The Most Important Gaming Stories of 2014 – in My Opinion

Every year, in every sport, business, industry and community, someone compiles a list of the most important events of the outgoing year. Gaming is no different; most of the media that follows gaming will publish its own list of the top events of the year. There will be different lists for lotteries, horse racing, sports betting, poker and casinos. My list is primarily a casino industry list. I follow horse racing, sports betting, poker and lotteries, but always with an eye toward how they affect the casino industry.

The Demise of Atlantic City: The biggest story of 2014 was Atlantic City. Beginning in January, nearly every month had a major Atlantic City story. All of those stories were bad, staggeringly bad. After eight years of declining revenue, the roof caved in on the city’s casino industry when two competitors purchased the Atlantic Club – once the famous Golden Nugget of Steve Wynn – and closed it. All told, four casinos closed during the year, thousands of people lost their jobs and the city is reeling from lost tax revenues. However, the year ended with a ray hope that 2015 might be a better year. The fifth casino scheduled to close, did not, at least not yet. Several of the closed casinos have sold and are going to be re-purposed. And, best of all, the remaining casinos are reporting improved revenues and profits.

With China’s Help, Macau Falls off a Cliff: Since 2006, Macau has been on a rampage, growing month after month, year after year, sometimes by as much as 30 or 40 percent over the same period in the previous year. New hotels, new casinos and many other grand plans followed each other so quickly that a casual observer could hardly keep up. In 2006, gaming revenue from Macau was about the same as those in Las Vegas; since then they have grown seven-fold. Las Vegas revenues are recovering and are now about the same as they were in 2006, before the recession. But in June, Macau hit a wall and revenues have declined every month since; they are predicted to drop by 30 percent in December. The reasons are complicated, but the decline has been driven by a change in attitude of the Chinese government in mainland China. China is tightening the noose on the high-rollers and their junket representative pals. The Chinese president visited the city in December and made it clear that China was going to crack down on all illegal sources of money and restrict gamblers’ access to credit. The year ended without a ray of hope showing through the clouds in Macau.

Massachusetts and New York March into the Promised Land: Both Massachusetts and New York are in the process of creating a casino industry from scratch. Massachusetts is three years along the road. The Massachusetts Gaming Commission spent most of 2014 debating the merits of various casino operators and their choice of locations. It was a long and painful process, but Penn National, MGM and Wynn Resorts finally received approval to build casinos. Penn is converting an existing site and hopes to be the first to open in mid-2015. It will take two or three years for the other two to complete their projects, Wynn in Boston and MGM in Springfield.

New York is behind Massachusetts in its efforts, but its process is apt to be more efficient and expedient. Governor Cuomo and the legislature have spent two years clearing the field of obstacles. The governor shmoozed the citizens and the Indian tribes. The legislature authorized up to seven casinos in the state and in November 2013, the citizens of New York approved the idea. Over twenty applicants submitted applications. In addition to developing a conceptual plan, each applicant had to find a community willing to play host to its casino and secure some commitment for financing. Over the course of 2014 some fell by the wayside, but 16 stayed the course. In December, three sites and three prospective operators were chosen by a special committee. Those three would-be casino operators now move to the next phase; each has to submit a full design, find financing and successfully complete the vetting process of the state gaming commission before any construction can begin. Governor Cuomo was not pleased that only three sites were chosen, he had hoped for four. The governor has asked the committee to reconsider and authorize one more site. It is unlikely that any casino will open in New York before 2016.

The Trials and Tribulations of Caesars: I could easily have put Caesars as the most important story of 2014. In one way or another, Caesars has been in the news all of the time in 2014. Caesars is a nearly perfect candidate to be the poster child for the pre-recession excesses in a post-recession world. At the very peak of the enthusiasm and wild buying on borrowed money that preceded the recession, the publicly traded Caesars, nee Harrah’s, became a privately held firm in a highly leveraged buyout. Before the ink was even, the economy changed and revenues across the corporation’s casinos started to drop. The buyout had been predicated on revenues growing or at least continuing at 2006 levels. They did not and the corporation’s gaming revenues continued to decline each year. But the debt did not decline. In fact, what was a $15.5 billion deal in 2008, has become approximately $25 billion in debt in 2014. The company’s revenues are inadequate to make the interest payments on the money it borrowed for the buyout. It has spent the last few years trying to renegotiate the amount it owed and to find ways to reduce its other expenses without much success. In 2014, Caesars closed casinos and spun off some of its assets. For the last three months, the corporation has been in constant negotiations with the debt holders. Caesars is expected to declare bankruptcy in January of 2015, exactly seven years since it went private. This year may have been the worst. With a greatly reduced debt and fewer under performing assets, the company may be able to focus on its better properties and eventually return to profitability.

The Big Get Bigger as the Slot Manufacturers Merge: It was a year of consolidation for the slot manufacturers. IGT sold itself in a $6.4 billion deal with the lottery giant GTECH. This merger could bring some needed changes to the industry. Or as Patti Hart put it: “This outstanding combination of two global leaders redefines the future of the gaming industry. Together we are uniquely positioned to provide the industry’s broadest and most innovative portfolio of best-in-class products, solutions and services.” Soon after the IGT-GTECH announcement, Scientific Games announced the purchase of Bally for $5 billion. The consolidation of the slot manufacturers has been under way for the last couple of years, but with these mergers the process should be nearly complete. There are few opportunities for growth for slot companies and in a no-growth climate, consolidation is one way to increase profits and please stockholders. The resulting companies should be stronger financially, have broader markets and even produce better products at more competitive prices. By G2E 2015, the industry may already be making some visible changes.

The Recession Is Not Over For Everyone: The continuing impact of the recession on casinos is rarely a story; instead it is the subtext of many other stories. Nationally, casino revenues are down and individual casinos are struggling to survive. The casino industry is an anomaly because it is still suffering from recession. This year has been a year of recovery for the American economy. The stock market is at an all time high. Unemployment rates have returned to pre-recession levels. Housing, construction, manufacturing and auto sales are all up; the overall economy grew by three percent in the third quarter. Consumers are confident and looking forward to an even better year in 2015. And in the midst of all of that good news, the monthly casino revenue reports are dismal with a few exceptions. Increased competition and the economy are the two major factors hurting casinos,. The impact of competition is easy to see and analyze. But, the continuing impact of the recession is not easy to explain. Something happened with the way people spend their discretionary dollars during the dark days of the Great Recession. No one I have talked to understands exactly why, but every casino operator knows his customers spend less money than they did before the recession. Will 2015 be different? I don’t know. But, I know I don’t see any indications that it will.

There Was One Bright Star in 2014: In all of the dismal gaming news in 2014, Las Vegas stands apart. This year, the gaming revenues numbers showed strong signs of recovery and the non-gaming revenues were very, very healthy. Over forty million people visited in 2014 and more are expected next year. Growth in revenue in Las Vegas has always been driven by new projects and events and in 2014, several new attractions opened on the Strip. The tallest Ferris wheel in the world, the High Roller and a very trendy casino, the SLS opened. Conventions and special events drew thousands and thousands of people. Some of the events, like the Electric Daisy Carnival, are the largest of the kind in country; EDC had an attendance of 400,000 in 2014. And to top the year off, Las Vegas is expecting 340, 000 people to usher in 2015. The numbers are staggering and still growing. For most of its history, Las Vegas has been a very unique place. In the middle of a desert, hundreds of miles from any major population center it has been the spiritual headquarters of casino gambling. There was a time in the worst of the recession that the future looked dim for Las Vegas. However, 2014 has shown that the city and the famous Strip are back.


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