*Click on each of the links below to read essays from various sectors of the industry.
Though 2011 certainly had its ups and downs, for the most part, the year is ending on a high, with many in the industry optimistic for a turnaround soon. Last year, a key phrase in our forecast essays was “cautious optimism,” but this year that word “cautious” has been removed, with excitement over recovering numbers in most economic areas and gaming trends, hopeful news coming out of markets like Asia and Indian country, not to mention technological advances including standards, mobile, even 3-D, and that topic that just won’t leave the room, Internet gaming.
Don’t get us wrong—we’re not out of the woods just yet. We’ve still got our fair share of issues that need to be addressed and continued improvement on many fronts, but in the past year, we have made significant strides to getting closer to whatever the end goal is—pre-recession revenues, improved tourism to gambling markets, unwavering innovation, vendor and service partnerships or just better business conditions and habits overall. There is much to look forward to in 2012 (assuming the Mayans weren’t right, anyway!).
A good indicator, the major gaming hubs are reporting positive numbers. In Las Vegas, YTD gaming revenue on the Strip was up 4.7 percent from 2010, and visitor volume was up 3.9 percent, according to the Las Vegas Convention and Visitors Authority. Even Las Vegas’ McCarran International Airport’s numbers are showing that more people are coming to Sin City.
Bill Lerner, principal at Union Gaming Group, commented: “The recent strength in YTD visitation, air lift and taxi counts at McCarran, when coupled with no supply growth in 2012, supports our notion that the Las Vegas Strip is on pace to experience unprecedented occupancy and higher room rates in 2013 and beyond, with 2012 representing a favorable bridge to that timeframe.”
And in December, Fantini’s Gaming Report reported a 74.26 percent leap in baccarat win, which helped push the Las Vegas Strip and Nevada gaming win to its best year-over-year comparison since June. Blackjack revenue dropped, but slot win increased 5.44 percent. Even the locals markets beat last year’s numbers.
On the East Coast, Atlantic City may continue to struggle, likely due to the increasing competition from Pennsylvania and New York. In the Empire State, the recently opened Resorts World project is gaining much attention and is already planning an expansion. It took in almost as much money in November as Empire City in Yonkers, and during the week of Nov. 26, brought in $9.9 million in revenue. One beacon of light, however, for AC is Revel’s opening in 2012, which is gaining lots of buzz, not to mention a new “boutique” casino concept in New Jersey. One strong supporter of this market is Linda M. Kassekert, chairwoman of the New Jersey Casino Control Commission, who said, “Thanks to a variety of initiatives championed by Gov. Chris Christie, Atlantic City is poised for a rebound.” New Jersey Mayor Lorenzo Langford also writes that, “given what’s on the horizon, I believe 2012 will be a very good year for Atlantic City.”
Regional markets are seeing successes, too. However minor, any plus sign in front of a number bodes well. Regulatory Management Counselors’ Robert Russell writes that Michigan’s gaming landscape saw several additions and changes in the past year, even with the automotive sector seeing a slow rebound, while “Although the state’s overall economy continues to struggle, the automotive sector has begun a slow rebound process. Should this continue to improve in 2012, then the broader economy should also begin to see improvements that will benefit the state’s commercial and Native American casinos.”
William H. Ryan Jr., chairman of the Pennsylvania Gaming Control Board, says the Pennsylvania gaming market has seen positive growth. “Notwithstanding our country’s severe economic turmoil, the Pennsylvania gaming market has seen positive growth. With 10 casinos offering both slot machine and table games, Pennsylvania’s gaming industry now ranks first in the United States in the amount of tax revenue generated from commercial casino gaming and second in overall revenue generated.”
Wes Ehrecke, president and CEO at the Iowa Gaming Association, notes that additional revenue from a new location was enough to help provide a slightly better overall revenue result than the year prior. “There is optimism that the next year will result in a slight uptick in admissions and revenue compared to previous numbers, as Iowa has not experienced as severe a downturn as other states,” he says. “A positive sign is there are ongoing initiatives by properties to upgrade their facilities.”
