A Period of Adjustment
Oops! That giant hissing sound could be the gaming balloon that were growing over the years, 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 has tempered this drop, while 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 largest loser in 2008, dropping almost $1.3 billion, more than half of which stemmed from the Las Vegas Strip segment.
For probably the most part, casino operators were caught relatively flat-footed by the extent of the 2008 revenue downturn, since it wasn’t until the third and fourth quarters when it certainly nosedived. Riding the crest of year over year market growth in the united states and the accessibility to ample credit and equity funds, new construction and expansion proliferated in recent years. Today, up against the realities of declining, or at best stagnant demand, a number of these 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 become a very problematic conundrum when dealing with your competition, 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 these conditions the gaming industry landscape has become 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.
“Just how long will these economic conditions persist, and are we at the end yet?” are questions nobody appears to be answering yet. What is clear however is that most gaming jurisdictions must learn to handle a smaller pie.
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 whole article, including revenue tables can be obtained on our web page.토토사이트
A vital aspect that seemingly have arisen from the ashes with this current trend is that lots of casino projects were just too large to aid themselves. The input, in terms of investment dollars, wasn’t proportional to the output, in terms of net profit after debt service, in comparison 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 many other jurisdictions. The flaw in this strategy however is that the costs connected with widening market penetration and occasioned-use, are significantly more than those incurred to attract the bottom market.
As daytripper markets be much more competitive, casino venues must rely more and more on their in-house hotel patrons, and size their properties (and expectations) accordingly. While Steve Wynn started an important trend in creating up-market mega-destinations, there simply wasn’t enough demand on the Strip to warrant the countless other similar projects that followed that directed at exactly the same niche.
The trick would be to strike a pleased medium in project configurations; which of course require less of a ‘seat-of-pants’ approach, and one that is more studied. A shameless plug for development consultants like ourselves.
Other Gaming Activities
Although you will find 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. Both Connecticut Indian gaming installations report slot revenue of $1.6 billion in 2008, representing a shed around 7 percent, or almost $114 million, 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 predicated on a gambling revenue formula from the state’s 23 Indian gaming casinos, have been declining every quarter in 2008 set alongside the previous year; decreasing .8 percent in the very first quarter, 7.5 percent in the second quarter, 9.5 percent in the third 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 clearly was an 8.7 percent decline in the third 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 across 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, most notably California, which showed an 8 percent drop. Inasmuch as many 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.
In accordance with 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 which have spawned much of the growth in annual casino/racino revenues over the years, and their impact is apt to continue in to the near future.
Miami Dade voters approved a ballot issue which allows each of three pari-mutuels to 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, while the Calder installation in Miami Gardens has yet to announced its plans. You’ll find so many other proposals being considered that would further expand casino development through the entire state.
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 located in Des Plaines just east of O’Hare. The brand new facility is improbable to open until 2010. There has been some discussion about allowing a rise in per location gaming positions and slots at racetracks, although neither initiative appears to have any traction as of this time.
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 one facility is presently under construction, while three other proposals were rescinded. The sole bidder on the Cherokee County contract, claimed it may not contend with the brand new Quapaw tribal casino in Oklahoma, that will be located so near 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 as a result of open in 2011 with 875 slots and 20 table games. Their state has extended the application form process for another three zones until April, 2009.