gaming positions per guest room whilst Atlantic City’s regular is two.74 positions for each guest space.

It is not a coincidence that Atlantic City’s two largest resorts, the Borgata and Harrah’s Marina, each of which extra new rooms in 2008, had been the least impacted by the most current downturn. The Borgata experienced a gaming profits fall of one.6 percent, even though Harrah’s Marina noted a four.nine per cent enhance in comparison to 2007. Additionally, the hardest hit 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 additional delayed, and getting rid of valuation.

With a constant increase in gaming revenues by means of 2006, the metropolis appeared key for further growth, which precipitated organizing for 4 new resort tasks, every of which have now been indefinitely delayed. Revel Entertainment Group’s $two.five billion undertaking continues to be an iron skeleton, Pinnacle Entertainment has declared it might look for to offer its razed Sands web site, MGM Mirage has shelved its casino plans, and Penn National seems to have stopped its pursuit of the Bader Field airport internet site.

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