Nationwide Industrial Online casino & Racino Games Revenue Analysis

A Period of Adjustment

Oops! That huge hissing seem is the gaming balloon that experienced been developing above the many years, slowly and gradually losing air. But, it has not been a tide that lowered all ships nonetheless, as some rising and growing gaming jurisdictions confirmed strong growth in 2008.

Overall, the industrial and racetrack on line casino sectors (excluding Indian gaming), experienced a three.five percent decline in gaming revenues for 2008, generating a whole of $36.2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they confirmed a acquire of almost $one billion in 2008, therefore bringing the Industrial sector industry drop to $1.eight billion, or 6.seven per cent. Nevada was the biggest loser in 2008, dropping almost $one.3 billion, more than 50 % of which stemmed from the Las Vegas Strip section.

Hunkering Down

For the most element, on line casino operators had been caught fairly flat-footed by the extent of the 2008 profits downturn, as it was not until the third and fourth quarters when it genuinely nosedived. Driving the crest of year more than 12 months market place expansion throughout the place and the availability of ample credit and equity money, new construction and growth proliferated in recent years. These days, faced with the realities of declining, or at ideal stagnant desire, many of these initiatives are now considered over-leveraged and/or above-sized. As a outcome a lot of gaming firms are making an attempt to renegotiate their debt – created a lot more tough by lower valuations – although also paring down operational expenses. The latter has become a extremely problematic conundrum when dealing with the competitiveness, especially in these jurisdictions that are now vying for market place shares with new emerging casino assignments in neighboring regions. A subject we discuss much more entirely in the State by Condition analysis segment of this publication.

As a consequence of these circumstances the gaming business landscape is now strewn with impending fatalities. Between the far more notable troubled corporations are Station Casinos, Empire Resorts, Harrah’s Enjoyment, Greektown Holdings, Legends Gaming, Tropicana Amusement, Herbst Gaming and the listing grows each week.

“How lengthy will these economic situations persist, and are we at the base however?” are inquiries no a single seems to be answering however. What is clear even so is that most gaming jurisdictions will have to find out how to offer with a more compact pie.

Observe:
This investigation involves only gaming revenues of licensed casinos and pari-mutuel retailers that provide on line casino games, and not Indian gaming operations, card rooms, or modest non-casino kind slot places. The complete write-up, such as revenue tables is available on our net web page.

Input/Output Model

A essential aspect that appears to have arisen from the ashes of this recent craze is that several on line casino tasks have been just also big to assistance on their own. The input, in conditions of expense dollars, was not proportional to the output, in terms of net earnings after financial debt support, when compared to beforehand reached benefits. A lot more and/or larger is not constantly much better. Viewing the rise in non-gaming earnings at the Las Vegas Strip resorts, gave impetus to the development of far more thorough facilities in a lot of other jurisdictions. The flaw in this approach however is that the charges linked with widening marketplace penetration and occasioned-use, are significantly larger than these incurred to attract the base market.

As daytripper markets grow to be much more aggressive, on line casino venues will have to count more and far more on their in-property lodge patrons, and size their homes (and anticipations) appropriately. Even though Steve Wynn commenced a key craze in producing up-industry mega-places, there merely was not enough demand on the Strip to warrant the a lot of other equivalent projects that adopted that aimed at the very same area of interest.

The trick is to strike a content medium in task configurations which of course require much less of a ‘seat-of-pants’ method, and one particular that is far more researched. A shameless plug for growth consultants like ourselves.

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Even though there are no released detailed information of American Indian gaming revenues, anecdotal proof seems to suggest that this section has been as tough hit as the Business sector. The two Connecticut Indian gaming installations report slot revenue of $1.six billion in 2008, representing a fall of about 7 %, or practically $114 million, far more than doubling the 3.5 % fall from the calendar year just before. This marketplace is seemingly nonetheless reeling from the ripple-effect of a casino growth in Rhode Island, and the opening of slot functions in New York and Pennsylvania.

The Arizona Division of Gaming reviews that contributions primarily based on a gaming profits system from the state’s 23 Indian gaming casinos, have been declining every quarter in 2008 compared to the earlier calendar year reducing .eight percent in the first quarter, seven.5 p.c in the next quarter, nine.five % in the 3rd quarter, and sixteen.one percent in the fourth quarter.

Some SEC reporting Indian gaming qualities report comparable decreases. Seneca Gaming, which operates a few Course III casinos in upstate New York, studies that whilst calendar 12 months 2008 showed an virtually 2 % development rate in gaming revenues, there was an eight.seven per cent decline in the third quarter and an nearly 10 percent drop in the fourth quarter of 2008, compared with 2007. Gaming income trends at nearby Niagara Falls, Ontario had been down 1.5% in 2008 compared with 2007.

