Putting money back into and growing a casino

Posted by Elijah on December 28th, 2022

In the new normal, where the economy is getting worse and people are spending less money on a wide range of things, casinos have to figure out how to stay profitable and competitive at the same time. In the commercial gaming sector, these factors are made even more complicated by rising tax rates. In the Indian gaming sector, aw8 these factors are made even more complicated by self-imposed contributions to tribal general funds and/or per capita distributions, as well as a growing trend of state-imposed fees.

Figuring out how much to "render unto Caesar" while keeping enough money to keep market share, grow market penetration, and increase profits is a difficult task that needs to be well planned and carried out.

This article talks about how to plan and prioritise a casino reinvestment strategy from the author's point of view, which is based on time and grade-level hands-on experience with making and managing these kinds of investments.

Cooked Goose

Even though it seems obvious that you shouldn't cook the goose that lays the golden eggs, it's surprising how often people don't give it the care and food it needs. With the opening of a new casino, developers, tribal councils, investors, and financiers are eager to get their hands on the profits, and they often don't put enough of the money toward maintaining and improving the assets. This raises the question of how much of the profits should be put back into the business and for what purposes.

There are no hard and fast rules because each project has its own unique set of circumstances. Most of the time, the biggest commercial casino owners don't give dividends to their stockholders out of their net profits. Instead, they use the money to improve their existing venues and look for new ones. Some of these programmes are also paid for by selling more debt instruments or shares of stock. The lower tax rates on corporate dividends will probably change how these ways of getting money are used, but they will still be used to reinvest in the business.
Allocation of Profits

Before the current economic situation, the publicly held companies as a whole had a net profit ratio (earnings before income taxes and depreciation) that averaged 25% of gross income after taxes and interest payments were taken out. On average, almost two-thirds of the remaining profits are put back into the business or used to buy new assets.

Casinos in places with low gross gaming tax rates are more likely to be able to reinvest in their properties, which brings in more money and helps the tax base in the long run. As a way to bring in more money, New Jersey is a good example because it requires certain reinvestment allocations. Other states, like Illinois and Indiana, with higher effective rates, run the risk of reducing reinvestment, which could eventually hurt the casinos' ability to grow market demand penetrations, especially as neighbouring states become more competitive. Effective management can also lead to a higher profit that can be re-invested, which can come from both efficient operations and good borrowing and equity offerings.

How a casino business decides to spend its casino profits is a key factor in figuring out whether or not it will be successful in the long run. This decision should be part of the business's initial plan for growth. At first glance, short-term loan amortisation or debt prepayment programmes may seem like a good way to get out of an obligation quickly. However, they can also make it much harder to reinvest or grow in a timely manner. This is also true for any profit distribution, whether to investors or, in the case of Indian gaming projects, to a tribe's general fund for infrastructure or per capita payments.