Inside Asian Gaming

June 2014 inside asian gaming 23 The state of Ohio had the largest increase in gaming revenue at 149.1%, generating $1.07 billion, as the market benefited from the opening of three new “slot-only” racinos, one new full-service casino in 2013, and having 12 full months of operation for the existing casinos. Maryland was second to Ohio, with a 98.2% increase in revenue, due in part to the state’s legalization of gaming tables. Market saturation was most notable in Pennsylvania, which, despite opening its 12th casino, experienced its first year-over-year decline of 1.5% in gaming revenue since its first casino opened in 2006. Delaware saw the largest decline in gaming revenue, decreasing 17% from 2012 to $432 million. Mr Holmes noted three significant trends that will be the focus of the gaming industry in 2014: continued market expansion, partnerships between states, and diversification beyond the gaming floor. In particular, he believes casinos and gaming markets should take notes from the Las Vegas Strip, which, although recording pre- recession gaming revenue levels, achieved a near-record visitation volume in 2013. He attributes this to the Strip’s ability to transform itself from a gambling town into an entertainment and vacation destination. “The target market for the traditional brick-and-mortar casino floors is aging, so now is a critical time for casino operators to identify ways to make their facilities more attractive as local entertainment destinations for the younger generations,” said Mr Holmes. Tribal gaming grew by 2.8% in 2012, which set a new industry record of $27.91 billion in gaming revenues (fiscal year 2013 data is not yet available). The Oklahoma market continues to lead the nation in growth, as the Oklahoma City and Tulsa regions produced the highest growth rates, at 6.6% and 5.8%, respectively. Meanwhile, the Washington, D.C., and Sacramento, Calif., regions experienced the lowest growth rates in 2012, but continue to generate the most revenue, $6.74 billion and $6.96 billion, respectively. The Choctaw Casino Resort in Durant, Oklahoma. The Oklahoma market continues to lead the nation in growth. Feature Is the Strip Back? Deutsche Bank has finally gotten out from under the Cosmopolitan, selling the luxury resort for US$1.73 billion in cash to real estate investor Blackstone Group in a deal that suggests the recovery of the Las Vegas Strip may be picking up steam. The price, representing almost 17 times the Cosmopolitan’s 2013 cash flow, bodes well for an ongoing reassessment of Strip valuations to pre-recession levels, especially since the 2,995-room resort has never turned a quarterly profit since opening at the end of 2010. JP Morgan analyst Joe Greff sees it as “a historically smart real estate buyer making a statement on the length of the Las Vegas Strip recovery, also a positive,” and UBS’ Srihari Rajagopalan suggested the sale could lead to other Strip casino transactions at higher price- to-cash flow multiples than previously speculated. “The purchase and multiple is a clear positive for Las Vegas Strip gaming operators,” Union Gaming Research said in a client note. “Our ongoing market observations and data continue to suggest an improvement in Las Vegas Strip fundamentals. We remain bullish in the short, intermediate and longer term.” The Cosmopolitan was one of the poster children for the excessive exuberance that saw billions of dollars of new resort supply added to the Strip in the teeth of the worst financial crisis since the Great Depression. Deutsche Bank ended up owning it when it foreclosed in 2008 on tapped-out developer Bruce Eichner, and it eventually cost the bank $4 billion to complete and open it. But the property was never Deutsche Bank’s $1.73 billion sale of the Cosmopolitan signals confidence in Las Vegas’ continued recovery The Cosmopolitan Las Vegas >>