Countrywide Business Internet casino & Racino Games Earnings Analysis

A Time period of Adjustment

Oops! That large hissing seem is the gaming balloon that had been growing over the several years, gradually shedding air. But, it has not been a tide that lowered all ships even so, as some emerging and expanding gaming jurisdictions confirmed robust progress in 2008.

Overall, the business and racetrack on line casino sectors (excluding Indian gaming), experienced a 3.five % 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 fall, as they confirmed a gain of nearly $one billion in 2008, therefore bringing the Commercial sector industry drop to $one.eight billion, or 6.7 %. Nevada was the most significant loser in 2008, dropping practically $one.3 billion, a lot more than 50 percent of which stemmed from the Las Vegas Strip section.

Hunkering Down

For the most component, casino operators were caught fairly flat-footed by the extent of the 2008 earnings downturn, as it was not till the 3rd and fourth quarters when it truly nosedived. Riding the crest of year in excess of calendar year market place expansion throughout the country and the availability of ample credit score and fairness resources, new building and enlargement proliferated in latest a long time. Right now, confronted with the realities of declining, or at ideal stagnant demand from customers, numerous of these projects are now regarded as in excess of-leveraged and/or in excess of-sized. As a result many gaming businesses are trying to renegotiate their debt – manufactured a lot more challenging by reduced valuations – although also paring down operational charges. The latter has turn out to be a really problematic conundrum when dealing with the competitiveness, specifically in those jurisdictions that are now vying for industry shares with new rising on line casino tasks in neighboring places. A subject we go over a lot more completely in the Point out by Condition analysis segment of this publication.

As a consequence of these conditions the gaming sector landscape is now strewn with impending fatalities. Among the much more noteworthy troubled corporations are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Leisure, Herbst Gaming and the listing grows each and every week.

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

2bcbet involves only gaming revenues of certified casinos and pari-mutuel shops that offer you casino game titles, and not Indian gaming functions, card rooms, or tiny non-casino sort slot areas. The complete write-up, like earnings tables is accessible on our web web page.

Enter/Output Design

A crucial facet that looks to have arisen from the ashes of this recent development is that a lot of on line casino projects have been just way too large to support by themselves. The enter, in phrases of investment bucks, was not proportional to the output, in terms of internet revenue soon after financial debt service, compared to previously attained results. Much more and/or larger is not always far better. Looking at the rise in non-gaming income at the Las Vegas Strip resorts, gave impetus to the advancement of far more extensive facilities in numerous other jurisdictions. The flaw in this approach however is that the expenses connected with widening market place penetration and occasioned-use, are considerably higher than individuals incurred to entice the base market place.

As daytripper marketplaces turn out to be more competitive, casino venues will have to rely far more and much more on their in-residence lodge patrons, and size their homes (and expectations) accordingly. While Steve Wynn commenced a key development in creating up-market place mega-destinations, there just was not sufficient desire on the Strip to warrant the numerous other similar tasks that adopted that aimed at the same area of interest.

The trick is to strike a pleased medium in project configurations which of training course need significantly less of a ‘seat-of-pants’ method, and 1 that is a lot more analyzed. A shameless plug for development consultants like ourselves.

Other Gaming Activities

Though there are no revealed thorough data of American Indian gaming revenues, anecdotal evidence seems to propose that this phase has been as hard hit as the Commercial sector. The two Connecticut Indian gaming installations report slot profits of $one.six billion in 2008, representing a drop of about 7 %, or virtually $114 million, much more than doubling the three.5 p.c drop from the calendar year just before. This market is apparently even now reeling from the ripple-impact of a casino expansion in Rhode Island, and the opening of slot functions in New York and Pennsylvania.

The Arizona Section of Gaming reports that contributions dependent on a gaming profits formula from the state’s 23 Indian gaming casinos, have been declining each quarter in 2008 when compared to the earlier year reducing .eight p.c in the initial quarter, 7.five p.c in the 2nd quarter, nine.5 per cent in the 3rd quarter, and sixteen.one p.c in the fourth quarter.

Some SEC reporting Indian gaming properties report equivalent decreases. Seneca Gaming, which operates 3 Course III casinos in upstate New York, reviews that even though calendar year 2008 showed an almost 2 p.c development charge in gaming revenues, there was an eight.7 p.c decrease in the third quarter and an virtually 10 percent decrease in the fourth quarter of 2008, in comparison with 2007. Gaming revenue developments at close by Niagara Falls, Ontario ended up down one.five% in 2008 when compared with 2007.

It really is been a combined-bag for condition lotteries throughout the country. The North American Affiliation of State & Provincial Lotteries studies that U.S. lotteries created a overall of $sixty.6 billion in product sales in fiscal 2008, up about three per cent from the previous year but some jurisdictions documented decreases, most notably California, which confirmed an 8 percent fall. Inasmuch as some of these states are on various fiscal year finishes, it would appear that the knowledge does not replicate the impact of 3rd and/or fourth quarter outcomes.

