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Casino reinvestment and expansion
Public Group active 2 years agoUnder a new paradigm of declining economic conditions across a broad spectrum of consumer spending, casinos face a unique challenge in dealing with how to maintain profitability while remaining competitive. These factors are compounded by increasing tax rates within the commercial gaming sector and self-imposed contributions, in addition to an increasing trend in tribal general funds, and/or per capita distributions, state-imposed fees within the Indian gaming sector. are complicated.
Determining “how much to give Kaiser,” while securing the funds needed to maintain market share, expand market penetration, and improve profitability, is a difficult task that needs to be well planned and executed. It is important to give.
Within this context and the author’s perspective, which includes time and level of experience in the development and management of this type of investment, this article discusses methods for planning and prioritizing casino reinvestment strategies. is related to
Cooked goose
While not cooking a goose that lays golden eggs may seem self-evident, it’s surprising how little thought is often given to its ongoing proper care and feeding. With the arrival of a new
casino, developers/tribal councils, investors and financiers are rightly anxious to reap the rewards and tend not to allocate sufficient amounts of profits to asset maintenance and enhancements. Thus asking the question of just how much of the profits should be earmarked for reinvestment, and for what purposes.
Since every project has its own unique circumstances, there are no hard and fast rules. For the most part, many large commercial casino operators do not distribute net profits as dividends to their stockholders, but instead reinvest in the search for new locations as well as improvements to their existing locations. Some of these programs are also funded through additional debt instruments and/or equity stock offerings. Lower tax rates on corporate dividends will likely change the emphasis of these financing methods, while still maintaining the basic business sense of ongoing reinvestment.
Distribution of profits
As a group, and prior to current economic conditions, publicly held companies had a net profit ratio (earnings before income taxes and depreciation) that averaged 25% after deduction of gross income taxes and interest payments. % of income. On average, about two-thirds of residual profits are used for reinvestment and asset replacement.
Casino operations in jurisdictions with lower overall gaming tax rates are more easily able to reinvest in their properties, thereby generating more revenue that will benefit the tax base. New Jersey is a good example, as it mandates some reinvestment allocations as a revenue stimulus. Other states, such as Illinois and Indiana, with higher effective rates, run the risk of reducing reinvestment which could ultimately eliminate the casino’s ability to increase market demand, particularly When neighboring states become more competitive. Additionally, effective management can generate more returns available for reinvestment, arising from both efficient operations and favorable borrowing and equity offerings.
How a casino enterprise decides to allocate its casino profits is a key factor in determining its long-term viability, and should be an integral aspect of the initial development strategy. While short-term loan forgiveness/debt prepayment programs may seem desirable at first to get out of the liability early, they can also quickly reduce the ability to reinvest/expand on a timely basis. This is also true for any distribution of profits, whether to investors or, in the case of Indian gaming projects, to the tribe’s general fund for infrastructure/capita payments.
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