2008 Countrywide Business Casino and Racino Game titles Earnings Investigation

A Time period of Adjustment

Oops! That huge hissing audio is the gaming balloon that had been increasing above the many years, slowly shedding air. But, it has not been a tide that lowered all ships nonetheless, as some rising and increasing gaming jurisdictions showed sturdy progress in 2008.

General, the commercial and racetrack on line casino sectors (excluding Indian gaming), seasoned a 3.five per cent decline in gaming revenues for 2008, producing a overall of $36.two billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they confirmed a gain of virtually $one billion in 2008, thereby bringing the Professional sector marketplace decline to $1.eight billion, or 6.7 p.c. Nevada was the greatest loser in 2008, dropping almost $one.3 billion, a lot more than 50 percent of which stemmed from the Las Vegas Strip phase.

Hunkering Down

For the most component, on line casino operators were caught reasonably flat-footed by the extent of the 2008 earnings downturn, as it was not right up until the third and fourth quarters when it really nosedived. Driving the crest of calendar year in excess of calendar year market growth across the country and the availability of enough credit history and equity funds, new development and growth proliferated in recent years. Nowadays, confronted with the realities of declining, or at ideal stagnant demand, many of these initiatives are now considered more than-leveraged and/or more than-sized. As a outcome many gaming organizations are attempting to renegotiate their financial debt – made far more difficult by lower valuations – while also paring down operational charges. The latter has become a extremely problematic conundrum when dealing with the competitors, specifically in these jurisdictions that are now vying for industry shares with new emerging on line casino projects in neighboring regions. A topic we talk about more fully in the State by Point out analysis part of this publication.

As a end result of these problems the gaming market landscape is now strewn with impending fatalities. Among the more notable troubled companies are Station Casinos, Empire Resorts, Harrah’s Amusement, Greektown Holdings, Legends Gaming, Tropicana Leisure, Herbst Gaming and the list grows each and every week.

“How long will these economic problems persist, and are we at the bottom however?” are queries no a single appears to be answering however. What is very clear nevertheless is that most gaming jurisdictions will have to find out how to deal with a scaled-down pie.

This analysis involves only gaming revenues of accredited casinos and pari-mutuel stores that supply on line casino online games, and not Indian gaming functions, card rooms, or little non-casino variety slot areas. The whole article, such as profits tables is obtainable on our world wide web webpage.

Input/Output Model

A essential aspect that would seem to have arisen from the ashes of this recent development is that several on line casino initiatives were just way too huge to help on their own. The enter, in terms of expense bucks, was not proportional to the output, in conditions of net income right after credit card debt services, compared to beforehand reached final results. More and/or larger is not usually far better. Looking at the rise in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the improvement of a lot more comprehensive features in several other jurisdictions. The flaw in this method however is that the costs connected with widening market place penetration and occasioned-use, are significantly higher than people incurred to entice the base industry.

As daytripper markets become much more competitive, on line casino venues will have to rely far more and far more on their in-home resort patrons, and dimension their homes (and expectations) appropriately. While Steve Wynn began a significant craze in making up-industry mega-destinations, there merely was not sufficient demand from customers on the Strip to warrant the many other similar assignments that adopted that aimed at the same area of interest.

The trick is to strike a happy medium in task configurations which of system require much less of a ‘seat-of-pants’ method, and one that is much more studied. A shameless plug for improvement consultants like ourselves.

Other Gaming Pursuits

Although there are no printed thorough knowledge of American Indian gaming revenues, anecdotal evidence seems to advise that this section has been as difficult strike as the Industrial sector. The two Connecticut Indian gaming installations report slot profits of $one.6 billion in 2008, representing a drop of about seven %, or nearly $114 million, a lot more than doubling the three.five p.c drop from the year prior to. This market place is seemingly nevertheless reeling from the ripple-effect of a on line casino growth in Rhode Island, and the opening of slot operations in New York and Pennsylvania.

The Arizona Section of Gaming stories that contributions primarily based on a gaming earnings method from the state’s 23 Indian gaming casinos, have been declining every single quarter in 2008 when compared to the preceding year decreasing .eight per cent in the 1st quarter, 7.five percent in the second quarter, 9.five p.c in the 3rd quarter, and 16.1 % in the fourth quarter.

Some SEC reporting Indian gaming houses report comparable decreases. Seneca Gaming, which operates a few Course III casinos in upstate New York, reviews that while calendar year 2008 confirmed an virtually two percent expansion rate in gaming revenues, there was an 8.seven % decrease in the third quarter and an virtually ten percent decline in the fourth quarter of 2008, compared with 2007. Gaming income developments at nearby Niagara Falls, Ontario ended up down 1.five% in 2008 in comparison with 2007.