In accordance to knowledge presented by Equibase, horse racing pari-mutuel revenues continue their downward spiral, falling seven % to $thirteen.7 billion in 2008, vs . $fourteen.7 billion in 2007.

Prepared & Proposed New Expansions

As earlier observed, it has been new gaming jurisdictions that have spawned much of the expansion in annual casino/racino revenues above the years, and their impact is apt to continue into the near foreseeable future.

Miami Dade voters approved a ballot problem that permits each and every of 3 pari-mutuels to have a casino facility of up to 2,000 slot devices. The Flagler Canine Keep track of and Miami Jai-Alai are reportedly preparing opening in late 2009 or early 2010, although the Calder installation in Miami Gardens has however to announced its plans. There are many other proposals being regarded that would additional increase casino improvement throughout the condition.

The state lastly obtained around to reissuing its tenth license, late in December, 2008 awarding it to Midwest Gaming & Leisure, LLC for a one,two hundred+ game on line casino located in Des Plaines just east of O’Hare. The new facility is not likely to open up right up until 2010. There has also been some discussion about permitting an increase in for each place gaming positions and slots at racetracks, though neither initiative appears to have any traction at this time.

The state’s expanded lottery system that makes it possible for for the development of four casino gaming zones and slots at present horse and canine tracks appears mired, as only one facility is presently beneath construction, while three other proposals were rescinded. The only bidder on the Cherokee County agreement, claimed it could not compete with the new Quapaw tribal on line casino in Oklahoma, which is situated so near to the condition line that its parking lot is in Kansas. The Boot Hill Casino Vacation resort in Dodge Metropolis is planing a December 2009 opening with 575 slots and ten desk games, alongside with a 2nd period because of to open in 2011 with 875 slots and 20 desk online games. The point out has extended the software approach for the other three zones till April, 2009.

There is still a whole lot of ‘jockeying’ heading on, but the prospect of as numerous as eight slot parlors and racinos appears to be back on the front-burner, but probably not solved during the current legislative session.

Las Vegas
There are about fourteen,000 rooms scheduled to appear on line in 2009, with the most current currently being the 390 space M Resort in Henderson. There are expansions underway at both Caesars Palace and Challenging Rock and new hotels incorporate two components of the City Middle undertaking, and the Fountainebleau.

Pinnacle Entertainment’s new on line casino development assignments in Baton Rouge and Lake Charles, although delayed, are documented to nonetheless be on-track for opening this year and/or early 2010.

There is a monthly bill below thought that could far more than double Penn National’s slot devices to 3,000, as well as a proposal that would eliminate the restriction that slots be found inside 5 miles of the monitor. Scarborough Downs, which has been unsuccessful in convincing neighborhood residents to let slots, could be considering shifting to a more hospitable city.

A referendum was authorized in November, 2008 that permits for the advancement of five casinos with a complete of fifteen,000 slots, and now the bidding war is afoot although it is not as powerful as the state had expected.

Grand Soleil On line casino Resort in Natchez experienced been slated to open up in 2008, but has operate into various funding issues and whilst the resort part is open up, the riverboat is documented to open in the Spring of ’09. Harrah’s Margaritaville On line casino in Biloxi, although scaled back somewhat, is even now on track to open up this 12 months.

New England
Massachusetts, a sleeping-big in phrases of market likely, is nevertheless maneuvering to open casinos/racinos, and/or a Class III Indian gaming facility, but cannot seem to be to muster the political support. A current research concluded 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 just lately declined an alternative to produce casinos, however the subject matter is most likely to be revisited, especially if Massachusetts decides to go ahead. There are also makes an attempt 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 not too long ago agreeing to proceed augmenting purses with an extra tax. The governor nonetheless, has appointed a new panel to examine the state’s sagging racing software which ironically, can only be preserved by enabling the tracks to have slot machines particularly at the Meadowlands. (See The Nor’easter Squeeze section)

New York
Just when it seemed as if Aqueduct’s four,five hundred VLT facility would finally be created, the winning bidder indicated an lack of ability to make the needed $370 million price, citing the recent lending local climate, and throwing the venture back again into the lap of the governor. Although the market desire in the region could be regarded as fairly robust, the prospect of additional competitiveness from close by Belmont could have an impact on Aqueduct’s underlining economic feasibility, especially considering that slightly significantly less than 30% of the web win is retained by the operator.

Programs to relocate Monticello Raceway into a resort intricate are becoming reconsidered probably owing to each the probable opening of at least a single or probably two racino functions in the NY metro area, and the resurfacing of initiatives to growth a Class III Indian gaming facility in the Catskills.

