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’08 National Commercial Casino & Racino Gaming Revenue Analysis

A moment of Adjustment

Oops! That giant hissing sound is the gaming balloon that had been growing over the years, slowly losing air. But, it will not be a hold that lowered all cruises however, as some emerging and 안전놀이터 broadening gaming jurisdictions showed strong growth in ’08.

Overall, the commercial and racetrack casino sectors (excluding Indian gaming), experienced a 3. 5 percent decline in gaming revenues for ’08, generating a total of $36. 2 billion, down some $800 million from 2007. It was the Racino sector that has tempered this drop, as they showed a gain of almost $1 billion in ’08, thereby bringing the Commercial sector market decline to $1. 8 billion, or 6. 7 percent. Nevada was the biggest loser in ’08, dropping almost $1. 3 billion, more than half that stemmed from the Las vegas Rob area.

Hunkering Down

For the most part, casino operators were caught relatively flat-footed by the extent of the ’08 revenue downturn, as it was not so that the third and fourth sectors when it really nosedived. Riding the crest of year over year market growth around the world and the option of ample credit and money funds, new construction and expansion proliferated in recent years. Today, confronted by the concrete realities of turning down, or at best at standstill demand, many of these projects are now considered over-leveraged and/or over-sized. As a result many gaming companies making the effort to renegotiate their debt : made more difficult by lower valuations : while also paring down operational costs. The latter has become a very problematic conundrum when dealing with the competition, especially in those jurisdictions that are now eager for market shares with new emerging casino projects in border areas. An interest we discuss more fully in the State by State analysis section of this publication.

As a result of these conditions the gaming industry landscape is now strewn with impending demise. Among 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 a week.

“How long will these economic conditions remain, and are we towards the end yet? inches are questions no one appears to be answering yet. What is clear however is that most gaming jurisdictions will have to learn how to deal with a smaller 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 machine locations. The whole article, including revenue tables is available on our web page.

Input/Output Model

A key aspect that have occured from the ashes of this current trend is that many casino projects were just too large to support themselves. The input, in terms of investment dollars, was not proportional to the output, in terms of 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 Rob resorts, gave impetus to the development of more comprehensive amenities in many other jurisdictions. The flaw in this strategy however is that the costs associated with widening market penetration and occasioned-use, are significantly higher than those received to attract the base market.

As daytripper markets become more competitive, casino venues will have to rely more and more on their in-house hotel people, and size their properties (and expectations) accordingly. While Ken Wynn started a major trend in creating up-market mega-destinations, there simply was not enough demand on the Rob to guarantee the many other similar projects that followed that aimed at the same niche.

The key is to strike a happy 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 there are no published detailed data of American Indian gaming revenues, anecdotal evidence appears to declare that this area has been as hard hit as the Commercial sector. The two Connecticut Indian gaming installation report slot machine revenue of $1. 6 billion in ’08, that represent a drop approximately 7 percent, or almost $114 million, more than doubling the 3. 5 percent drop from the year before. The foreign exchange market is apparently still reeling from the ripple-effect of a casino expansion in Rhode Island, and the opening of slot machine operations in New york and Pennsylvania.

The Arizona Department of Gaming reports that contributions based on a gaming revenue formula from the california’s 1 Indian gaming casinos, have been turning down every 1 / 4 in ’08 when compared to the previous year; decreasing. 8 percent in the first 1 / 4, 7. 5 percent in the second 1 / 4, 9. 5 percent in the third 1 / 4, and 16. 1 percent in the fourth 1 / 4.

Some SEC revealing Indian gaming properties report similar decreases. Seneca Gaming, which operates three Class III casinos in upstate New york, reports that while twelve months ’08 showed an almost 2 percent growth rate in gaming revenues, there was an 8. 7 percent decline in the third 1 / 4 and an almost ten percent decline in the fourth 1 / 4 of ’08, compared with 2007. Gaming revenue trends at nearby Niagara Falls, Ontario were down 1. 5% in ’08 compared with 2007.

It’s been a mixed-bag for state lotteries around the world. The North american Association of State & Provincial Lotteries reports that U. S. lotteries generated a total of $60. 6 billion in sales in money ’08, up about 3 percent from the previous year; yet some jurisdictions reported decreases, most notably California, which showed an 8 percent drop. Inasmuch as some of these states are on various money year ends, it would seem that the data does not reflect the impact of third and/or fourth 1 / 4 results.

According to data given by Equibase, horse racing pari-mutuel revenues continue their downward spiral, falling 7 percent to $13. 7 billion in ’08, versus $14. 7 billion in 2007.

Planned & Offered New Expansions

As previously noted, it has been new gaming jurisdictions that have spawned much of the growth in annual casino/racino revenues over the years, and their impact is apt to continue into the long run.

Florida
Miami Dade voters approved a ballot issue allowing everyone 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 supposedly planning opening in late 2009 or early 2010, while the Calder installation in Miami Gardens has yet to announced its plans. There are numerous other proposals being considered that would further expand casino development throughout the state.

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