It’s been a mixed-bag for condition lotteries throughout the place. The North American Affiliation of Condition & Provincial Lotteries reports that U.S. lotteries generated a overall of $60.six billion in product sales in fiscal 2008, up about three p.c from the prior year yet some jurisdictions reported decreases, most notably California, which confirmed an eight per cent fall. Inasmuch as some of these states are on various fiscal year ends, it would appear that the knowledge does not replicate the affect of 3rd and/or fourth quarter outcomes.

In accordance to knowledge provided by Equibase, horse racing pari-mutuel revenues carry on their downward spiral, slipping 7 per cent to $13.7 billion in 2008, as opposed to $fourteen.seven billion in 2007.

Prepared & Proposed New Expansions

As earlier observed, it has been new gaming jurisdictions that have spawned considerably of the expansion in once-a-year on line casino/racino revenues in excess of the many years, and their effect is apt to keep on into the close to long term.

Florida
Miami Dade voters approved a ballot situation that enables each of a few pari-mutuels to have a casino facility of up to two,000 slot machines. The Flagler Dog Observe and Miami Jai-Alai are reportedly preparing opening in late 2009 or early 2010, while the Calder set up in Miami Gardens has but to declared its ideas. There are quite a few other proposals currently being regarded as that would additional grow on line casino advancement all through the point out.

Illinois
The point out lastly acquired close to to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a 1,200+ sport on line casino located in Des Plaines just east of O’Hare. The new facility is not very likely to open till 2010. There has also been some dialogue about permitting an increase in for every location 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 allows for the improvement of 4 casino gaming zones and slots at present horse and dog tracks appears mired, as only a single facility is presently underneath building, while a few 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 located so shut to the point out line that its parking good deal is in Kansas. The Boot Hill Casino Vacation resort in Dodge City is planing a December 2009 opening with 575 slots and 10 desk video games, together with a next period because of to open up in 2011 with 875 slots and 20 table video games. The state has extended the software process for the other three zones right up until April, 2009.

Kentucky
There is still a whole lot of ‘jockeying’ going on, but the prospect of as several as 8 slot parlors and racinos appears to be back on the entrance-burner, but most likely not fixed for the duration of the present legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to arrive on line in 2009, with the most current getting the 390 room M Resort in Henderson. There are expansions underway at the two Caesars Palace and Hard Rock and new hotels include two parts of the Town Middle undertaking, and the Fountainebleau.

Louisiana
Pinnacle Entertainment’s new casino development initiatives in Baton Rouge and Lake Charles, while delayed, are described to even now be on-monitor for opening this calendar year and/or early 2010.

Maine
There is a invoice below consideration that could far more than double Penn National’s slot devices to three,000, as nicely as a proposal that would take away the restriction that slots be located within five miles of the observe. Scarborough Downs, which has been unsuccessful in convincing nearby residents to allow slots, may possibly be thinking about relocating to a far more hospitable town.

Maryland
A referendum was accredited in November, 2008 that enables for the advancement of 5 casinos with a overall 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 anticipated.

Mississippi
Grand Soleil Casino Resort in Natchez experienced been slated to open in 2008, but has run into numerous financing issues and whilst the resort part is open up, the riverboat is described to open up in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, while scaled back considerably, is nonetheless on monitor to open this year.

New England
Massachusetts, a sleeping-huge in conditions of industry likely, is nonetheless maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but cannot seem to be to muster the political help. A modern examine concluded by Dartmouth College estimates that Massachusetts resident put in far more than $920 million final calendar year at Connecticut casinos and slot device parlors in Rhode Island and Maine. The New Hampshire legislature recently declined an alternative to build casinos, even so the matter is very likely to be revisited, specifically if Massachusetts decides to go ahead. There are also makes an attempt in Maine to reconsider its choices.

New Jersey
Atlantic City’s casinos have imposed their political will on staving off the addition of slot machines at racetracks by lately agreeing to carry on augmenting purses with an extra tax. The governor nonetheless, has appointed a new panel to study the state’s sagging racing system which ironically, can only be preserved by permitting the tracks to have slot equipment specially at the Meadowlands. (See The Nor’easter Squeeze area)

New York
Just when it seemed as if Aqueduct’s 4,five hundred VLT facility would lastly be created, the profitable bidder indicated an inability to make the needed $370 million fee, citing the present lending weather, and throwing the venture back again into the lap of the governor. Although the marketplace desire in the spot could be considered fairly robust, the prospect of extra competition from nearby Belmont could have an influence on Aqueduct’s underlining financial feasibility, specifically taking into consideration that a bit much less than 30% of the internet win is retained by the operator.

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

Ohio
Nevertheless one more gaming proposal is being set forth in Ohio, following very last year’s model was turned down by the voters. This strategy phone calls for 1 casino each and every in the state’s greatest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a bare minimum expense necessary of $250 million, as well as an original licensing fee of $fifty million, and a 33 percent tax on gaming income.

