National Commercial On line casino as well as Racino Games Earnings Analysis

A Interval of Adjustment

Oops! That huge hissing seem is the gaming balloon that experienced been developing more than the a long time, gradually dropping air. But, it has not been a tide that decreased all ships however, as some emerging and growing gaming jurisdictions showed sturdy progress in 2008.

All round, the commercial and racetrack casino sectors (excluding Indian gaming), experienced a three.5 per cent decrease in gaming revenues for 2008, generating a overall of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they showed a acquire of nearly $1 billion in 2008, thereby bringing the Business sector marketplace decline to $one.8 billion, or 6.seven per cent. Nevada was the biggest loser in 2008, dropping virtually $1.three billion, a lot more than half of which stemmed from the Las Vegas Strip section.

Hunkering Down

For the most portion, casino operators had been caught relatively flat-footed by the extent of the 2008 income downturn, as it was not until finally the 3rd and fourth quarters when it genuinely nosedived. Using the crest of 12 months above year market place development throughout the nation and the availability of enough credit and fairness money, new building and expansion proliferated in recent several years. Right now, faced with the realities of declining, or at very best stagnant desire, many of these projects are now considered above-leveraged and/or over-sized. As a result many gaming businesses are trying to renegotiate their debt – manufactured more tough by reduce valuations – even though also paring down operational charges. The latter has turn into a extremely problematic conundrum when dealing with the competitors, specially in people jurisdictions that are now vying for market shares with new emerging casino projects in neighboring regions. A topic we talk about much more completely in the State by State analysis area of this publication.

As a outcome of these problems the gaming business landscape is now strewn with impending fatalities. Among the much more notable troubled companies are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Leisure, Herbst Gaming and the record grows every single week.

“How prolonged will these financial situations persist, and are we at the bottom however?” are inquiries no one particular appears to be answering yet. What is distinct nonetheless is that most gaming jurisdictions will have to learn how to deal with a more compact pie.

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This investigation involves only gaming revenues of licensed casinos and pari-mutuel stores that offer on line casino games, and not Indian gaming functions, card rooms, or tiny non-casino type slot spots. The total write-up, which includes income tables is obtainable on our net web page.

Input/Output Product

A important aspect that seems to have arisen from the ashes of this recent pattern is that numerous casino projects have been just way too massive to help themselves. The enter, in terms of expense bucks, was not proportional to the output, in terms of internet earnings right after debt support, in contrast to formerly attained outcomes. Far more and/or even bigger is not usually greater. Observing the rise in non-gaming income at the Las Vegas Strip resorts, gave impetus to the advancement of much more comprehensive features in numerous other jurisdictions. The flaw in this approach even so is that the fees associated with widening industry penetration and occasioned-use, are drastically increased than people incurred to attract the foundation market place.

As daytripper markets become more competitive, on line casino venues will have to depend a lot more and much more on their in-house resort patrons, and dimension their qualities (and anticipations) appropriately. Although Steve Wynn started a main pattern in producing up-industry mega-destinations, there basically was not enough need on the Strip to warrant the numerous other equivalent projects that adopted that aimed at the very same market.

The trick is to strike a content medium in venture configurations which of course call for much less of a ‘seat-of-pants’ method, and 1 that is far more studied. A shameless plug for improvement consultants like ourselves.

Other Gaming Pursuits

Although there are no revealed detailed information of American Indian gaming revenues, anecdotal proof appears to recommend that this phase has been as hard strike as the Business sector. The two Connecticut Indian gaming installations report slot profits of $1.six billion in 2008, symbolizing a drop of about seven per cent, or practically $114 million, a lot more than doubling the 3.5 % drop from the 12 months prior to. This marketplace is seemingly nonetheless reeling from the ripple-result of a on line casino growth in Rhode Island, and the opening of slot functions in New York and Pennsylvania.

The Arizona Office of Gaming reviews that contributions dependent on a gaming revenue system from the state’s 23 Indian gaming casinos, have been declining each quarter in 2008 compared to the previous year decreasing .8 percent in the initial quarter, seven.5 p.c in the next quarter, nine.five per cent in the third quarter, and 16.one % in the fourth quarter.

Some SEC reporting Indian gaming properties report equivalent decreases. Seneca Gaming, which operates a few Class III casinos in upstate New York, studies that even though calendar yr 2008 confirmed an almost two % development price in gaming revenues, there was an 8.seven per cent drop in the 3rd quarter and an almost ten per cent decrease in the fourth quarter of 2008, when compared with 2007. Gaming income developments at close by Niagara Falls, Ontario had been down one.five% in 2008 in comparison with 2007.

