In a new paradigm of declining economic conditions across a wide range of consumer spending, casinos face a unique challenge of solving how to remain profitable while remaining competitive. These factors are further compounded by the increasing trend of self-imposed contributions and state-imposed fees to tribal general funds and/or per capita distributions in the commercial gaming sector, where tax rates are increasing, and in the Indian gaming sector.
Determining how much to “give Caesar” while securing the necessary funds to maintain market share, increase market penetration and improve profitability is a difficult task that must be well planned and executed.
In this context and from the author’s perspective, including the time and grades of hands-on experience in developing and managing these types of investments, this article describes how to plan and prioritize a casino reinvestment strategy.
It may seem axiom not to cook the goose that lays the golden eggs, but it is surprising that little thought is given to the ongoing proper care and feeding. With the advent of new casinos, developer/tribe committees, investors and financiers are naturally eager to be rewarded and tend not to allocate sufficient profits to maintain and enhance their assets. Therefore, it raises the question of how much of the profits should be allocated to reinvestment and towards what goals.
There are no hard and fast rules as each project has its own specific circumstances. Most major commercial Casino deposit bonus operators do not distribute their net income as dividends to shareholders, but rather reinvest in finding new ones while improving existing ones. Some of these programs are also financed through additional debt instruments and/or equity offerings. Reduced tax rates on corporate dividends will shift the emphasis on these funding methods while maintaining core business prudence for ongoing reinvestment.
As a group, prior to the current economic situation, the net profit ratio (net income before income tax and depreciation) of publicly traded companies averaged 25% of earnings after gross income tax and interest payments. On average, nearly two-thirds of the remaining revenue goes to reinvestment and asset replacement.
Casino operations in jurisdictions with lower gross gaming tax rates can more easily reinvest in their assets, further improving returns that will ultimately benefit their tax base. Moreover, effective management can result in both efficient operations and favorable borrowing and equity offerings, resulting in higher available returns for reinvestment.
How a casino company decides to allocate casino revenue is an important determinant of its long-term viability and should be an integral part of its initial development strategy. A short-term loan amortization/debt prepayment program may seem desirable at first to get you out of your obligations quickly, but it can also dramatically reduce your ability to reinvest/expand in a timely manner. This is also true for all profit distributions, whether distributed to investors or, in the case of Indian gaming projects, to the tribal general fund for infrastructure/per capita payments.