A Period of Adjustment

Oops! That giant hissing sound may be the gaming balloon that had been growing over time, slowly losing air. But, it hasn’t been a tide that lowered all ships however, as some emerging and expanding gaming jurisdictions showed strong growth in 2008.

Overall, the commercial and racetrack casino sectors (excluding Indian gaming), experienced a 3.5 percent decline in gaming revenues for 2008, generating an overall total of $36.2 billion, down some $800 million from 2007. It absolutely was the Racino sector that’s tempered this drop, because they showed a gain of almost $1 billion in 2008, thereby bringing the Commercial sector market decline to $1.8 billion, or 6.7 percent. Nevada was the biggest loser in 2008, dropping almost $1.3 billion, more than half of which stemmed from the Las Vegas Strip segment.

Hunkering Down

For the absolute most part, casino operators were caught relatively flat-footed by the extent of the 2008 revenue downturn, since it was not before the third and fourth quarters when it certainly nosedived. Riding the crest of year over year market growth in the united states and the availability of ample credit and equity funds, new construction and expansion proliferated in recent years. Today, faced with the realities of declining, or at best stagnant demand, several projects are actually considered over-leveraged and/or over-sized. Consequently many gaming companies are attempting to renegotiate their debt – made harder by lower valuations – while also paring down operational costs. The latter has turned into a very problematic conundrum when dealing with your competition, especially in those jurisdictions which can be now vying for market shares with new emerging casino projects in neighboring areas. A topic we discuss more fully in the State by State analysis section of the publication.

Consequently of the conditions the gaming industry landscape is now strewn with impending fatalities. On the list of more notable troubled firms are Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Entertainment, Herbst Gaming; and the list grows each week.

“How long will these economic conditions persist, and are we at the bottom yet?” are questions no one appears to be answering yet. What’s clear however is that most gaming jurisdictions will have to learn to deal with a smaller pie.

Note:
This analysis includes only gaming revenues of licensed casinos and pari-mutuel outlets offering casino games, and not Indian gaming operations, card rooms, or small non-casino type slot locations. The entire article, including revenue tables is available on our web page.토토사이트

Input/Output Model

A key aspect that appears to have arisen from the ashes of the current trend is that lots of casino projects were just too big to guide themselves. The input, with regards to investment dollars, was not proportional to the output, with regards to net profit after debt service, compared to previously achieved results. More and/or bigger is not always better. Seeing the rise in non-gaming revenue at the Las Vegas Strip resorts, gave impetus to the development of more comprehensive amenities in a number of other jurisdictions. The flaw in this strategy however is that the expense associated with widening market penetration and occasioned-use, are significantly higher than those incurred to attract the beds base market.

As daytripper markets become more competitive, casino venues will have to rely more and more on their in-house hotel patrons, and size their properties (and expectations) accordingly. While Steve Wynn started a significant trend in creating up-market mega-destinations, there simply was not enough demand on the Strip to warrant the countless other similar projects that followed that directed at the same niche.

The key would be to strike a happy medium in project configurations; which of course require less of a ‘seat-of-pants’ approach, and one that’s more studied. A shameless plug for development consultants like ourselves.

Other Gaming Activities

Although you can find no published detailed data of American Indian gaming revenues, anecdotal evidence generally seems to suggest this segment has been as hard hit whilst the Commercial sector. The two Connecticut Indian gaming installations report slot revenue of $1.6 billion in 2008, representing a drop of approximately 7 percent, or almost $114 million, a lot more than doubling the 3.5 percent drop from the year before. This market is apparently still reeling from the ripple-effect of a casino expansion in Rhode Island, and the opening of slot operations in New York and Pennsylvania.

The Arizona Department of Gaming reports that contributions centered on a gaming revenue formula from the state’s 23 Indian gaming casinos, have now been declining every quarter in 2008 compared to the previous year; decreasing .8 percent in the first quarter, 7.5 percent in the next quarter, 9.5 percent in the next quarter, and 16.1 percent in the fourth quarter.

Some SEC reporting Indian gaming properties report similar decreases. Seneca Gaming, which operates three Class III casinos in upstate New York, reports that while calendar year 2008 showed a nearly 2 percent growth rate in gaming revenues, there was an 8.7 percent decline in the next quarter and a nearly 10 percent decline in the fourth quarter of 2008, in contrast to 2007. Gaming revenue trends at nearby Niagara Falls, Ontario were down 1.5% in 2008 in contrast to 2007.

It’s been a mixed-bag for state lotteries throughout the country. The North American Association of State & Provincial Lotteries reports that U.S. lotteries generated an overall total of $60.6 billion in sales in fiscal 2008, up about 3 percent from the prior year; yet some jurisdictions reported decreases, especially California, which showed an 8 percent drop. Inasmuch as some of those states are on various fiscal year ends, it would appear that the information doesn’t reflect the impact of third and/or fourth quarter results.

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

Planned & Proposed New Expansions

As previously noted, it’s been new gaming jurisdictions that have spawned much of the growth in annual casino/racino revenues over time, and their impact is apt to keep into the near future.

Florida
Miami Dade voters approved a ballot issue which allows every one of three pari-mutuels to truly have a casino facility of up to 2,000 slot machines. The Flagler Dog Track and Miami Jai-Alai are reportedly planning opening in late 2009 or early 2010, whilst the Calder installation in Miami Gardens has yet to announced its plans. There are many other proposals being considered that would further expand casino development through the state.

Illinois
The state finally got around 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 newest facility is unlikely to open until 2010. There has also been some discussion about allowing a growth in per location gaming positions and slots at racetracks, although neither initiative appears to have any traction as of this time.

Kansas
The state’s expanded lottery program which allows for the development of four casino gaming zones and slots at existing horse and dog tracks appears mired, as only 1 facility is presently under construction, while three other proposals were rescinded. The only bidder on the Cherokee County contract, claimed it might not contend with the newest Quapaw tribal casino in Oklahoma, which will be located 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 applying process for one other three zones until April, 2009.