It really is been a blended-bag for state lotteries across the country. The North American Affiliation of Point out & Provincial Lotteries reviews that U.S. lotteries generated a whole of $sixty.six billion in sales in fiscal 2008, up about 3 p.c from the prior yr yet some jurisdictions reported decreases, most notably California, which confirmed an eight percent fall. Inasmuch as some of these states are on different fiscal year ends, it would appear that the data does not replicate the effect of third and/or fourth quarter final results.

In accordance to data presented by Equibase, horse racing pari-mutuel revenues proceed their downward spiral, falling seven per cent to $thirteen.seven billion in 2008, versus $fourteen.7 billion in 2007.

Prepared & Proposed New Expansions

As formerly mentioned, it has been new gaming jurisdictions that have spawned significantly of the development in yearly on line casino/racino revenues in excess of the many years, and their effect is apt to keep on into the around potential.

Florida
Miami Dade voters authorized a ballot issue that enables each of three pari-mutuels to have a on line casino facility of up to two,000 slot equipment. The Flagler Dog Monitor and Miami Jai-Alai are reportedly organizing opening in late 2009 or early 2010, even though the Calder set up in Miami Gardens has but to declared its programs. There are several other proposals being regarded as that would further expand on line casino advancement throughout the point out.

Illinois
The point out ultimately acquired all around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a one,200+ game casino located in Des Plaines just east of O’Hare. The new facility is not most likely to open up until finally 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.

Kansas
The state’s expanded lottery plan that makes it possible for for the development of four on line casino gaming zones and slots at existing horse and pet tracks seems mired, as only 1 facility is presently below design, while 3 other proposals had 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 situated so shut to the condition line that its parking whole 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 table online games, along with a next phase owing to open up in 2011 with 875 slots and twenty table games. The state has extended the software process for the other three zones till April, 2009.

Kentucky
There is nonetheless a whole lot of ‘jockeying’ likely on, but the prospect of as a lot of as eight slot parlors and racinos seems to be back again on the front-burner, but very likely not settled throughout the present legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to arrive on line in 2009, with the most recent being the 390 place M Vacation resort in Henderson. There are expansions underway at both Caesars Palace and Tough Rock and new lodges consist of two parts of the Metropolis Heart project, and the Fountainebleau.

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

Maine
There is a monthly bill below thought that could far more than double Penn National’s slot machines to three,000, as properly as a proposal that would take away the restriction that slots be located in 5 miles of the keep track of. Scarborough Downs, which has been unsuccessful in convincing local citizens to enable slots, may possibly be thinking about shifting to a much more hospitable city.

Maryland
A referendum was authorized in November, 2008 that makes it possible for for the growth of five casinos with a complete of 15,000 slots, and now the bidding war is afoot though it is not as intensive as the condition experienced predicted.

Mississippi
Grand Soleil Casino Resort in Natchez experienced been slated to open up in 2008, but has operate into a variety of funding issues and although the resort portion is open, the riverboat is noted to open in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, although scaled back again considerably, is nevertheless on keep track of to open up this year.

New England
Massachusetts, a sleeping-big in conditions of industry likely, is nevertheless maneuvering to open up casinos/racinos, and/or a Course III Indian gaming facility, but can not seem to be to muster the political support. A current study accomplished by Dartmouth University estimates that Massachusetts resident invested far more than $920 million previous 12 months at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature just lately declined an choice to develop casinos, nevertheless the topic is most likely to be revisited, particularly if Massachusetts decides to go forward. There are also attempts in Maine to rethink 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 keep on augmenting purses with an extra tax. The governor even so, has appointed a new panel to review the state’s sagging racing program which ironically, can only be preserved by making it possible for the tracks to have slot devices specially at the Meadowlands. (See The Nor’easter Squeeze part)

New York
Just when it looked as if Aqueduct’s 4,500 VLT facility would lastly be designed, the successful bidder indicated an incapability to make the essential $370 million payment, citing the present lending climate, and throwing the task back into the lap of the governor. Even though the market place need in the region could be regarded quite robust, the prospect of added competitors from nearby Belmont could have an effect on Aqueduct’s underlining economic feasibility, especially considering that somewhat much less than thirty% of the web acquire is retained by the operator.

Strategies to relocate Monticello Raceway into a resort complicated are becoming reconsidered possibly owing to the two the probable opening of at least one or perhaps two racino operations in the NY metro location, and the resurfacing of initiatives to development a Course III Indian gaming facility in the Catskills.

Ohio
Yet yet another gaming proposal is currently being set forth in Ohio, right after final year’s edition was turned down by the voters. This strategy calls for a single casino each and every in the state’s biggest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimal expense essential of $250 million, as properly as an preliminary licensing charge of $fifty million, and a 33 p.c tax on gaming profits.

