The More Things Change, the More They Stay the Same
I had almost finished the list of the stories I thought were the most important of 2015, when I reread my list for the prior year. To my surprise, over half of the stories on the 2015 list were also on the 2014 list. The events in Macau, Massachusetts, and New York; Caesars’ financial woes; the slot mergers; and a recovering Las Vegas were yet again top stories.
In Macau, the decline of gaming revenues due to a crackdown on crime and corruption in China continued in 2015; in fact, the decline was greater than in 2014. In 2014, it appeared that both New York and Massachusetts would become casinos states in 2015. They did not, although a racino did open in June in Massachusetts. But the opening of the first true casino is still more than a year away, in 2018. New York finally awarded three licenses in December, but it is unlikely that any of those casinos will open before 2017.
A year later, Caesars is still in bankruptcy. The finish line might or might not come in 2016; there are still too many moving parts for me to be comfortable making a prediction. If it does emerge from bankruptcy in 2016, that will certainly begin the unwinding of the vast Caesars World casino empire. Some of the assets will be sold, others operated through a REIT, and the rest, well, who knows? But some answers are likely to come in the next twelve months.
Last year, I thought the slot mergers would reshape the industry in 2015. Now I think the most significant changes are at least another year away, in 2017 and beyond. This year, mergers culminated with the completion of the IGT merger. That coincided with Nevada introducing skill-based gaming regulations. G2E was the first chance for observers to view the real financial power and full product line of the new mega-companies and the first opportunity to see the initial skill-based games. Such games may eventually become one of the most of important stories of the year, but that will take awhile. In the meantime, the real skill-based games, the ubiquitous video games, are getting some serious makeovers – next year should bring two major new platforms and possibly virtual reality games. Whatever happens with video games will one day be part of skill-based games in casinos, but not in 2016. Those two trends, the mergers and skill-based games, made G2E one of the year’s premier stories.
And finally, 2015 ended with a major milestone for the recovery of Las Vegas: 45 million people will have passed through the Vegas airport by year-end, a record, and further proof the city has recovered from the recession. The only setback for Vegas involves Macau and the Chinese crackdown. The next two mega-properties in Las Vegas – one by Genting and one by a company controlled by James Packer – are behind schedule. Financing is less certain with the plummeting cash flow from Macau.
So what is new?
Fantasy Sports Come of Age
Fantasy sports leagues and fantasy sports betting are not new, but for the most part they have flown below the radar of the gaming industry. That changed in a dramatic way with the beginning of the National Football Leagues season in 2015. The two largest purveyors of fantasy sports, DraftKings and FanDuel, jumped into the national consciousness with both feet, spending millions and millions of dollars to advertise their product during every televised NFL game. The ads worked: millions of people signed to play, generating hundreds of millions of dollars in revenue. The advertisements also caught the attention of the legal community. The attorney general of New York clamped down on fantasy sports, calling it illegal gambling. Nevada gaming regulators agreed, saying that to operate in Nevada the companies would have to be licensed. Other states, most recently Illinois, lined up with Nevada and New York. But other states, notably Massachusetts, think fantasy sports play is legal, although they would like some tax revenue from such play. There is no simple answer: in each state the matter will be argued in court, and/or in the state legislature, and/or through the state gaming regulatory authority. Outcomes will differ by state. Stay tuned: fantasy sports is big business, well-entrenched in the culture, and therefore not going away any time soon.
I Have Got the Horse Right Here and His Name Is American Pharoah
Horse racing had a great year. It got what everyone said it needed: a star. American Pharoah won the Kentucky Derby, the Preakness, and then Belmont, each decisively. Then for good measure he went on to win the Breeders’ Cup Classic. Other horses have won the Triple Crown of American thoroughbred races, but none completed the Grand Slam. And American Pharoah also came in first at the Rebel Stakes, the Arkansas Derby, and the Haskell Invitational.
In the course of his racing career, American Pharoah earned over $8 million. In retirement, his stud earnings could reach $50 million. Individual stud fees for 2016 have been set at $200,000. American Pharoah got the most votes for the Sports Illustrated sportsman of the year, but was not given the award (which is for a person). However, the Associated Press honored him with its “Sports Story of the Year” designation.
In 2015, American Pharoah became a national hero. Twenty-two million people watched him win the Belmont Stakes. Horse racing is slowly declining; American Pharoah might not change the destiny of that sport. But in 2015, he did give racing the best year it has had in a long, long time, and he gave the industry hope.
Pass the Peace Pipe, We Have A Deal
After a long and tense year for the Seminole Tribe of Florida, the governor and the tribe finally agreed on a new compact in 2015. Five years earlier, the tribe and the state had signed an agreement granting the tribe exclusive right to operate banked card games in exchange for a billion dollars; the portion of the agreement that authorized table games expired in July 2015. The tribe is now a big business, one important to the economy of Florida, generating several billions of dollars in annual revenue from its gaming operations. The Seminole tribe has seven casinos in Florida and it owns the Hard Rock brand, which operates hotels and casinos worldwide.
As the compact came to an end in 2015, both sides postured, sputtered, and threatened, but in a new agreement was eventually reached. This one extends the right to offer banked games for 20 years, but requires the tribe to pay Florida $3.1 billion over a seven-year period. It is largest revenue-sharing agreement in the country, which makes it very big news. The money demonstrates how significant Indian gaming has become nationwide.
The compact has been signed by both the state and tribe, but still must be approved by the state legislature. That approval is not guaranteed. There is some major opposition to the agreement, driven mainly by competing interests. Approved or not, the compact is a big story in 2015 and promises to be as important in 2016. The compact and the subsequent approval by the legislature, assuming that happens, will set the stage for gambling in Florida for years to come.
And the Buyer Is? Sheldon
The biggest surprise story of the year waited until December, ready to go under the Christmas tree: The Las Vegas Review-Journal was sold for the second time in 2015.
The sale of a newspaper is hardly a major story for gaming. In fact, the first sale, in February, attracted very little attention. The Review-Journal is the premier gaming paper in the country, but the significance of the December story came from the buyer, Sheldon Adelson. Adelson also owns a casino on the Las Vegas Strip, but he is often in the national news because he is one of the richest men in the country, one who spends money to be a Republican power broker.
In the 2011-12 presidential cycle, Adelson is said to have given over $100 million to the Republican party and various Republican presidential candidates. This cycle, Adelson is being more coy: he is interviewing each Republican candidate. The promise of money is there, but he has yet to declare the winner of the “Adelson Designee” award.
When initial reports said that the buyer of the Review-Journal was undisclosed, the newspaper’s staff set out to discover the purchaser. In the process the reporters became national news themselves. When details of the purchase were revealed – by the Review-Journal – everyone took notice. The New York Times, Los Angeles Times, Associated Press, and CNN all featured the story, including the Review-Journal reporters.
Except for Adelson and perhaps his close associates, no one knows what will be done with the Review-Journal, but it’s safe to say that the newspaper could fit with his propensity to attempt to influence the political process. In recent years, as other newspaper dropped their gaming coverage or reduced it dramatically, the Review-Journal has become the best newspaper in the country for gaming coverage. Let’s hope that does not change: the industry very much needs the Review-Journal’s gaming coverage.
