US gambling casinos are in trouble. The two largest casinos in the world, Foxwoods and Mohegan Sun (both in Connecticut), have real problems. With $2.3 billion in debt, Foxwoods is struggling. It just reported August 2012 slot revenue of $50.5 million, a 3.3% decline compared to the same month a year ago. Foxwoods is not bullish on its gambling market. So it is building a 300,000-square-foot retail center, including space for 75 outlet stores. Mohegan Sun? It is having to deal with $1.6 billion in long term debt.
As Table 1 indicates, US casino gambling revenues continue to fall. In Las Vegas, total gambling revenues are down 16% since the July to June 2006 - 2007 year, with slots revenues down even more. Both Connecticut casinos are doing worse with slots down 25% and 24% for Mohegan Sun and Foxwoods respectively.
Table 1. - Gambling Revenues, Las Vegas and Connecticut
As I have suggested in an earlier piece, things will probably get worse for the Connecticut casinos as new casinos are built in Massachusetts and New York.
MA Casino Candidates
In MA, the new law gives the Gaming Commission the power to permit up to three full resort casinos, one each from Boston to Worcester (Region A), Western Massachusetts (Region B), and a southeast region (Region C). In addition, a slots-only casino could be located anywhere in the state. So what are we looking at? In Table 2, I assembled what we know already about potential bidders from their announcements. The second from the left column indicates how much will be invested, while the last column indicates how far they are from Montville/Ledyard CT, the respective homes of Mohegan Sun and Foxwoods (8 miles apart), respectively.
Table 2. - MA Gambling Casino Status
Hard Rock International
Penn National Gaming
Sources: Various news releases
Casino applicants must pay a non-refundable $400,000 fee to the Massachusetts Gaming Commission to begin the process. The deadline for paying the application fee is mid-October 2012. So far, fees have been paid by the applicants for Suffolk Downs, Plainville, Taunton, and Springfield (MGM).
The key point to take away from Table 2 is that all three regions are near the Connecticut casinos. It is estimated that 30% of the Connecticut casino customers come from Massachusetts. Many of these will switch to the MA casinos. In addition, the MA casinos should attract come of the other CT casino customers.
Things are moving a bit slower in NY than MA. But Governor Cuomo is negotiating a pact with Genting BHD (GENT:MK) to develop a $4 billion convention center and resort with a casino attached at the Aqueduct Racetrack in South Ozone Park, Queens. Aqueduct is only 131 miles from the two CT casinos.
Will the new MA and NY initiatives generate additional markets or is this really all about splitting the revenues now going to the CT casinos three ways? Probably the new supply will create some new demand. But one thing is certain: the CT casinos will lose some customer base to MA and NY. That means some of the gambling revenues now being collected by the CT government will be split with MA and NY governments.
The other definite winners are the companies making the slot/VTL machines: Lottomatica Group S.p.A. (LTO.MI), Multimedia Games Inc. (MGAM), and American Gaming Systems (privately held). These companies benefit from the sale of their products and not how extensively they are being used. And with state revenues being squeezed throughout the US, other states will be turning to gambling for additional revenues as well.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.