By now, Steve Wynn's intended return to mid-Atlantic gaming is well-known.  Wynn Resorts will be stepping in as "managing partner" for the Mashantucket Pequots and other investors, with a controlling interest in the project: at least 51%.  This will need official approval from the Gaming Control Board (GCB), but its almost unfathomable that the GCB would stand in the way given the recent ultimatum the board previously gave the Foxwoods group for securing financing.

This is obviously great news for Pennsylvania and Philadelphia gaming: no one has a better reputation for developing quality casinos than Steve Wynn.  He set a new standard for Atlantic City in 1980 with the Golden Nugget, than for Vegas in 1989 with the Mirage, than again for Vegas in 1998 with Bellagio and more recently with Encore.   One could argue that PA won the Wynn lottery of sorts: for years he's been flirting with a mid-Atlantic return with some interest in Atlantic City's Bader Field and the withdrawn bid for Aqueduct VLTs (NYC) last Fall.

Of course, Wynn Resorts' apparently scaled-down plans for the casino cut against his own gaming history (no real luxe, no hotel), but once again Wynn is reading the market and adjusting accordingly.  Pennsylvania's relatively low table games tax (16% now, 14% later), probably helped raise his interest in PA gaming. That was a key move: New York and Maryland legislators should take note. 

Table games are increasingly inevitable for gaming in these two mid-Atlantic hold-outs.  As with VLTs, however: setting the tax rate could make a major difference in the success of adding table games at properties in these states.  The general good news for mid-Atlantic gaming is that Pennsylvania's high slots tax rate (55%) hasn't precluded interest from two top-tier, international gaming developers (Wynn Resorts & Venetian Sands) - though it might have stalled such interest from being realized for a few years.  States with gaming sites less potentially lucrative than the Philly waterfront or northeast PA (proximate to New York) may need to go farther to attract such high quality gaming firms.

There are, of course, still questions about market saturation with regards to regional gaming, especially in the  greater Philadelphia-Wilmington region.  Wynn's entry raises the ante for all the area operators: they will be under increasing competitive pressure to keep their customer base consequent to the opening of the Wynn-Foxwoods casino. But overall, I think Wynn Resorts' entry into the mid-Atlantic gaming market raises the entire regional industry by increasing its national (& international) profile.  A Wynn property will probably raise standards all around,

Cross-marketing with all regional properties will provide one key to competitive success, as Harrah's demonstrated years ago.  Without other regional properties, Wynn Resorts would be at a disadvantage in this area.  Then again, this is the fellow that basically designed modern player's clubs, based on the old green stamp model.  I doubt many people on earth no more about about building a loyal customer base in gaming than Steve Wynn. 

In the meantime, he sounds like he's having fun  - from philly.com: 

"All my good old friends, Italians and Jews and every conceivable type of ethnic group that love to shoot craps and gamble," Wynn said, describing his anticipated clientele. "And they're 10 minutes away by car or bus from my casino on the river."

I think that's Steve Wynn winking and nodding to gaming's past, but also underlining his grasp of the regional gaming market. 

The impact of football betting on Delaware gaming was positive, though practically negligible and negative for gaming revenue in its first full season.  However, the data also show that the football lottery also increased monthly revenue-per slot machine. By examining revenue from both Delaware Park and its closest gaming competitor (Harrah's Chester - a mere 20 minutes away), one can see a definite pattern that translated into an overall decline in gaming revenue consequent to adding the sports lottery, beginning in September 2009.

 Delaware Park's gaming revenue declined significantly between 2008 and 2009 for the months of September, October, November to December.  For example, in October 2009, Del. Park's VLTs netted $17.3 million, a decline of 6% from October 2008, when the racino's slots netted $18.4%.  By comparison, Harrah's Chester actually increased its gross terminal revenue between from October 2008 to October 2009 by 3.8%, pulling in $25.6 million in October 2009, an increase from $24.7 million in October 2008. Overall, Harrah's Chester increased its gaming revenue from Fall 2008 to Fall 2009, where Delaware Park declined.

Net Gaming Revenues, Delaware Park & Harrah's Chester-Fall2009:

However, while Delaware Park's sports betting scheme may not have increased overall gaming revenue, it apparently contributed to higher win-per-unit amounts.  Perhaps to make room for the sports lottery facilities and enlarged sports bar, Delaware Park actually lowered its total number of VLTs to 2,963 in Oct. 2009: down from 3,179 terminals in Oct. 2008.  Consequently, its win-per-terminal for Oct. 2009 was $5,822, a .8% increase over OCt. 2008.  

