Inside Asian Gaming

INSIDE ASIAN GAMING | February 2009 42 Briefs International Briefs Atlantic City Sheds Jobs Last month, 566 casino employees lost their jobs in Atlantic City, reducing the city’s total casino workforce to 38,019 employees, the lowest figure since early 1988. Employment peaked at 51,560 jobs in July 1997. All 11 casinos trimmed their payrolls in January, the sixth straight month that employment declined, according to the New Jersey Casino Control Commission. Resorts Atlantic City laid off 122 staff in January, leading the industry in job cuts. Resorts, the city’s oldest casino, is facing possible foreclosure by its main lender after falling behind on its mortgage payments the past three months. Casinos have eliminated 2,700 jobs through layoffs, attrition and seasonal adjustments in the past 12 months. That is a 6.6% decline in employment, about equal to the 7.6% drop in casino revenue in 2008. As the recessiondeepens, the jobcutshave spread toother sectors of the local economy, including construction. Revel Entertainment Group, the developer of a US$2 billion casino resort scheduled to open in 2010, announced 400 layoffs at the end of January. Revel is slowing construction while it searches for long-term financing to complete the project. Bally Scores Record Quarter Las Vegas-based slot machine manufacturer Bally Technologies said it had a record second quarter despite the economic slowdown that has broadly affected the gaming industry. The three months ending December 31 constituted the most profitable quarter in the company’s history. Bally said its net income in the quarter was up 37% to US$33.6 million, compared with $24.4 million a year earlier. Revenues rose 1.2% to $233.3 million from $230.6 million. Company executives said the average selling price for a slot machine was more than US$14,500, which helped drive the gross margins up 49%. However, the company said it shipped 6,099 slot machines during the quarter, a decline of 14.6% compared with 7,144 slot machines a year ago. Chief Operating Officer Gavin Isaacs said Bally sold slot machines to a wide selection of casinos worldwide. Revenues from sales declined 7% to US$101 million, but gross margin grew because the machines cost more. Revenues from sales of management systems for slot machines and casinos fell 1% to $56 million. However, the gross margin from those sales increased to 77%, primarily due to an increased proportion of software, services, and maintenance revenue during the quarter. Double Whammy for US Casinos The Las Vegas Sun highlighted the bleak outlook for US casinos, with falling revenues coupled with rising debt. Fitch Ratings, a global credit ratings agency, said US and Nevada commercial and racetrack casino revenues fell 3.5% in 2008 to an estimated US$36.2 billion. Fitch said the rating would have been much worse if not for emerging markets like Pennsylvania and New York. The declines since September were notably worse than the full year, Fitch said. In Fitch’s 2009 gaming outlook report released in December, the agency said the US gaming industry will remain under significant pressure in 2009 and will likely recover in 2010. Fitch expects overall consumer spending to drop by 1.6% in 2009 and remain soft until 2010. Seven gaming companies defaulted on more than US$13 billion of high yield principal in 2008 due to heavy debt loads, a difficult credit market and strained liquidity, Fitch said. Station Casinos may soon join that group as it is on the cusp of defaulting on an additional $2.3 billion after its failed debt exchange offer in December. Jefferies & Company, an investment bank and securities firm, said Las Vegas casino operators like Hooters, Fontainebleau, Black Gaming, Cosmopolitan and Herbst (owners of the Terribles chain) are at a higher risk for defaulting on loans. Harrah’s and Station Casinos are at an even higher risk, Jefferies & Company says. Leverage in every Nevada gaming market is the highest it has been in 17 years, according to Jefferies & Company. In the Nevada fiscal year, average Strip casino net debt jumped from US$391 million in 2007 to $773.4 million in 2008. Average Las Vegas Downtown casino debt rose to $92.9 million from $6.7 million in 2007. Jefferies & Company said debt significantly rose related to the building of CityCenter, Encore, Cosmopolitan, Fontainebleau and privatization of Harrah’s. Casino construction has slowed or halted from one end of the Las Vegas Strip to the other, and more than 40,000 new rooms in Las Vegas planned by some of the industry’s biggest players are on hold. Visitor volume in Las Vegas declined 3.8% for the first 11 months of 2008 compared with 2007—meaning 1 million fewer people showed up to gamble, shop and dine out—and revenue dropped 9.3%, according to the Las Vegas Convention and Visitors Authority. Resorts Atlantic City