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2008 National Industrial Casino & Racino Gaming Income Evaluation

A Period of Adjustment

Oops! That giant hissing sound is the gaming balloon that had been increasing more than the years, gradually losing air. But, it has not been a tide that lowered all ships having said that, as some emerging and expanding gaming jurisdictions showed powerful development in 2008.

General, the industrial and racetrack casino sectors (excluding Indian gaming), seasoned a three.five % decline 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 showed a obtain of virtually $1 billion in 2008, thereby bringing the Industrial sector market place decline to $1.eight billion, or six.7 %. Nevada was the most significant loser in 2008, dropping virtually $1.three billion, much more than half of which stemmed from the Las Vegas Strip segment.

Hunkering Down

For the most aspect, casino operators have been caught fairly flat-footed by the extent of the 2008 income downturn, as it was not till the third and fourth quarters when it actually nosedived. Riding the crest of year more than year market place development across the nation and the availability of ample credit and equity funds, new building and expansion proliferated in current years. Right now, faced with the realities of declining, or at ideal stagnant demand, quite a few of these projects are now deemed more than-leveraged and/or more than-sized. As a outcome quite a few gaming corporations are attempting to renegotiate their debt – produced much more tough by reduced valuations – though also paring down operational charges. The latter has grow to be a really problematic conundrum when dealing with the competitors, in particular in these jurisdictions that are now vying for market place shares with new emerging casino projects in neighboring places. A subject we go over much more totally in the State by State evaluation section of this publication.

As a outcome of these situations the gaming sector landscape is now strewn with impending fatalities. Amongst the much more notable troubled firms are Station Casinos, Empire Resorts, Harrah's Entertainment, Greektown Holdings, Legends Gaming, Tropicana Entertainment, Herbst Gaming and the list grows every week.

“How lengthy will these financial situations persist, and are we at the bottom however?” are concerns no one particular seems to be answering however. What is clear having said that is that most gaming jurisdictions will have to understand how to deal with a smaller sized pie.

Note: This evaluation consists of only gaming revenues of licensed casinos and pari-mutuel outlets that provide casino games, and not Indian gaming operations, card rooms, or smaller non- casino sort slot places. The complete write-up, such as income tables is accessible on our internet web page.

Input/Output Model

A important aspect that appears to have arisen from the ashes of this existing trend is that quite a few casino projects have been just also massive to assistance themselves. The input, in terms of investment dollars, was not proportional to the output, in terms of net profit right after debt service, compared to previously accomplished benefits. Far more and/or larger is not often much better. Seeing the rise in non-gaming income at the Las Vegas Strip resorts, gave impetus to the improvement of much more complete amenities in quite a few other jurisdictions. The flaw in this approach having said that is that the charges linked with widening market place penetration and occasioned-use, are drastically greater than these incurred to attract the base market place.

As daytripper markets grow to be much more competitive, casino venues will have to rely much more and much more on their in-home hotel patrons, and size their properties (and expectations) accordingly. Although Steve Wynn began a key trend in making up-market place mega-destinations, there just was not sufficient demand on the Strip to warrant the quite a few other comparable projects that followed that aimed at the identical niche.

The trick is to strike a pleased medium in project configurations which of course demand significantly less of a 'seat-of-pants' strategy, and one particular that is much more studied. A shameless plug for improvement consultants like ourselves.

Other Gaming Activities

Even though there are no published detailed information of American Indian gaming revenues, anecdotal proof seems to recommend that this segment has been as difficult hit as the Industrial sector. The two Connecticut Indian gaming installations report slot income of $1.six billion in 2008, representing a drop of about 7 %, or virtually $114 million, much more than doubling the three.five % drop from the year just before. This market place is apparently nevertheless reeling from the ripple-impact of a casino expansion in Rhode Island, and the opening of slot operations in New York and Pennsylvania.

The Arizona Division of Gaming reports that contributions primarily based on a gaming income formula from the state's 23 Indian gaming casinos, have been declining each and every quarter in 2008 compared to the earlier year decreasing .eight % in the initial quarter, 7.five % in the second quarter, 9.five % in the third quarter, and 16.1 % in the fourth quarter.

Some SEC reporting Indian gaming properties report comparable decreases. Seneca Gaming, which operates 3 Class III casinos in upstate New York, reports that though calendar year 2008 showed an virtually two % development price in gaming revenues, there was an eight.7 % decline in the third quarter and an virtually 10 % decline in the fourth quarter of 2008, compared with 2007. Gaming income trends at nearby Niagara Falls, Ontario have been down 1.five% in 2008 compared with 2007.

It really is been a mixed-bag for state lotteries across the nation. The North American Association of State & Provincial Lotteries reports that U.S. lotteries generated a total of $60.six billion in sales in fiscal 2008, up about three % from the earlier year however some jurisdictions reported decreases, most notably California, which showed an eight % drop. Inasmuch as some of these states are on many fiscal year ends, it would appear that the information does not reflect the effect of third and/or fourth quarter benefits.

