2008 National Gaming Revenue Analysis

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A Period of AdjustmentOops! That giant hissing sound is the gaming balloon which was growing over the years, slowly losing air. But, it has not been a wave that lowered all boats nevertheless, as a few emerging and expanding gambling authorities demonstrated strong growth in 2008. It was the Racino industry that has tempered this fall, as they showed a gain of almost $1 billion in 2008, thereby bringing the Commercial industry market decrease to $1.8 billion, or 6.7 percent. Nevada was the biggest loser in 2008, dropping almost $1.3 billion, more than half of that stemmed from the Las Vegas Strip segment.Hunkering DownFor the most part, casino operators have been caught relatively flat-footed by the extent of the 2008 revenue downturn, as it was not until the third and fourth quarters when it actually nosedived. Riding the crest of year market expansion across the nation and the access to ample credit and equity funds, new building and expansion proliferated in recent decades. Today, confronted with the realities of falling, or at best stagnant demand, many of these jobs are now considered over-leveraged and/or over-sized. Because of this many gaming companies are attempting to renegotiate their debt made more difficult by reduced valuations – while also paring down operational costs. The latter has come to be an extremely problematic conundrum when coping with the competition, especially in those jurisdictions which are currently vying for market stocks with new emerging casino projects in neighboring regions. A subject we discuss more fully in the State by State analysis section of the novel.As a consequence of the conditions the gaming industry landscape is currently strewn with deaths that are impending. “How long will these economic conditions persist, and so are we at the base yet?” Are questions no one seems to be replying yet. What is clear however is that most gaming jurisdictions will have to learn how to manage a smaller pie.Note:This analysis includes only gaming earnings of accredited casinos and pari-mutuel sockets that offer casino games, rather than Indian gaming operations, card rooms, or little non-casino type slot places. The whole article, including sales tables can be obtained on our web page. Input/Output ModelA vital part which appears to have emerged out of the ashes of this current trend is that lots of casino jobs were simply too big to encourage themselves. The input, concerning investment dollars, was not proportional to the outcome , in terms of net gain after debt service, in comparison to previously achieved results. Bigger or more isn’t necessarily better. Seeing the rise in non-gaming earnings at the Las Vegas Strip resorts, gave impetus to the development of more comprehensive amenities in many different jurisdictions. The flaw in this strategy however is that the expenses related to widening market penetration and occasioned-use, are considerably higher than those incurred to entice the base marketplace.As daytripper markets become more aggressive, casino places will need to rely more and more on their in-house hotel patrons, and size their properties (and expectations) accordingly. While Steve Wynn began a major trend in producing up-market mega-destinations, there simply was not enough need on the Strip to justify the many other similar jobs that followed that targeted in the exact same niche.The trick is to hit a happy medium in project configurations; which of course demand less of a’seat-of-pants’ approach, and one that is studied. A shameless plug for growth advisors like ourselves.Other Gambling ActivitiesEven though there are no published detailed data of Indian gaming revenues, anecdotal evidence appears to indicate that this section was as hard hit as the Commercial sector. This market is apparently still reeling from the ripple-effect of a casino expansion at Rhode Island, and the introduction 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 been decreasing every quarter in 2008 compared to 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.A few SEC reporting Indian gambling properties report similar reductions. Seneca Gaming, which operates three Class III casinos in upstate New York, reports that while calendar year 2008 revealed an almost 2 percent growth rate in gambling revenues, there was an 8.7 percent decrease in the third quarter and an almost 10 percent decrease in the fourth quarter of 2008, in comparison with 2007.

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