2008 National Industrial Casino online and Racino Games Earnings Examination

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A Time period of Adjustment

Oops! That giant hissing sound is the gaming balloon that had been expanding more than the several years, little by little shedding air. But, it has not been a tide that reduced all ships however, as some rising and increasing gaming jurisdictions confirmed sturdy growth in 2008.

General, the professional and racetrack casino sectors (excluding Indian gaming), skilled a three.5 percent decrease in gaming revenues for 2008, creating a total of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they confirmed a obtain of almost $one billion in 2008, therefore bringing the Commercial sector marketplace decline to $1.eight billion, or 6.seven per cent. Nevada was the greatest loser in 2008, dropping nearly $1.three billion, a lot more than 50 percent of which stemmed from the Las Vegas Strip segment.

Hunkering Down

For the most element, on line casino operators had been caught relatively flat-footed by the extent of the 2008 profits downturn, as it was not till the third and fourth quarters when it truly nosedived. Riding the crest of calendar year in excess of yr market place growth across the country and the availability of enough credit history and fairness money, new development and enlargement proliferated in modern many years. Nowadays, confronted with the realities of declining, or at ideal stagnant need, many of these initiatives are now regarded as in excess of-leveraged and/or in excess of-sized. As a outcome numerous gaming firms are trying to renegotiate their financial debt – manufactured far more tough by lower valuations – even though also paring down operational expenses. The latter has turn out to be a quite problematic conundrum when working with the opposition, especially in those jurisdictions that are now vying for market shares with new rising casino projects in neighboring regions. A subject we examine more fully in the Point out by Point out analysis area of this publication.

As a result of these situations the gaming business landscape is now strewn with impending fatalities. Among the more notable troubled firms are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Entertainment, Herbst Gaming and the listing grows each 7 days.

“How prolonged will these economic situations persist, and are we at the bottom but?” are inquiries no 1 appears to be answering but. What is very clear even so is that most gaming jurisdictions will have to find out how to offer with a more compact pie.

This evaluation consists of only gaming revenues of certified casinos and pari-mutuel stores that offer on line casino online games, and not Indian gaming operations, card rooms, or little non-on line casino variety slot locations. The whole write-up, including profits tables is offered on our internet webpage.

Enter/Output Model

A important facet that would seem to have arisen from the ashes of this present development is that numerous on line casino assignments have been just way too massive to support on their own. The input, in terms of investment bucks, was not proportional to the output, in terms of net profit following financial debt provider, compared to previously reached results. Much more and/or larger is not always much better. Seeing the increase in non-gaming income at the Las Vegas Strip resorts, gave impetus to the development of much more extensive features in numerous other jurisdictions. The flaw in this method nonetheless is that the costs related with widening industry penetration and occasioned-use, are drastically higher than these incurred to entice the foundation market place.

As daytripper marketplaces grow to be much more aggressive, casino venues will have to depend a lot more and more on their in-home lodge patrons, and measurement their properties (and anticipations) accordingly. While Steve Wynn started a major development in producing up-market mega-locations, there just was not ample desire on the Strip to warrant the a lot of other similar projects that followed that aimed at the exact same market.

The trick is to strike a happy medium in venture configurations which of training course demand considerably less of a ‘seat-of-pants’ approach, and a single that is more researched. A shameless plug for growth consultants like ourselves.

Other Gaming Pursuits

Though there are no printed thorough knowledge of American Indian gaming revenues, anecdotal evidence appears to suggest that this section has been as hard hit as the Business sector. The two Connecticut Indian gaming installations report slot earnings of $1.6 billion in 2008, symbolizing a drop of about seven per cent, or nearly $114 million, a lot more than doubling the 3.five per cent fall from the year prior to. This marketplace is seemingly even now reeling from the ripple-impact 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 studies that contributions based on a gaming profits formulation from the state’s 23 Indian gaming casinos, have been declining each and every quarter in 2008 in comparison to the preceding 12 months lowering .8 % in the initial quarter, seven.five per cent in the 2nd quarter, 9.5 % in the 3rd quarter, and 16.1 p.c in the fourth quarter.

Some SEC reporting Indian gaming homes report related decreases. Seneca Gaming, which operates three Course III casinos in upstate New York, stories that whilst calendar 12 months 2008 showed an almost two percent progress fee in gaming revenues, there was an eight.seven per cent decline in the third quarter and an practically 10 p.c decline in the fourth quarter of 2008, compared with 2007. Gaming income trends at nearby Niagara Falls, Ontario ended up down 1.5% in 2008 in comparison with 2007.

