Casino Reinvestment and Expansion

The correct Care & Feeding from the yellow metal Goose

Under the new paradigm of declining monetary conditions across a broad array of consumer spending, internet casinos face an unique task in addressing how they both maintain profitability while also remaining competitive. These types of factors are further complicated within the commercial gambling sector with increasing taxes rates, and within the Indian gaming sector by self imposed contributions to tribal general funds, and per capita distributions, in addition to a growing trend in state made fees. vip2541

Determining how much to “render unto Caesar, ” while reserving the requisite funds to maintain market share, grow market penetration and improve earnings, is a daunting process that needs to be well planned and performed. 

It is within this context and the author’s perspective which includes time and grade hands-on experience in the development and management of these kind of investments, this article relates ways in which to plan and prioritize a casino reinvestment strategy.

Cooked Goose

Though it would seem to be axiomatic not to cook the goose that lays the golden eggs, it is amazing how little thought is oft times directed at its on-going proper care and attention and feeding. With the advent of a fresh online casino, developers/tribal councils, investors & financiers are rightfully restless to reap the rewards and there is a tendency to never allocate a sufficient amount of the profits towards asset maintenance & enhancement. Thereby asking the question of just how much of the profits should be allotted to reinvestment, and towards what goals.

Inasmuch as each project possesses its own particular set of circumstances, there are no hard and fast rules. In most cases, many of the major commercial casino operators do not distribute net profits as dividends to their stockholders, but rather reinvest them in improvements with their existing venues while also seeking new locations. A few of these programs are also funded through additional debt instruments and equity stock offerings. The lowered tax rates on corporate dividends will probably move the emphasis of the funding methods, while still keeping the core business wisdom of on-going reinvestment.
Revenue Allocation

As a group, and prior to the current monetary conditions, the publicly held companies got a net profit proportion (earnings before income income taxes & depreciation) that uses 25% of income after deduction of the major earnings taxes and interest payments. Normally, almost two thirds of the gains are utilized for reinvestment and asset replacement.

Gambling establishment businesses in low major gaming tax rate jurisdictions are more readily able to reinvest in their properties, thereby further boosting revenues that will eventually benefit the tax bottom. New Jersey is a superb example, as it mandates certain reinvestment allocations, as an earnings stimulant. More states, such as Illinois and Indianapolis with higher effective rates, run the risk of reducing reinvestment that may eventually erode the potential of the casinos to grow market demand penetrations, especially as neighboring claims become more competitive. In addition, effective management can create higher available profit for reinvestment, stemming from both efficient businesses and good borrowing & equity programs.

How a casino venture decides to allocate it is casino profits is a critical aspect in deciding its long-term viability, and should be an important aspect of the preliminary development strategy. While brief term loan amortization/debt prepayment programs may at first seem to be desirable to be able to quickly emerge from under the obligation, they can also sharply decrease the capability to reinvest/expand over a regular basis. This is also true for almost any profit syndication, whether to investors or in the case of Indian gaming projects, allocation to a tribe’s basic fund for infrastructure/per household payments.