According to information supplied by Equibase, horse racing pari-mutuel revenues continue their downward spiral, falling 7 % to $13.7 billion in 2008, versus $14.7 billion in 2007.

Planned & Proposed New Expansions

As previously noted, it has been new gaming jurisdictions that have spawned considerably of the development in annual casino/racino revenues more than the years, and their effect is apt to continue into the close to future.

Florida Miami Dade voters authorized a ballot problem that permits every of 3 pari-mutuels to have a casino facility of up to two,000 slot machines. The Flagler Dog Track and Miami Jai-Alai are reportedly arranging opening in late 2009 or early 2010, though the Calder installation in Miami Gardens has however to announced its plans. There are a lot of other proposals getting deemed that would additional expand casino improvement all through the state.

Illinois The state lastly got about to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Entertainment, LLC for a 1,200+ game casino positioned in Des Plaines just east of O'Hare. The new facility is not probably to open till 2010. There has also been some discussion about enabling an improve in per place gaming positions and slots at racetracks, though neither initiative seems to have any traction at this time.

Kansas The state's expanded lottery system that permits for the improvement of 4 casino gaming zones and slots at current horse and dog tracks seems mired, as only one particular facility is presently beneath building, though 3 other proposals have 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 positioned so close to the state line that its parking lot is in Kansas. The Boot Hill Casino Resort in Dodge City is planing a December 2009 opening with 575 slots and 10 table games, along with a second phase due to open in 2011 with 875 slots and 20 table games. The state has extended the application method for the other 3 zones till April, 2009.

Kentucky There is nevertheless a lot of 'jockeying' going on, but the prospect of as quite a few as eight slot parlors and racinos seems to be back on the front-burner, but probably not resolved in the course of the existing legislative session.

Las Vegas There are about 14,000 rooms scheduled to come on line in 2009, with the most current getting the 390 area M Resort in Henderson. There are expansions underway at each Caesars Palace and Difficult Rock and new hotels incorporate two elements of the City Center project, and the Fountainebleau.

Louisiana Pinnacle Entertainment's new casino improvement projects in Baton Rouge and Lake Charles, though delayed, are reported to nevertheless be on-track for opening this year and/or early 2010.

Maine There is a bill beneath consideration that could much more than double Penn National's slot machines to three,000, as nicely as a proposal that would eliminate the restriction that slots be positioned inside 5 miles of the track. Scarborough Downs, which has been unsuccessful in convincing regional residents to permit slots, might be contemplating moving to a much more hospitable town.

Maryland A referendum was authorized in November, 2008 that permits for the improvement of 5 casinos with a total of 15,000 slots, and now the bidding war is afoot though it is not as intense as the state had anticipated.

Mississippi Grand Soleil Casino Resort in Natchez had been slated to open in 2008, but has run into many financing difficulties and though the hotel portion is open, the riverboat is reported to open in the Spring of '09. Harrah's Margaritaville Casino in Biloxi, though scaled back somewhat, is nevertheless on track to open this year.

New England Massachusetts, a sleeping-giant in terms of market place prospective, is nevertheless maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but can't appear to muster the political assistance. A current study completed by Dartmouth University estimates that Massachusetts resident spent much more than $920 million final year at Connecticut casinos and slot machine parlors in Rhode Island and Maine. The New Hampshire legislature not too long ago declined an selection to create casinos, having said that the subject is probably to be revisited, in particular if Massachusetts decides to go forward. There are also attempts in Maine to reconsider its alternatives.

New Jersey Atlantic City's casinos have imposed their political will on staving off the addition of slot machines at racetracks by not too long ago agreeing to continue augmenting purses with an more tax. The governor having said that, has appointed a new panel to study the state's sagging racing system which ironically, can only be preserved by enabling the tracks to have slot machines in particular at the Meadowlands. (See The Nor'easter Squeeze section)

New York Just when it looked as if Aqueduct's four,500 VLT facility would lastly be created, the winning bidder indicated an inability to make the expected $370 million charge, citing the existing lending climate, and throwing the project back into the lap of the governor. Even though the market place demand in the location could be deemed fairly powerful, the prospect of more competitors from nearby Belmont could have an effect on Aqueduct's underlining financial feasibility, in particular contemplating that slightly significantly less than 30% of the net win is retained by the operator.

Plans to relocate Monticello Raceway into a resort complicated are getting reconsidered probably owing to each the probable opening of at least one particular or probably two racino operations in the NY metro location, and the resurfacing of initiatives to improvement a Class III Indian gaming facility in the Catskills.

