A Period of Adjustment

Oops! That giant hissing sound is the gaming balloon that were 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 a 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 greatest loser in 2008, dropping almost $1.3 billion, more than half which stemmed from the Las Vegas Strip segment.

Hunkering Down

For the most part, casino operators were caught relatively flat-footed by the extent of the 2008 revenue downturn, because it was not before the third and fourth quarters when it really nosedived. Riding the crest of year over year market growth across the country and the option of ample credit and equity funds, new construction and expansion proliferated in recent years. Today, confronted with the realities of declining, or at best stagnant demand, several projects are now considered over-leveraged and/or over-sized. As a result many gaming companies are trying to renegotiate their debt – made harder by lower valuations – while also paring down operational costs. The latter has changed into a very problematic conundrum when dealing with your competitors, especially in those jurisdictions which are 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 with this publication.

As a result of those conditions the gaming industry landscape is currently strewn with impending fatalities. One of the 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 in the bottom yet?” are questions no body seems to be answering yet. What’s clear however is that most gaming jurisdictions will have to discover ways to deal with an inferior pie.

Note:
This analysis includes only gaming revenues of licensed casinos and pari-mutuel outlets that offer 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 seemingly have arisen from the ashes with this current trend is that numerous casino projects were just too big to aid themselves. The input, when it comes to investment dollars, was not proportional to the output, when it comes to net profit after debt service, in comparison to previously achieved results. More and/or bigger is not at all times 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 great many other jurisdictions. The flaw in this strategy however is that the expenses related to widening market penetration and occasioned-use, are significantly higher than those incurred to attract the bottom market.

As daytripper markets are 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 major 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 aimed at the exact same niche.

The trick is to strike a pleased medium in project configurations; which obviously 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 there are no published detailed data of American Indian gaming revenues, anecdotal evidence generally seems to suggest that this segment has been as hard hit whilst the Commercial sector. The 2 Connecticut Indian gaming installations report slot revenue of $1.6 billion in 2008, representing a decline of about 7 percent, or almost $114 million, a lot more than doubling the 3.5 percent drop from the season 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 based on a gaming revenue formula from the state’s 23 Indian gaming casinos, have already been declining every quarter in 2008 compared to the previous year; decreasing .8 percent in the first quarter, 7.5 percent in the second 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 an almost 2 percent growth rate in gaming revenues, there clearly was an 8.7 percent decline in the next quarter and an almost 10 percent decline in the fourth quarter of 2008, compared with 2007. Gaming revenue trends at nearby Niagara Falls, Ontario were down 1.5% in 2008 compared with 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 a total of $60.6 billion in sales in fiscal 2008, up about 3 percent from the previous year; yet some jurisdictions reported decreases, especially California, which showed an 8 percent drop. Inasmuch as some of these states are on various fiscal year ends, it appears to be that the information does not reflect the impact of third and/or fourth quarter results.

Based on data provided 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 which have spawned a lot of the growth in annual casino/racino revenues over time, and their impact is apt to continue into the near future.

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

Illinois
Their 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 situated in Des Plaines just east of O’Hare. The new facility is unlikely to open until 2010. There has already been some discussion about allowing a growth in per location gaming positions and slots at racetracks, although neither initiative seemingly have any traction only at that time.

Kansas
The state’s expanded lottery program that allows for the development of four casino gaming zones and slots at existing horse and dog tracks appears mired, as just one facility is presently under construction, while three other proposals were rescinded. The only bidder on the Cherokee County contract, claimed it might not compete with the brand new 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, and also a second phase due to open in 2011 with 875 slots and 20 table games. Their state has extended the applying process for the other three zones until April, 2009.