It’s been a mixed-bag for point out lotteries throughout the place. The North American Association of Condition & Provincial Lotteries reviews that U.S. lotteries created a overall of $60.six billion in sales in fiscal 2008, up about 3 % from the prior calendar year nevertheless some jurisdictions described decreases, most notably California, which showed an 8 percent drop. Inasmuch as some of these states are on numerous fiscal year ends, it would appear that the information does not reflect the influence of 3rd and/or fourth quarter final results.

According to data provided by Equibase, horse racing pari-mutuel revenues continue their downward spiral, falling 7 p.c to $thirteen.7 billion in 2008, vs . $fourteen.7 billion in 2007.

Prepared & Proposed New Expansions

As beforehand famous, it has been new gaming jurisdictions that have spawned considerably of the progress in once-a-year on line casino/racino revenues in excess of the several years, and their effect is apt to proceed into the close to future.

Miami Dade voters accredited a ballot situation that allows every of 3 pari-mutuels to have a casino facility of up to 2,000 slot devices. The Flagler Pet Observe and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, whilst the Calder set up in Miami Gardens has nevertheless to declared its ideas. There are many other proposals currently being considered that would more increase on line casino advancement all through the state.

The point out ultimately received all around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Amusement, LLC for a one,200+ recreation on line casino situated in Des Plaines just east of O’Hare. The new facility is not very likely to open until finally 2010. There has also been some dialogue about permitting an increase in for every place gaming positions and slots at racetracks, though neither initiative seems to have any traction at this time.

The state’s expanded lottery program that allows for the advancement of 4 casino gaming zones and slots at current horse and pet tracks seems mired, as only a single facility is presently underneath design, while 3 other proposals had been rescinded. The only bidder on the Cherokee County agreement, claimed it could not contend with the new Quapaw tribal on line casino in Oklahoma, which is located so shut to the condition line that its parking good deal is in Kansas. The Boot Hill On line casino Vacation resort in Dodge City is planing a December 2009 opening with 575 slots and ten desk video games, alongside with a second period due to open in 2011 with 875 slots and 20 desk video games. The point out has extended the application process for the other three zones right up until April, 2009.

There is even now a good deal of ‘jockeying’ heading on, but the prospect of as numerous as eight slot parlors and racinos appears to be back again on the front-burner, but most likely not solved in the course of the current legislative session.

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

Pinnacle Entertainment’s new on line casino development tasks in Baton Rouge and Lake Charles, even though delayed, are reported to still be on-observe for opening this year and/or early 2010.

There is a monthly bill under thing to consider that could more than double Penn National’s slot devices to three,000, as properly as a proposal that would remove the restriction that slots be situated in five miles of the track. Scarborough Downs, which has been unsuccessful in convincing local people to allow slots, might be considering moving to a a lot more hospitable city.

A referendum was accredited in November, 2008 that makes it possible for for the improvement of 5 casinos with a total of fifteen,000 slots, and now the bidding war is afoot although it is not as intensive as the point out had anticipated.

Grand Soleil Casino Vacation resort in Natchez experienced been slated to open in 2008, but has operate into various funding troubles and while the hotel part is open up, the riverboat is reported to open up in the Spring of ’09. Harrah’s Margaritaville Casino in Biloxi, whilst scaled back fairly, is nevertheless on track to open up this year.

New England
Massachusetts, a sleeping-giant in terms of industry prospective, is nevertheless maneuvering to open casinos/racinos, and/or a Course III Indian gaming facility, but cannot seem to muster the political assistance. A recent study accomplished by Dartmouth University estimates that Massachusetts resident spent far more than $920 million previous yr at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature lately declined an choice to produce casinos, nonetheless the subject matter is most likely to be revisited, particularly if Massachusetts decides to go ahead. There are also attempts in yehyeh 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 lately agreeing to carry on augmenting purses with an added tax. The governor nevertheless, has appointed a new panel to review the state’s sagging racing software which ironically, can only be preserved by permitting the tracks to have slot machines especially at the Meadowlands. (See The Nor’easter Squeeze part)

New York
Just when it looked as if Aqueduct’s 4,five hundred VLT facility would ultimately be designed, the successful bidder indicated an incapacity to make the essential $370 million charge, citing the recent lending weather, and throwing the venture back again into the lap of the governor. Even though the marketplace need in the area could be considered very powerful, the prospect of extra competitiveness from nearby Belmont could have an affect on Aqueduct’s underlining financial feasibility, particularly contemplating that slightly much less than 30% of the net earn is retained by the operator.

Strategies to relocate Monticello Raceway into a resort intricate are currently being reconsidered maybe owing to each the probable opening of at least 1 or maybe two racino functions in the NY metro spot, and the resurfacing of initiatives to advancement a Course III Indian gaming facility in the Catskills.