Ohio But one more gaming proposal is getting place forth in Ohio, right after final year's version was turned down by the voters. This strategy calls for one particular casino every in the state's biggest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a minimum investment expected of $250 million, as nicely as an initial licensing charge of $50 million, and a 33 % tax on gaming income.

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 though Philadelphia's two slot facilities nevertheless wallow in a political mire, but are anticipated to begin building this year.

South Dakota The Lodge at Deadwood is slated to open in the Fall of 2009, and incorporate 300 games, 140 rooms and a wide assortment of amenities.

Texas Legislators are proposing a voter referendum that would amend the state constitution to permit casino gambling in designated places, as nicely as permit gambling on American Indian lands in Texas and at current racetracks.

West Virginia The Greenbriar, the state's venerable resort facility has filed for bankruptcy, but has a new suitor in Marriott Hotels, who have reportedly tendered an provide. State government has proffered the notion of enabling the resort to provide casino games, but this work is in also early a stage to have any traction one particular way or one more.

Indian Gaming A current Supreme Court ruling that restricts the taking of lands into trust on behalf of federally recognized American Indian tribes has additional stymied some new Class III gaming projects across the nation. Additionally, there have been eleven Indian casino projects rejected by the DOI final year due to the fact of its new rule that casinos need to be close to sufficient to a reservation that tribal members can perform at them. It has been recommended that the new Obama administration could be much more sympathetic to the improvement of Indian gaming projects, but this problem has however to be addressed.

Meanwhile, there are other Class III projects in the many stages of improvement. The Seneca casino project in Buffalo, NY, though operating a smaller short-term facility, has delayed an currently beneath building permanent facility till the market place rebounds. They have also expressed an interest in creating a casino in the Catskills. The state gaming compact with Seminoles in Florida is getting challenged, and could effect their plans for bigger projects. There are new Indian gaming projects set to open in Michigan and Oklahoma this year, and other folks are in the arranging stage. Texas might permit the reopening of Indian gaming facilities and permit other venue and there are plans afoot by the Navajos in Arizona to construct more casinos. California is poised to open two to 3 new Class III casinos in 2009/10.

The Nor'easter Squeeze

Total gaming income in Atlantic City has declined 7.six %, from $four.9 billion in 2007 to $four.five billion in 2008 with decreases continuing into 2009, as the city is obtaining itself in an intense comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast have been positioned in Atlantic City, exactly where it looked as if it could essentially even eclipse the Las Vegas Strip's annual gaming revenues.

Gradually having said that its market place share was getting encroached upon, initial by the improvement of a massive Class III gaming operation in Connecticut, and then one more slots operations in Rhode Island, and then video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most not too long ago Pennsylvania.

Now, with the planned opening of slot operations in Maryland, the impending opening of a new casino in Bethlehem, PA, and ultimately two operations in Philadelphia, the noose is tightening about Atlantic City's future prospects. It really is reliance on day-trippers lulled it into a false sense of safety, and it now finds itself getting to redefine its mission statement to “location resort.”

The only challenge with this approach having said that is that it is ill-equipped to pull it off. For all intents and purposes, Atlantic City is beneath-roomed and/or more than-gamed. There is just not sufficient day-tripper market place to go about, and their powerful trading location is tightening, as the peripheral populations northward now/will have much more prepared access to a widened provide in New York (Yonkers, and quickly at Aqueduct and possibly Belmont), westward in Pennsylvania and southward in Delaware, West Virginia and Maryland.

Other than the ocean access, the city's only true competitive positive aspects are its hotel capacity and the availability of table games, though the latter is probably to eventuate in Pennsylvania, and possibly Delaware. In order to adequately compete as a location resort the city requirements to create more guest rooms and not necessarily gaming capacity. By comparison, the Las Vegas Strip properties – correct gaming destinations, in that they do not have considerably of a day-trip market place, except for the 'locals' – have an typical of .87 gaming positions per guest area though Atlantic City's typical is two.74 positions per guest area.

It is not a coincidence that Atlantic City's two biggest hotels, the Borgata and Harrah's Marina, each of which added new rooms in 2008, have been the least impacted by the newest downturn. The Borgata seasoned a gaming income drop of 1.six %, though Harrah's Marina reported a four.9 % improve compared to 2007. Additionally, the hardest hit venues, namely 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 losing valuation.

With a steady rise in gaming revenues via 2006, the city seemed prime for additional improvement, which precipitated arranging for 4 new resort projects, every of which have now been indefinitely delayed. Revel Entertainment Group's $two.five billion project remains an iron skeleton, Pinnacle Entertainment has announced it could seek to sell its razed Sands internet site, MGM Mirage has shelved its casino plans, and Penn National seems to have stopped its pursuit of the Bader Field airport internet site.

Maybe the city really should seek to return to its roots, leveraging its beachfront, and develop much more recreational activities and unique events.

A complete state by state evaluation is accessible at our internet internet site.

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