It really is been a blended-bag for condition lotteries throughout the region. The North American Association of Point out & Provincial Lotteries stories that U.S. lotteries created a whole of $60.6 billion in revenue in fiscal 2008, up about 3 p.c from the prior calendar year however some jurisdictions documented decreases, most notably California, which showed an eight per cent drop. Inasmuch as some of these states are on various fiscal 12 months finishes, it would look that the data does not reflect the affect of third and/or fourth quarter benefits.

In accordance to data supplied by Equibase, horse racing pari-mutuel revenues carry on their downward spiral, slipping 7 p.c to $13.7 billion in 2008, versus $14.7 billion in 2007.

Planned & Proposed New Expansions

As earlier famous, it has been new gaming jurisdictions that have spawned much of the expansion in annual on line casino/racino revenues above the years, and their influence is apt to proceed into the close to foreseeable future.

Miami Dade voters authorized a ballot problem that permits each and every of 3 pari-mutuels to have a on line casino facility of up to 2,000 slot devices. The Flagler Canine Monitor and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, while the Calder installation in Miami Gardens has nevertheless to announced its strategies. There are numerous other proposals getting considered that would more grow on line casino development throughout the condition.

The condition last but not least got close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a one,two hundred+ sport on line casino positioned in Des Plaines just east of O’Hare. The new facility is not most likely to open up till 2010. There has also been some dialogue about permitting an enhance in per place gaming positions and slots at racetracks, although neither initiative appears to have any traction at this time.

The state’s expanded lottery software that makes it possible for for the improvement of four casino gaming zones and slots at present horse and puppy tracks appears mired, as only 1 facility is presently under construction, although 3 other proposals have been rescinded. The only bidder on the Cherokee County contract, claimed it could not contend with the new Quapaw tribal casino in Oklahoma, which is found so near to the state line that its parking good 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 10 table online games, alongside with a second phase because of to open in 2011 with 875 slots and twenty table games. The condition has prolonged the application method for the other 3 zones until April, 2009.

There is nonetheless a 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 entrance-burner, but probably not settled during the current legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to appear on line in 2009, with the most modern getting the 390 place M Vacation resort in Henderson. There are expansions underway at each Caesars Palace and Hard Rock and new accommodations include two components of the City Center venture, and the Fountainebleau.

Pinnacle Entertainment’s new on line casino improvement tasks in Baton Rouge and Lake Charles, whilst delayed, are documented to even now be on-observe for opening this yr and/or early 2010.

There is a bill underneath thing to consider that could a lot more than double Penn National’s slot devices to three,000, as effectively as a proposal that would remove the restriction that slots be situated inside of five miles of the monitor. Scarborough Downs, which has been unsuccessful in convincing neighborhood people to let slots, may possibly be taking into consideration shifting to a a lot more hospitable city.

A referendum was accredited in November, 2008 that allows for the improvement of 5 casinos with a total of 15,000 slots, and now the bidding war is afoot despite the fact that it is not as powerful as the point out experienced predicted.

Grand Soleil On line casino Vacation resort in Natchez experienced been slated to open up in 2008, but has run into a variety of funding concerns and although the hotel portion is open, the riverboat is noted to open up in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, whilst scaled back relatively, is even now on keep track of to open this calendar year.

New England
Massachusetts, a sleeping-big in terms of market prospective, is still maneuvering to open casinos/racinos, and/or a Course III Indian gaming facility, but can’t seem to be to muster the political help. A current research accomplished by Dartmouth College estimates that Massachusetts resident put in much more than $920 million last 12 months at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature not too long ago declined an choice to produce casinos, nonetheless the matter is most likely to be revisited, specially if Massachusetts decides to go ahead. There are also tries 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 just lately agreeing to proceed augmenting purses with an added tax. The governor even so, has appointed a new panel to examine the state’s sagging racing software which ironically, can only be preserved by allowing the tracks to have slot equipment specially at the Meadowlands. (See The Nor’easter Squeeze area)

New York
Just when it looked as if Aqueduct’s four,five hundred VLT facility would ultimately be created, the successful bidder indicated an incapacity to make the required $370 million fee, citing the present lending local weather, and throwing the task back into the lap of the governor. Despite the fact that the industry demand from customers in the area could be regarded quite powerful, the prospect of added opposition from nearby Belmont could have an impact on Aqueduct’s underlining financial feasibility, especially taking into consideration that somewhat much less than 30% of the internet earn is retained by the operator.

Plans to relocate Monticello Raceway into a vacation resort intricate are becoming reconsidered probably owing to both the probable opening of at minimum one or perhaps two racino functions in the NY metro area, and the resurfacing of initiatives to improvement a Course III Indian gaming facility in the Catskills.

Yet one more gaming proposal is being place forth in Ohio, after very last year’s variation was turned down by the voters. This program phone calls for one casino each and every in the state’s greatest metropolitan areas: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimal expense essential of $250 million, as well as an original licensing payment of $50 million, and a 33 % tax on gaming income.