The Louisiana Casino Association’s Executive Director Wade Duty shares that: “At the time of this writing, statewide revenue is up 2.5 percent from 2011 year to date comparisons with 2010, though the continued impact of Oklahoma Native American on northwest Louisiana gaming markets negating any greater positive gains.” He, however, anticipates the challenge of another attempt to repeal the exemption that allows smoking in bars in casinos in the state. “With 18 years of operation within the state, have we now reached cultural and political acceptance as a vital part of Louisiana economic and employment engine, or do we remain a political football for some and a maintenance-free cash cow for others?” he ponders.
One state that seems to be in a continual struggle is Colorado. Due to state budget shortfalls—which is one issue many contributors to this story cite as an ongoing concern—the Centennial State’s tourism budget has been cut about $3 million. Lois Rice, executive director of the Colorado Gaming Association, says that for FY ending in June 2011, Colorado casino adjusted gross proceeds were $754,115,371. This reflects a decrease of 5.4 percent in AGP over FY 2010. “While the gaming industry experiences a very modest recovery from the recession, it remains threatened by the Colorado legislature’s continued attempts to expand gaming to the Front Range of Colorado, either by authorizing video lottery terminals, keno machines or instant racing machines at racetracks and other locations,” she comments. “In addition, the U.S. Department of the Interior has relaxed its rules regarding off-reservation gaming, which may generate interest among tribes without recognized reservations in Colorado to ‘reservation shop’ for casino ventures in Colorado.”
Indian country looks to be poised for a strong new year. The Arizona Indian Gaming Association’s Acting Director Valerie Spicer said: “Tribes need to look at 2012 as the year to secure their operations in their markets, strengthen their resolve and commitment to diversify … If tribes make one resolution for the new year, it should be to secure their market share.”
NIGA Chairman Ernie Stevens Jr. commented that, “In Oklahoma and a few other markets, Indian gaming continues to outperform prior years, yet the housing market and credit crunch facing Americans remains a key factor influencing consumer spending.”
And Sheila Morago, executive director of the Oklahoma Indian Gaming Association, writes her forecast with conviction. “It’s safe to say that Oklahoma expects 2012 to be another good year,” she says. “I’m going out on a limb to make my next forecast. I’m betting that in 2012 we will congratulate the National Indian Gaming Commission Tribal Advisory Committee on the excellent job it did providing advice on the Class II Technical Standards and Class II and III MICs. … Gaming is not just the elephant in the room; it’s an entire herd. We’re doing ourselves a disservice if we don’t put this to bed once and for all.”
Despite some modestly good numbers, Andrew Zarnett, managing director at Deutsche Bank, reminds that it’s not all roses and sunshine as he comments on the states’ budget shortfalls. “In light of the recent state budget update by the Center on Budget and Policy Priorities, most states have experienced large declines in revenues during the economic downturn, translating to shortfalls in their budgets,” he says. Rising unemployment is no help, and nearly 42 states hold a somber economic outlook for fiscal 2012. “With federal aid provided by the American Recovery and Reinvestment Act mostly absorbed in 2009 and 2010, states are now up against the wall with limited alternatives to plug the budget deficit, which is now currently projected to exceed $130 billion in 2011 and $103 billion in 2012.”
On a global scale, we’ve all seen the news stories that can’t stop reporting on the boom in Asia. The numbers are staggering, and PricewaterhouseCoopers’ report calls Macau the “jewel in the gaming crown.” By 2015, they predict that the Asia-Pacific market will overtake the U.S. to become the largest regional market for casino gaming in the world.
Eugene Christiansen of Christiansen Capital Advisors says that the number of casino-free developed countries is shrinking fast. “There’s Japan and, well, there’s Japan.” But even just shortly after he wrote this, we began seeing reports of Tokyo’s governor working to allow casinos to operate in the country. “The developing world is creating new wealth in countries that are grossly undersupplied with casinos. India is one case in point; China is another. But investment opportunities in markets that are grossly undersupplied are harder and harder to find.”