Other Fall months saw even bigger gains in win-per-unit, December 2009 win-per-unit was $5,484 up a full 13% over Dec. 2008's win-per-unit amount of $4,856.  Meanwhile, Harrah's Chester win-per-unit declined in each of the four fall months between 2008 and 2009.   For example, while each of Delaware Park's terminals was spinning with decidedly more cash in Dec. 2009 (13% up), Harrah's Chester's slot machines were somewhat quieter: dropping 6.8% in win-per-unit.  Yet, the increased revenue per unit didn't nearly make up for the overall loss in gaming revenue experienced by Delaware Park in the Fall months.

Monthly win-per-unit, Delaware Park and Harrah's Chester:

But what about the sports lottery?  It did bring in additional revenue for the racino, but not nearly enough to offset the decline on the VLT side.  Never once did Delaware Park even break $1 million in net proceeds from the lottery, and that was before the state took out its 60% share.   The single best month of the four-month span was December, when the total net proceeds of the sports lottery was $627,016.  In other words, the sports lottery revenue amounts were barely high enough to notice in the balance sheet.  The sports lottery revenues certainly didn't come close to make up for the decline in overall gaming revenue experienced by Delaware Park from Fall 2008 to Fall 2009. 

Did it even cover the increased capital and labor costs associated with starting and running the operation?  That's a good question that I can't answer at this point, though if my speculation is accurate that terminals were removed to clear the way for the new facilities, than the data suggest the investment didn't pay off -- by a significant margin.

What does this all mean?  Here are a few key points:

• despite the ballyhoo, Delaware's sports lottery didn't end up contributing much revenue to Delaware gaming or the state
• the three-game parlay bets-only system probably kept down the volume of new gamblers coming into the casino; the appeals court decision on this was a huge revenue blow to Delaware Park - and to Delaware-though it is currently under appeal (I don't expect a reversal)
• Delaware Park's overall revenue decline compared to Harrah's Chester despite the addition of sports betting suggests that the northern Delaware gaming market is ill-suited for additional facilities at this point, especially with a new Penn National Hollywood casino opening up in 2010 in Perryville, Maryland (@45 minutes from Wilmington)
• Delaware's current sports lottery may have added a few jobs and provided some extra buzz for DE gaming, but without changes in the system, not nearly enough to really change regional market dynamics

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Today's Baltimore Sun has a table games article, with a clear expression of support coming from new mayor Stephanie Rawlings-Blake.   As reported here, momentum for table games has been growing in Maryland with Delaware, Pennsylvania, and Charles Town Races & Slots (West Virginia) all set to add them in 2010.  Mayor Rawlings-Blake joins State Senate President V. Mike Miller a political leader who recognizes the reality of the mid-Atlantic gaming market and the need to maximize Maryland's competitive chances with its new gaming industry.

Meanwhile, according to the Sun piece, House Speaker Michael Busch is less willing to move forward on adding table games at this time:

But House Speaker Michael E. Busch recently said he does not want to readjust Maryland's gambling program before it is fully implemented.

"We have not gotten a nickel out of a slot machine yet," Busch said. "Before we talk about expanding, we ought to have the opportunity to complete the licensing process." Busch blocked gaming in the state for years before conceding in 2007 to put the question to the voters.

This is a familiar dynamic in Maryland politics with regards to gaming-- dating back 8 years or so, when the movement to bring VLT casinos to Maryland really picked up in 2002.  

The Sun piece also makes the point that "Industry analysts say table games have little direct impact on a casino's revenues, but such facilities tend to provide more and higher-paid jobs."  I totally agree on the jobs point, but the revenue point not so much.  I'm not sure where this information comes from, but table games currently make up @30-35% of revenue in Atlantic City, in addition to the slots revenue.  In January 2010, the Atlantic City "casino win" (net gaming revenue) was 33.5% of the total "casino win" -- approximately $98.7 million.  And that's up from 29.3% of the total "casino win" for table games for January 2005, suggesting that the player trend has been clearly towards table games in recent years.

Additional gaming revenues were big reasons for the recent moves to add table games across the mid-Atlantic: if they don't add revenue, then why go there?  Why would the gaming operators (obviously wanting to increase revenue) have been such big supporters without increased revenue as a primary motivation?  The need to remain competitive in the region is a factor, but there wouldn't have been such a big push if table games didn't add revenue at all - and added revenue supports the casinos and the state budgets that utilize gaming revenue via taxation.  They also bring in more affluent players who may spend more at restaurants, on shows, etc. 