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

South Dakota
The Lodge at Deadwood is slated to open in the Fall of 2009, and include three hundred games, one hundred forty rooms and a vast variety of facilities.

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

West Virginia
The Greenbriar, the state’s venerable vacation resort facility has filed for bankruptcy, but has a new suitor in Marriott Lodges, who have reportedly tendered an offer. Point out federal government has proffered the idea of enabling the vacation resort to supply on line casino online games, but this hard work is in too early a phase to have any traction a single way or an additional.

Indian Gaming
A recent Supreme Court ruling that restricts the taking of lands into believe in on behalf of federally acknowledged American Indian tribes has further stymied some new Class III gaming initiatives across the nation. Additionally, there were eleven Indian on line casino initiatives rejected by the DOI final 12 months simply because of its new rule that casinos must be close to enough to a reservation that tribal associates can perform at them. It has been recommended that the new Obama administration may possibly be more sympathetic to the advancement of Indian gaming assignments, but this problem has however to be addressed.

In the meantime, there are other Course III projects in the different phases of advancement. The Seneca on line casino undertaking in Buffalo, NY, even though operating a modest short-term facility, has delayed an presently under construction permanent facility until the marketplace rebounds. They have also expressed an curiosity in creating a casino in the Catskills. The state gaming compact with Seminoles in Florida is becoming challenged, and could affect their plans for more substantial projects. There are new Indian gaming projects set to open in Michigan and Oklahoma this yr, and other people are in the organizing phase. Texas may possibly allow the reopening of Indian gaming facilities and allow other venue and there are ideas afoot by the Navajos in Arizona to build added casinos. California is poised to open two to a few new Course III casinos in 2009/ten.

The Nor’easter Squeeze

Overall gaming income in Atlantic Metropolis has declined seven.6 percent, from $four.9 billion in 2007 to $four.five billion in 2008 with decreases continuing into 2009, as the city is obtaining alone in an intensive comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast were located in Atlantic Metropolis, exactly where it looked as if it may possibly actually even eclipse the Las Vegas Strip’s yearly gaming revenues.

Slowly even so its market place share was being encroached on, 1st by the growth of a massive Class III gaming procedure in Connecticut, and then an additional slots operations in Rhode Island, and then online video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most lately Pennsylvania.

Now, with the prepared opening of slot functions in Maryland, the impending opening of a new casino in Bethlehem, PA, and at some point two operations in Philadelphia, the noose is tightening around Atlantic City’s future potential customers. It’s reliance on day-trippers lulled it into a fake feeling of safety, and it now finds alone possessing to redefine its mission statement to “spot vacation resort.”

The only problem with this strategy nonetheless is that it is ill-equipped to pull it off. For all intents and purposes, Atlantic City is beneath-roomed and/or over-gamed. There is simply not sufficient day-tripper industry to go close to, and their successful trading region is tightening, as the peripheral populations northward now/will have much more all set obtain to a widened supply in New York (Yonkers, and before long at Aqueduct and possibly Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean obtain, the city’s only true aggressive benefits are its lodge capacity and the availability of desk game titles, though the latter is most likely to eventuate in Pennsylvania, and possibly Delaware. In order to sufficiently compete as a destination resort the town wants to develop further visitor rooms and not automatically gaming capacity. By comparison, the Las Vegas Strip qualities – correct gaming locations, in that they do not have significantly of a working day-trip market, besides for the ‘locals’ – have an typical of .87 gaming positions for every guest place even though Atlantic City’s common is 2.seventy four positions for each visitor space.

It is not a coincidence that Atlantic City’s two largest resorts, the Borgata and Harrah’s Marina, each of which additional new rooms in 2008, were the minimum impacted by the most current downturn. The Borgata knowledgeable a gaming profits drop of 1.six %, whilst Harrah’s Marina documented a four.nine per cent increase compared to 2007. Moreover, the most difficult hit venues, particularly the AC Hilton, Resorts and the Trump Marina, also have the smallest amount of rooms. In the meantime some of the venues are teetering on viability, which includes the the Trump houses and Resorts with the hoped for sale of the Tropicana has been more delayed, and dropping valuation.

With a constant increase in gaming revenues via 2006, the town appeared primary for even more development, which precipitated organizing for 4 new vacation resort tasks, every single of which have now been indefinitely delayed. Revel Enjoyment Group’s $two.5 billion project stays an iron skeleton, Pinnacle Entertainment has declared it may find to promote its razed Sands web site, MGM Mirage has shelved its casino programs, and Penn Countrywide seems to have stopped its pursuit of the Bader Subject airport website.

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