Frank Fantini reminds that the law of big numbers says the rate of growth must slow. International casino operators will continue to ramp up, but a breakthrough in a Japan or Korea or similar nation legalizing mega resorts may be several years away. And even if some country takes the plunge, it’s another several years from approval to the day doors open.”
Back to North America, Bill Rutsey, president and CEO of the Canadian Gaming Association, writes that the Canadian gaming industry overall, and especially the casino sector, weathered the economic recession better than the U.S. casino industry, experiencing just a single-year decline. However, the Canadian casino sector is still 1.7 percent off its historic 2009 high.
All segments of the industry have their share of problems. For the architects and construction companies, Jeff Ehret, president of PENTA Building Group, offered a perspective. “As a Las Vegas-based construction manager and general contractor, PENTA had one of the front seats on the rocket ship that was the Las Vegas construction scene four years ago. At that time, business development for us more or less just consisted of answering the phone. We rode that rocket ship until it crashed, and it crashed hard.”
Many in this sector answered the rough times for their projects with green initiatives to reduce long-term operational costs. Barry Thalden, Thalden Boyd Emery partner, offers another optimistic view. “Although financing remains difficult, the time to build is now!” he says. “There will never be a better time to get competitive construction costs, and be ready to open as the economic expansion blooms.” Going on to reference more economic factors, of the past year, he says, “In my opinion the only ‘double dip’ we will see will be at Baskin-Robbins.”
The gaming industry did take a couple blows in the last year, including the news of Barney Frank’s decision to not run for re-election, as he has been a major supporter of initiatives that support gaming.
Poker Players Alliance Executive Director John Pappas was reported issuing the following statement about Frank: “Congressman Barney Frank has been a champion for Americans’ civil liberties. His longtime support for the freedom of adults to play online poker in a safe and regulated environment has been invaluable to our organization and to the interests of the entire poker community. The introduction and passage of H.R. 2267 through the House Financial Services Committee last year helped build the foundation for the online poker legislative proposals under consideration today. …Thanks to Congressman Frank’s leadership, our issue has become the topic of serious discussion throughout Capitol Hill. Even with his pending retirement, we are better positioned than ever to succeed legislatively. We have more Congressional champions and momentum now, more than ever.”
Most experts are saying that when—not if—online gaming is legalized in the U.S., it will first be done for poker. And while no one can know for sure what or when things will happen, many weighed in with their predictions.
Brian Sandoval, governor of Nevada, refers to it as the dawn of a fourth era in the history of gaming. “I have long believed that Internet poker will, among the many technological advances sure to arrive in the coming years, be the most profound,” he says. “Indeed, the drive to meet the technological demands of Internet poker could result in innovation reaching far beyond the needs of operators, potentially meeting the demands of other industries and creating more economic growth. The situation, to say the least, is dynamic.”
Robert W. Stocker II, gaming practice leader at Dickinson Wright PLLC, said that when it comes to the expansion of the Internet gaming market, “that is where the real action is.” He continues: “The Internet gaming questions come down to what will be legalized, how it will be legalized, and when it will be legalized. There are two approaches to the legalization of Internet gaming in the United States: intrastate Internet gaming and interstate Internet gaming. Which will come first?”
Robin Le Prevost, director of e-commerce development for the government of Alderney, had an interesting perspective on the U.S.’s efforts of i-gaming. “2012, being a presidential election year, would seem to relegate the issue from the main agenda, and I believe we will only see more jockeying for position and preparatory work during the coming year. Our friends in Nevada are more advanced than anyone in the work that they are doing to prepare the way, even inviting applications for licenses, but it will all have to wait until the federal government can settle down to normal business in 2013.”