The Sands in Bethlehem is thanks to open up in the Spring of ’09, and the new Rivers task in Pittsburgh is anticipated to be operational in August, ’09 although Philadelphia’s two slot amenities still wallow in a political mire, but are anticipated to begin construction this 12 months.

South Dakota
The Lodge at Deadwood is slated to open up in the Slide of 2009, and incorporate 300 video games, 140 rooms and a vast assortment of features.

Legislators are proposing a voter referendum that would amend the state structure to let on line casino gambling in selected areas, as well as allow gambling on American Indian lands in Texas and at present racetracks.

West Virginia
The Greenbriar, the state’s venerable vacation resort facility has filed for individual bankruptcy, but has a new suitor in Marriott Resorts, who have reportedly tendered an offer you. State govt has proffered the idea of permitting the vacation resort to supply on line casino online games, but this hard work is in too early a phase to have any traction one particular way or an additional.

Indian Gaming
A latest Supreme Court docket ruling that restricts the getting of lands into have confidence in on behalf of federally identified American Indian tribes has more stymied some new Class III gaming projects throughout the place. Furthermore, there ended up eleven Indian on line casino projects turned down by the DOI last 12 months simply because of its new rule that casinos should be close to sufficient to a reservation that tribal users can function at them. It has been suggested that the new Obama administration may possibly be a lot more sympathetic to the advancement of Indian gaming projects, but this concern has yet to be resolved.

In the meantime, there are other Class III tasks in the numerous levels of advancement. yoursite.com on line casino venture in Buffalo, NY, even though working a little short term facility, has delayed an already underneath development long term facility till the industry rebounds. They have also expressed an fascination in developing a on line casino in the Catskills. The condition gaming compact with Seminoles in Florida is being challenged, and could impact their plans for more substantial initiatives. There are new Indian gaming projects set to open in Michigan and Oklahoma this calendar year, and other folks are in the organizing phase. Texas could permit the reopening of Indian gaming services and let other venue and there are programs afoot by the Navajos in Arizona to assemble extra casinos. California is poised to open two to three new Course III casinos in 2009/ten.

The Nor’easter Squeeze

Total gaming earnings in Atlantic Town has declined seven.six per cent, from $4.9 billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the metropolis is discovering alone in an powerful comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast ended up located in Atlantic Metropolis, where it seemed as if it may truly even eclipse the Las Vegas Strip’s once-a-year gaming revenues.

Slowly however its market place share was becoming encroached on, initial by the growth of a massive 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 lately Pennsylvania.

Now, with the planned opening of slot functions in Maryland, the impending opening of a new on line casino in Bethlehem, PA, and at some point two functions in Philadelphia, the noose is tightening about Atlantic City’s future prospective customers. It truly is reliance on day-trippers lulled it into a false feeling of stability, and it now finds by itself getting to redefine its mission assertion to “spot vacation resort.”

The only difficulty with this technique however is that it is ill-equipped to pull it off. For all intents and needs, Atlantic Town is under-roomed and/or over-gamed. There is basically not enough day-tripper industry to go about, and their effective buying and selling region is tightening, as the peripheral populations northward now/will have a lot more completely ready accessibility to a widened source in New York (Yonkers, and shortly 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 genuine competitive rewards are its lodge ability and the availability of table video games, although the latter is very likely to eventuate in Pennsylvania, and perhaps Delaware. In order to sufficiently contend as a vacation spot vacation resort the city wants to produce extra guest rooms and not necessarily gaming capacity. By comparison, the Las Vegas Strip houses – real gaming destinations, in that they do not have a lot of a working day-vacation market, other than for the ‘locals’ – have an regular of .87 gaming positions per guest space whilst Atlantic City’s average is two.seventy four positions for every visitor area.

It is not a coincidence that Atlantic City’s two greatest resorts, the Borgata and Harrah’s Marina, each of which included new rooms in 2008, ended up the least impacted by the newest downturn. The Borgata skilled a gaming revenue fall of 1.six p.c, even though Harrah’s Marina described a 4.nine % enhance in contrast to 2007. Moreover, the toughest 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, like the the Trump qualities and Resorts with the hoped for sale of the Tropicana has been further delayed, and dropping valuation.

With a steady rise in gaming revenues by way of 2006, the city seemed prime for even more growth, which precipitated preparing for 4 new resort initiatives, each and every of which have now been indefinitely delayed. Revel Enjoyment Group’s $2.5 billion undertaking continues to be an iron skeleton, Pinnacle Enjoyment has announced it may look for to offer its razed Sands site, MGM Mirage has shelved its on line casino plans, and Penn National seems to have stopped its pursuit of the Bader Subject airport website.

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