Before adding table games, each Maryland casino would have to do a cost-benefit analysis that took into account any additional fees, tax rate, capital investment, labor costs, competition, etc. But at a minimum, I'm glad that there's positive movement, finally, in this direction in Maryland.

Despite reaching no agreement for a "stalking horse" bidder, Magna Entertainment will move ahead with its auction of Pimlico, Laurel and the Bowie Training Center on Feb. 23.  No "stalking horse" means no low bidder to establish a floor for bids, meaning the assets could end up going for a mere pittance: similar to how the Atlantic City Tropicana ended up being sold for $200 million to the Carl Icahn group in bankruptcy auction last year. 

Of course, there's been all sorts of speculation that the price will reflect the bidders' projection for possible gaming revenue in the future: a prospect that would appear remote right now.  Even if the anti-Arundel Mills people get their referendum legally established, even if they then win it, and even if they win some future lawsuit that blocks the project, the Arundel site license would be re-bid with no guarantee that Laurel would end up with gaming.  Pimlico could possibly end up with slots too, in a scenario that involves re-writing the statute that currently defines the Baltimore location: another remote prospect. 

I wasn't surprised to hear last week that the opponents of Cordish's Live! casino at Maryland's Arundel Mills Mall submitted the required number of signatures last week to move forward on a local referendum to overturn the zoning approval.  Funded by the Magna-affiliated Maryland Jockey Club, of course they would get signatures still hoping for a switch to Laurel racetracks. 

But, of course, there may be some problems with the signatures and Cordish intends to challenge the process legally.  Certainly makes sense given the substantial investment it has in the project already - and long-term interest in the property:

Joseph Weinberg, a managing partner at the Cordish Cos., said that there are "massive irregularities" in the petition drive. "Upon review, we are confident the referendum will be struck down as both legally invalid and lacking in the requisite valid signatures," Weinberg said.

So who knows at this point whether the referendum will actually come off, based on the coming legal investigation and what may happen consequently.  Of course, the anti-Cordish crowd already has a history that lacks some credibility: for months we heard that they were going to sue if zoning was approved based on some homeowners covenants of people living near the mall.   And they used that threat at every opportunity to try to block zoning, to try to block license approval and lost.  So far, at least, I know of no suit that has been filed along these lines, suggesting that it was basically a failed bluff the whole time.  Maybe some people thought they had a real case, only to find out that they didn't really have one.

So, what does the episode tell us, thus far in the process (a process that is far from complete)?  Here are two key points:

• gaming opponents and NIMBY-types can be shrill and misguided in their rhetoric, but still make a significant impact- gaming companies need to confront this opposition early and with all available resources
• in a closed gaming market like Maryland's, competition for limited site licenses will lead to collusion between gaming opponents and gaming interests in local situations such as Anne Arundel

Finally, we have a good use for Pimlico Racetrack during the long, long off-season: snow dump.  I wonder if Magna can capitalize on this, just a little - to drive up bids in that coming bankruptcy auction?

Imagine - in coming Februarys, there will be eager slots players and hundreds of people gainfully employed at Pimlico, instead of snow piles!  Oh wait...

Enoy the snow, mid-Atlantic folks!  We're hunkered down here in Maryland.  A screen shot from the video slot 'Snow Honeys' -

When a state's major industry has fared so poorly over a long stretch, there's bound to be calls in the capitol for some kind of regulatory overhaul.  Atlantic City gaming is no exception - and the industry has been stagnant or in decline now for over three years: before the 'Great Recession' began.  New and increased competition from Pennsylvania and New York (possibly Delaware & West Virginia too) is the most obvious source of AC's industry troubles, beyond the impact of the recession.  But are there structural problems endemic to New Jersey's regulatory system (i.e. the NJ Casino Control Commission's functions) also to blame for gaming industry problems in AC?

That's a question now posed by New Jersey's Senate President, Steve Sweeney (D-near Philly), according to yesterday's Press of Atlantic City article. Specifically, Sweeney's concerned that the CCC hasn't done adequate due diligence in overseeing the finances of the gaming industry, most notably the bankruptcy sale of the Tropicana to the Carl Icahn-led investor group:

"You have $1 billion casinos that are being sold for hundreds of millions," Sweeney said, an apparent reference to the much-delayed sale of the Tropicana Casino and Resort. A group of buyers led by billionaire investor Carl C. Icahn, who holds Tropicana's $1.4 billion mortgage, have agreed to buy the casino for $200 million.