Pennsylvania
The Sands in Bethlehem is owing to open up in the Spring of ’09, and the new Rivers undertaking in Pittsburgh is envisioned to be operational in August, ’09 although Philadelphia’s two slot services even now wallow in a political mire, but are anticipated to start off development this calendar year.

South Dakota
The Lodge at Deadwood is slated to open in the Tumble of 2009, and incorporate 300 games, one hundred forty rooms and a extensive selection of features.

Texas
Legislators are proposing a voter referendum that would amend the condition structure to permit on line casino gambling in designated locations, as well as let gambling on American Indian lands in Texas and at existing racetracks.

West Virginia
The Greenbriar, the state’s venerable vacation resort facility has submitted for personal bankruptcy, but has a new suitor in Marriott Lodges, who have reportedly tendered an supply. Condition government has proffered the idea of allowing the resort to offer you on line casino games, but this work is in as well early a phase to have any traction one particular way or yet another.

Indian Gaming
A modern Supreme Court docket ruling that restricts the using of lands into trust on behalf of federally identified American Indian tribes has additional stymied some new Course III gaming initiatives throughout the region. Moreover, there were eleven Indian casino tasks turned down by the DOI last yr simply because of its new rule that casinos should be near ample to a reservation that tribal users can operate at them. It has been proposed that the new Obama administration may well be a lot more sympathetic to the improvement of Indian gaming projects, but this concern has nevertheless to be dealt with.

Meanwhile, there are other Class III initiatives in the a variety of stages of growth. The Seneca casino project in Buffalo, NY, whilst functioning a little temporary facility, has delayed an previously below development long lasting facility until the market place rebounds. They have also expressed an interest in developing a casino in the Catskills. The condition gaming compact with Seminoles in Florida is getting challenged, and could effect their strategies for bigger tasks. There are new Indian gaming assignments set to open up in Michigan and Oklahoma this calendar year, and other people are in the planning stage. Texas may possibly enable the reopening of Indian gaming facilities and allow other location and there are plans afoot by the Navajos in Arizona to assemble added casinos. California is poised to open two to a few new Class III casinos in 2009/ten.

The Nor’easter Squeeze

Whole gaming revenue in Atlantic Town has declined 7.six %, from $4.9 billion in 2007 to $4.5 billion in 2008 with decreases continuing into 2009, as the metropolis is obtaining by itself in an intensive comp-war with the Pennsylvania venues. At a single time the only casinos in the Northeast were located in Atlantic Town, exactly where it appeared as if it might actually even eclipse the Las Vegas Strip’s annual gaming revenues.

Slowly and gradually nonetheless its industry share was currently being encroached upon, 1st by the development of a big Course III gaming operation in Connecticut, and then yet another slots operations in Rhode Island, and then video clip 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 operations in Maryland, the impending opening of a new casino in Bethlehem, PA, and at some point two functions in Philadelphia, the noose is tightening all around Atlantic City’s potential potential customers. It truly is reliance on working day-trippers lulled it into a false feeling of protection, and it now finds itself getting to redefine its mission assertion to “destination resort.”

The only dilemma with this strategy nevertheless is that it is ill-equipped to pull it off. For all intents and purposes, Atlantic City is underneath-roomed and/or in excess of-gamed. There is just not adequate working day-tripper marketplace to go all around, and their powerful buying and selling region is tightening, as the peripheral populations northward now/will have more prepared obtain to a widened provide in New York (Yonkers, and shortly at Aqueduct and probably Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean obtain, the city’s only genuine competitive benefits are its resort capacity and the availability of desk online games, despite the fact that the latter is very likely to eventuate in Pennsylvania, and possibly Delaware. In buy to sufficiently contend as a destination vacation resort the town needs to create additional visitor rooms and not essentially gaming capacity. By comparison, the Las Vegas Strip houses – real gaming places, in that they do not have much of a working day-vacation industry, other than for the ‘locals’ – have an average of .87 gaming positions for each visitor space while Atlantic City’s common is 2.74 positions per visitor area.

It is not a coincidence that Atlantic City’s two biggest hotels, the Borgata and Harrah’s Marina, equally of which additional new rooms in 2008, have been the least impacted by the most current downturn. The Borgata seasoned a gaming income fall of one.6 p.c, even though Harrah’s Marina described a 4.9 p.c enhance in contrast to 2007. Furthermore, the most difficult strike 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, like the the Trump houses and Resorts with the hoped for sale of the Tropicana has been more delayed, and dropping valuation.

With a continual increase in gaming revenues by means of 2006, the city seemed prime for even more improvement, which precipitated planning for four new resort assignments, every single of which have now been indefinitely delayed. Revel Enjoyment Group’s $two.five billion venture stays an iron skeleton, Pinnacle Leisure has declared it may well find 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 Area airport web site.

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