Eclipse Compliance Testing’s Nick Farley slightly differs, noting that he believes D.C. will likely set the benchmark for Internet gaming regulation in the United States. “I believe that Nevada will follow closely behind D.C. in its implementation of Internet gaming,” he says.
On the global i-gaming front, other international markets are lured by its possibilities, and are being confronted with the same issues the U.S. is concerned about—licensing, regulation and law. Some of the countries exploring it are Spain, Denmark, Greece, Bulgaria, Germany and Hungary.
Another buzzword in the following forecasts is technology. There was a great amount of innovation evident at the recent G2E in Las Vegas, and Kate Chambers from Clarion Gaming says that at the upcoming ICE Totally Gaming, the big issues will relate to technological advances and changing regulations.
Curtis Hallowell, SVP product management at Cummins-Allison, noted the gradual gains during the last half of 2011, which are signs of strength in the market. “Though the global gaming industry will remain in a state of flux in 2012, we feel very optimistic about where the market is headed,” he says. “We believe the most successful properties in the coming year will be those that challenge themselves to gain a competitive edge by embracing next-generation technology.”
Other trends include cloud computing, mobile apps, self-service solutions, and some essays say that where we really need to make a dent is by creating products and services that enhance the patron’s experience—whether gaming or not.
“This is an industry that has used technology as a vehicle for progress,” Tom Nugent, gaming & retail president at MEI, says. “And, in doing so, has created demand from sophisticated audience that understands how to best serve its customer base. Are current levels the new norm? Maybe it is. But my faith in our industry’s ability to move forward leaves me confident that there is plenty of growth for innovators that continue to add value.”
Another topic is vendor collaboration and the continued conversation surrounding SBG.
Tammy Farley, principal at The Rainmaker Group, comments: “Slow, I think, does characterize this year’s rebound. Still, there can be little doubt that conditions are improving—we are seeing a more active pipeline than ever before…. Additionally, there is a need to have tight integration of a variety of disparate systems, often provided by multiple vendors. Rainmaker’s customers are continuing to work collaboratively with us and their other critical system vendors to ensure that there is seamless integration where it is required.”
Allen Godfrey, executive director at the Mississippi Gaming Commission, says SBG’s cost and the lack of clear cost/benefit data make operators reluctant to switch from the tried and true combination of stand-alone slot machines coupled with traditional slot accounting systems. “We anticipate migration to these server-supported and/or server-based systems to be gradual,” he says.
Pechanga’s Buddy Frank offers an operator’s perspective, saying: “Kudos to KONAMI for supporting both the IGT/WMS service window technology and the competing Bally/Aristocrat methodology. Next year will be nearly perfect if there is a truce declared and more major vendors support the operators rather than proprietary protocols. That will benefit us all in the end. I’m an optimist … it could happen!”
Bally’s CEO Richard Haddrill weighs in and states, “Along with a focus on mobile and online technologies, in calendar 2012 we believe that server-based gaming will deployed at a faster pace than ever.”
Haddrill also explains that a recent survey Bally did of nearly 1,800 casino gamblers shows that players are becoming more and more tech savvy and embracing mobile, online and social media at a faster pace than non-casino gamblers. This is especially exciting in an industry where adoption of anything new can be slow.
In reflection of the past year, Frank Neborsky, VP of slot operations at Mohegan Sun, says: “There is no doubt that we learned a lot about ourselves in 2011. We evolved, we changed. We learned how to be more efficient, to better yield manage our property resources and to capitalize on every business opportunity. We optimize our gaming and non-gaming revenues like never before and better manage our staff to adjust for changes in business volume and economic shifts. Most of all, we learned how to do more with less.”
Though Neborsky’s words come from an operational perspective, it certainly rings true for any segment of the industry. We all learned from the past year and bring with us a new attitude, resourcefulness and goals for 2012—call us optimistic, but we think 2012 is going to be a great year for gaming.
Click on each of the links below to read essays from various sectors of the industry.
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