According to the Press, Sweeney has two pressing issues: 1-a review of regulations involving license restriction in place to prevent over-consolidation, and 2-over-leveraged casinos.  Of course, both these issues have a long history in Atlantic City, dating back to the 1980s, when Donald Trump's moves led to lots of concern over one individual or entity having too much control within the town. 

Here's Sweeney on the first point:

"The first is the proportion of the Atlantic City gaming market controlled by individual casino licensees," he says. "Given the dynamic of competition from gaming in other states, and the resultant impact on all of New Jersey's casinos, it seems prudent to take a fresh look at the concentration of ownership within Atlantic City."

He continues, "The Casino Control Commission's authority to limit potentially undue economic concentration should be re-examined to ensure the public and stakeholders are properly protected."

What?  Is he concerned about too much "concentration of ownership" or too little?  This is very cryptic.  Since the Bally's-Caesar's merger (@1999) and Harrah's-Park Place transaction (@2005), Atlantic City gaming has been all about concentration, but its (arguably) best  property since 2003  -- Borgata- is a lone wolf in town.  Aside from problems highlighted above, Harrah's consolidated operations - @40-45% of the AC gaming industry - have done well via cross-marketing and efficiencies gained in administration.  So, I really don't get where Sweeney is coming from on this point.  From my perspective, market consolidation and market individuality both provide models with some success: Atlantic City's gaming industry problems are clearly elsewhere.

That gets us to Sweeney's second big concern: leveraged casinos.  The history here dates back 20+ years when some of AC's biggest players were significantly over-leveraged in the late 1980s and consequently caught up in the high interest junk bond mess that beset the capital markets of the day: the sub-prime, credit-default-swap scandal of that era.  Here, I think Sweeney's points are more relevant,  mainly for his larger concern that financial maneuvers and have a broad community impact:

"We all recognize the utilization of debt is critical for capital construction," he states. "However, the use of borrowing for leveraged buyouts, shareholder payouts and the like creates a significant financial benefit for individuals involved in the transactions but also creates additional risk - not just financial risk for the involved casinos, but also risk for casino employees, Atlantic City residents and state programs supported by casino revenues."

This is a more coherent statement: reckless over-leveraged gaming development can lead to major problems and a drive to reduce debt from shareholders and bondholders that can override all other concerns.  Sweeney's concern also reflects a long-standing mentality in Atlantic City that gaming is a community project: it isn't all about the bottom line for the companies involved. Makes sense that this mentality is still in place, given the origins of Atlantic City gaming in the 1970s with its enduring justification: "urban revitalization."  But is it unrealistic to maintain this concept in the touch, ultra-competitive mid-Atlantic gaming marketplace of the 2010s?  Maybe so.  If so, what does that mean for the city and surrounding 'burbs: so dependent on a single industry? 

*note: Apparently, incoming Gov. Christie is about to convene some kind of commission or group to thoroughly investigate various New Jersey entertainment and sports-based industries, including gaming - from a radio report heard on WHYY-Philadelphia (3 Feb 2010).

 Update 1: Christie did, in fact, announce the commission,  saying that that the Meadowlands complex is significantly underused.  The commission will meet until June 30, and will likely deal with a heated debate between the casinos and racetracks over placing VLTs at the tracks.  Nobody from the casino industry is on the seven person commission, but three sports people are, including former major league pitcher Al Leiter.

Into Delaware...the state Senate may vote on the bill as early as tomorrow, sending it to the governor to sign.  The tax is relatively high for table games (29%) -- much higher than Pennsylvania's 16%, but the fees are also lower and could be as low as $5 million for the three racinos if they reach a certain quote for capital improvements.

Unlike PA - where horseracing interests opposed table games- there's a nice bonus for the horseracing industry: 4.5% ot the new revenues.   The state projects 700 more gaming jobs and 40 more regulatory positions from adding table games, according to this Delaware Online piece.

I like the progress on gaming for Delaware (though not the splits), and once again appreciate the efforts of the legislature and pro-gaming governor.  However, the racinos are happy -- after the diminished returns on sports betting.  Meanwhile, there's growing momentum in Maryland to catch up: a logical move -- I've been saying (and writing ) for two years that there never was much logic to the slots-only approach, and finally -- finally - that perspective has gained some real political traction.   However, with 2010 being a state election year-- don't expect much progress in Maryland until at least 2011.

Update 1/29/10: This is a done deal -- Delaware will get table games: play should begin in May.