Nevertheless another gaming proposal is getting set forth in Ohio, after final year’s version was turned down by the voters. This prepare calls for 1 casino each and every in the state’s premier towns: Cleveland, Columbus, Cincinnati and Toledo. There would be a least expense necessary of $250 million, as well as an original licensing payment of $50 million, and a 33 per cent tax on gaming profits.

The Sands in Bethlehem is due to open up in the Spring of ’09, and the new Rivers project in Pittsburgh is anticipated to be operational in August, ’09 although Philadelphia’s two slot amenities still wallow in a political mire, but are expected to start off construction this year.

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

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

West Virginia
The Greenbriar, the state’s venerable vacation resort facility has submitted for individual bankruptcy, but has a new suitor in Marriott Resorts, who have reportedly tendered an offer. Point out authorities has proffered the notion of allowing the resort to supply casino games, but this effort is in also early a stage to have any traction one way or yet another.

Indian Gaming
A current Supreme Court docket ruling that restricts the using of lands into have faith in on behalf of federally acknowledged American Indian tribes has further stymied some new Class III gaming assignments across the place. Additionally, there were eleven Indian on line casino tasks rejected by the DOI very last yr due to the fact of its new rule that casinos must be near sufficient to a reservation that tribal customers can function at them. It has been advised that the new Obama administration may be more sympathetic to the development of Indian gaming assignments, but this concern has but to be addressed.

Meanwhile, there are other Class III projects in the numerous phases of improvement. The Seneca on line casino task in Buffalo, NY, although functioning a modest momentary facility, has delayed an previously underneath construction long lasting facility until finally the marketplace rebounds. They have also expressed an interest in creating a on line casino in the Catskills. The condition gaming compact with Seminoles in Florida is getting challenged, and could affect their ideas for more substantial projects. There are new Indian gaming projects established to open up in Michigan and Oklahoma this year, and other individuals are in the arranging phase. Texas may possibly allow the reopening of Indian gaming amenities and allow other venue and there are strategies afoot by the Navajos in Arizona to assemble further casinos. California is poised to open two to a few new Course III casinos in 2009/ten.

The Nor’easter Squeeze

Overall gaming profits in Atlantic City has declined 7.six percent, from $4.9 billion in 2007 to $four.five billion in 2008 with decreases continuing into 2009, as the town is finding alone in an extreme 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 may in fact even eclipse the Las Vegas Strip’s yearly gaming revenues.

Slowly even so its industry share was currently being encroached on, first by the growth of a big Course III gaming operation in Connecticut, and then another slots functions in Rhode Island, and then online video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most not too long ago 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 all around Atlantic City’s potential potential customers. It truly is reliance on day-trippers lulled it into a false sense of security, and it now finds itself getting to redefine its mission statement to “location resort.”

The only problem with this technique even so is that it is sick-equipped to pull it off. For all intents and reasons, Atlantic Town is below-roomed and/or in excess of-gamed. There is just not ample working day-tripper marketplace to go around, and their effective buying and selling spot is tightening, as the peripheral populations northward now/will have much more all set accessibility to a widened supply in New York (Yonkers, and before long at Aqueduct and perhaps Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean obtain, the city’s only actual competitive benefits are its lodge capability and the availability of table online games, though the latter is likely to eventuate in Pennsylvania, and probably Delaware. In order to sufficiently compete as a vacation spot resort the city demands to produce added guest rooms and not always gaming potential. By comparison, the Las Vegas Strip properties – correct gaming places, in that they do not have a lot of a working day-excursion market, except for the ‘locals’ – have an average of .87 gaming positions for each guest area although Atlantic City’s typical is 2.seventy four positions for each visitor space.

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 the very least impacted by the newest downturn. The Borgata knowledgeable a gaming income fall of 1.6 per cent, although Harrah’s Marina reported a four.9 p.c increase in contrast to 2007. Furthermore, the most difficult hit venues, specifically 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, which includes the the Trump qualities and Resorts with the hoped for sale of the Tropicana has been even more delayed, and losing valuation.

With a regular increase in gaming revenues by means of 2006, the city appeared prime for even more growth, which precipitated organizing for 4 new vacation resort assignments, every single of which have now been indefinitely delayed. Revel Leisure Group’s $two.5 billion task remains an iron skeleton, Pinnacle Amusement has announced it may possibly seek out to sell its razed Sands internet site, MGM Mirage has shelved its casino ideas, and Penn National appears to have stopped its pursuit of the Bader Field airport web site.

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