Yet one more gaming proposal is currently being place forth in Ohio, after last year’s edition was turned down by the voters. This prepare calls for one casino each and every in the state’s biggest cities: Cleveland, Columbus, Cincinnati and Toledo. There would be a least expenditure needed of $250 million, as nicely as an initial licensing price of $fifty million, and a 33 p.c tax on gaming income.

The Sands in Bethlehem is owing to open up in the Spring of ’09, and the new Rivers venture in Pittsburgh is predicted to be operational in August, ’09 although Philadelphia’s two slot services nevertheless wallow in a political mire, but are anticipated to commence building this yr.

South Dakota
The Lodge at Deadwood is slated to open up in the Slide of 2009, and contain three hundred game titles, one hundred forty rooms and a extensive assortment of facilities.

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

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

Indian Gaming
A latest Supreme Courtroom ruling that restricts the having of lands into have confidence in on behalf of federally regarded American Indian tribes has further stymied some new Course III gaming assignments across the region. Moreover, there ended up eleven Indian on line casino initiatives turned down by the DOI last year because of its new rule that casinos need to be around ample to a reservation that tribal associates can perform at them. It has been recommended that the new Obama administration might be much more sympathetic to the growth of Indian gaming tasks, but this concern has but to be tackled.

In the meantime, there are other Course III assignments in the various levels of development. The Seneca on line casino venture in Buffalo, NY, whilst functioning a little momentary facility, has delayed an presently underneath building permanent facility until the market rebounds. They have also expressed an desire in establishing a casino in the Catskills. The state gaming compact with Seminoles in Florida is becoming challenged, and could affect their plans for greater initiatives. There are new Indian gaming initiatives set to open up in Michigan and Oklahoma this calendar year, and others are in the preparing phase. Texas might enable the reopening of Indian gaming services and let other location and there are ideas afoot by the Navajos in Arizona to build additional casinos. California is poised to open up two to a few new Class III casinos in 2009/ten.

The Nor’easter Squeeze

Complete gaming profits in Atlantic Metropolis has declined seven.6 per cent, from $4.nine billion in 2007 to $4.five billion in 2008 with decreases continuing into 2009, as the city is obtaining itself in an extreme comp-war with the Pennsylvania venues. At one particular time the only casinos in the Northeast ended up located in Atlantic Metropolis, in which it looked as if it may well truly even eclipse the Las Vegas Strip’s annual gaming revenues.

Slowly nonetheless its marketplace share was currently being encroached upon, very first by the improvement of a huge Course III gaming procedure in Connecticut, and then another slots operations in Rhode Island, and then online video lottery terminals at New York racetracks, racinos in West Virginia and Delaware, and most just lately Pennsylvania.

Now, with the prepared opening of slot operations in Maryland, the impending opening of a new on line casino in Bethlehem, PA, and ultimately two operations in Philadelphia, the noose is tightening about Atlantic City’s potential potential clients. It truly is reliance on day-trippers lulled it into a false perception of security, and it now finds alone getting to redefine its mission statement to “location resort.”

The only problem with this strategy however is that it is ill-geared up to pull it off. For all intents and functions, Atlantic Town is beneath-roomed and/or above-gamed. There is merely not enough day-tripper industry to go all around, and their effective investing location is tightening, as the peripheral populations northward now/will have a lot more ready accessibility to a widened offer in New York (Yonkers, and shortly 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 real competitive benefits are its resort potential and the availability of table game titles, though the latter is very likely to eventuate in Pennsylvania, and probably Delaware. In order to sufficiently contend as a spot resort the metropolis requirements to create further guest rooms and not essentially gaming capability. By comparison, the Las Vegas Strip houses – correct gaming places, in that they do not have a lot of a day-excursion industry, besides for the ‘locals’ – have an typical of .87 gaming positions per guest room even though Atlantic City’s regular is 2.seventy four positions for each guest area.

It is not a coincidence that Atlantic City’s two biggest hotels, the Borgata and Harrah’s Marina, each of which extra new rooms in 2008, have been the minimum impacted by the newest downturn. The Borgata seasoned a gaming income drop of 1.6 %, while Harrah’s Marina described a four.nine per cent boost when compared to 2007. In addition, the most difficult 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, which includes the the Trump qualities and Resorts with the hoped for sale of the Tropicana has been even more delayed, and dropping valuation.

With a steady increase in gaming revenues via 2006, the metropolis appeared prime for even more improvement, which precipitated preparing for four new resort initiatives, every single of which have now been indefinitely delayed. Revel Leisure Group’s $2.5 billion project remains an iron skeleton, Pinnacle Amusement has announced it may possibly look for to promote its razed Sands website, MGM Mirage has shelved its casino ideas, and Penn Nationwide appears to have stopped its pursuit of the Bader Field airport web site.

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