a period of acclimatisation
Oops! That huge hissing sound is the sound of a game balloon that has been slowly deflating over the years as it has grown in size. But, it has not been a tide that lowers all ships though, since several rising and expanding gambling jurisdictions reported considerable growth in 2008.
Over the course of the year, gaming revenues in the commercial and racetrack casino sectors (excluding Indian gaming) decreased by 3.5 percent, generating a total of $36.2 billion, a decrease of almost $800 million from 2007. It was the Racino sector that helped to mitigate this fall, as they posted a gain of over $1 billion in 2008, lowering the total market decline in the Commercial sector to $1.8 billion, or 6.7%. Nevada was the state that suffered the largest losses in 2008, losing about $1.3 billion, with more than half of that loss attributed to the Las Vegas Strip sector.
Taking a Deep Breath
Due to the fact that it was not until the third and fourth quarters that revenue began to fall precipitously in 2008, casino owners were, for the most part, taken completely by surprise by the magnitude of the downturn. New building and expansion have exploded in recent years, riding the wave of year-over-year market growth across the country and the availability of plentiful credit and equity financing. Many of these projects are now considered to be over-leveraged and/or over-sized as a result of the reality of diminishing, or at best stagnating, demand in the current market. A number of gambling companies are therefore attempting to renegotiate their debt, which has been made more difficult by reduced values, while simultaneously aiming to reduce their operational costs. When it comes to dealing with the competition, the latter has become a very difficult issue to solve, particularly in jurisdictions that are now competing for market share with new rising casino ventures in nearby locations. This is a topic that is covered in further depth in the State-by-State analysis portion of this publication. You can also visit our website
In the wake of these developments, the gaming industry’s landscape is now littered with imminent tragedies. Station Casinos, Empire Resorts, Harrah’s Entertainment, Greektown Holdings, Legends Gaming, Tropicana Entertainment, Herbst Gaming, and a slew of other famous companies are in financial problems, with the list becoming longer by the week.
“How long will these economic conditions remain, and are we at the bottom of the economic cycle yet?” are questions that no one appears to be able to provide an answer to at this time. What is obvious, however, is that the vast majority of gambling jurisdictions will have to adjust to a smaller pie in the future.
Please keep in mind that this research only includes gaming income from licenced casinos and pari-mutuel outlets that offer casino games, not revenues from Indian gaming businesses, card rooms, or tiny non-casino type slot locations. The complete article, including revenue tables, may be seen on our website.
Model of Input/Output
One important component that appears to have emerged from the ashes of this present trend is that many casino projects were just too enormous to be financially viable on their own. When compared to previously attained outcomes, the input in terms of investment dollars was not equal to the output in terms of net profit after debt service in terms of net profit. More and/or larger does not always equate to better. The increase in non-gaming revenue at the Las Vegas Strip resorts served as a catalyst for the construction of more complete amenities in a variety of jurisdictions across the world. The issue with this technique, on the other hand, is that the costs involved with expanding market penetration and occasioned-use are substantially more than the expenses connected with attracting the initial base market.
In order to compete in increasingly competitive daytripper markets, casino venues will be forced to rely ever more on their in-house hotel clients and size their properties (as well as their expectations) to match. The creation of up-market mega-destinations by Steve Wynn sparked a big trend, but there simply wasn’t enough demand on the Las Vegas Strip to support the dozens of other similar projects that followed that were aimed at the same market segment.
Achieving a happy medium in project configurations is the key; this, of course, requires a less “fly by the seat of your pants” attitude while also requiring a more studied approach. This is a blatant advertisement for development consultants such as ourselves.
In addition to gaming, there are other more activities.
Despite the fact that no precise data on American Indian gaming revenues has been provided, anecdotal information appears to indicate that this segment has been impacted just as severely as the commercial gaming sector has. The two Connecticut Indian gambling establishments reported slot revenue of $1.6 billion in 2008, reflecting a decrease of around 7 percent, or nearly $114 million, compared to the previous year, more than twice the 3.5 percent decrease recorded in 2007. A casino expansion in Rhode Island, as well as the opening of slot machines in New York and Pennsylvania, appear to be having a rippling effect on this market, which is still reeling from the consequences.
In 2008, the Arizona Department of Gambling reported that contributions from the state’s 23 Indian gaming casinos, calculated using a gaming income formula, have been reducing in every quarter compared to the previous year; decreasing.
the first quarter of 2008, 7.5 percent in the second quarter, 9.5 percent in the third quarter, and 16 percent in the fourth quarter of 2008.
Similar decreases have been reported by some Indian gaming properties that are registered with the SEC. Seneca Gaming, which operates three Class III casinos in upstate New York, reports that while gaming revenues increased by nearly 2 percent in the calendar year 2008, revenues fell by 8.7 percent in the third quarter and by almost 10 percent in the fourth quarter of 2008, when compared to the same period in 2007. The gaming income trends in Niagara Falls, Ontario, were down 1.5 percent in 2008 as compared to the previous year.
State lotteries throughout the country have had a mixed bag of results this year. According to the North American Association of State and Provincial Lotteries, U.S. lotteries generated a total of $60.6 billion in sales in fiscal 2008, an increase of approximately 3 percent over the previous year; however, some jurisdictions reported decreases, most notably California, which experienced an 8 percent decrease. Due to the fact that several of these states have different fiscal year ends, it appears that the data does not accurately reflect the impact of third and/or fourth quarter financial outcomes.
Data given by Equibase show that horse racing wagering revenue continues to decline, decreasing 7 percent in 2008 to $13.7 billion compared to $14.7 billion the previous year, according to Equibase.
New Expansions That Are Being Considered
As previously stated, new gaming jurisdictions have been responsible for much of the increase in annual casino/racino income over the years, and their influence is expected to continue in the foreseeable future.
Voters in the Florida county of Miami Dade adopted a ballot measure that permits each of three pari-mutuels to operate a casino facility with up to 2,000 slot machines. Neither the Flagler Dog Track nor the Miami Jai-Alai are expected to open until late 2009 or early 2010, respectively, while the Calder exhibit in Miami Gardens has yet to reveal its plans. The state is currently considering a slew of other measures that would further extend casino construction around the state.
