Empire Resorts (NASDAQ:NYNY) owns video game machines (VGMs) and racetracks. 82% of Empire's 2007 revenues[1] came from its VGM operations, while only 10.6% comes from racing. All Empire Resorts' operations are in New York state, making it especially vulnerable to any changes in New York state legislation as well as general economic trends impacting consumer spending.

Empire Resorts has plans to branch into a new gaming segment, opening a new casino resort in a joint venture with the Concord Group. The New York State Legislature approved the new $1 billion gaming resort in the Catskills region of New York in June 2008. The resort, slated to open in 2010, is expected to include a hotel, convention center, 3,000 video gaming machines, and a harness race track.[2] As the Catskills area has historically been a resort area, and is located only 90 miles away from New York City, closer than both Atlantic City or any regional Indian casino, the company hopes that the new resort will draw many patrons from New York City and boost Empire Resorts' declining revenue.[3]

Business Financials

Empire Resorts owns Monticello Gaming and Raceway, a video gaming and horseracing facility located in Monticello, New York. Monticello gains revenue from VGMs by earning the difference between the amount wagered by bettors and the amount paid out to bettors through the video slot and game machines. The revenues from horseracing come from pari-mutuel betting (a betting system where all bets are placed together in a pool, and payoff odds are calculated by sharing the pool among all winning bets) earned from live racing at Monticello Raceways and simulcast signals from other racetracks. For each amount bet by the customer, Monticello takes a percentage of it as commission. Additional revenue is gained through admission fees and the sale of food and beverages. [4]

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Empire Resorts' revenue breakdown[5]

As stated above, 82% of Empire's 2007 revenue comes from its gaming (VGM) operations, whereas only 10.6% comes from racing. An addtional 7.24% of revenue in 2007 comes from food and beverage sales and other fees. [6] This breakdown of revenue has changed over the last three years as horseracing accounts for less and less of total revenue earned. This is mainly due to the decreasing popularity of horseracing.

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Empire Resorts' revenue vs. operating income[7]

From 2005 to 2007, Empire has experienced little growth and a constantly negative operating margin. This is because operating costs have been consistently larger than net revenues, due to high costs in maintaining horse racing facilities, increased payouts to racing purses (which enables higher profile racing activities), and increases in stock-based compensation. Recent expenses in 2007 have also risen because of associated costs with the casino development in Catskills.

In particular, from 2006 to 2007, net revenues decreased $21.2 million or 22%. VGM operations accounted for approximately $12.2 million of that reduction and racing accounted for approximately $9.7 million. The decrease in VGM revenues is mainly due to more competition from VGM facilities at Yonkers Raceway (opened November, 2006) and new casinos opening in Pennsylvania in 2007. Patron visits to Monticello decreased by 20.6% and the average daily win per unit also declined 17%. The decrease in racing revenue was primarily a result of reduced revenue allocations from shared facilities, such as with Yonkers Raceway.[8]

Trends and Forces

Empire Resorts faces more competition in New York due to new gaming laws

Due to recent legislation permitting the development of new Class III casinos and VGMs at certain locations in New York, Connecticut and Pennsylvanian, Empire's Monticello faces increased competition within its market. This coincides with an already contracting market as national gaming industry revenues continue to fall by 1.38% overall (and 5.66% overall when factoring out new casinos) in June, 2008, according to the National Revenue Report published by Fantini Research.[9] Indeed, from 2006 to 2007, Monticello's total revenues already declined by 22% ($21.2 million) mainly due to increased competition from the newly opened Yonkers Raceway in New York and new casinos in Pennsylvania.[10] As Monticello Raceways draws most of its customers from this tri-state area, this will lead to further decline in revenues from racetracks and video gaming.[11]

The continuing decline in the popularity of horse racing will adversely impact Empire's revenues

Since the mid-1980s, there has been a general decline in the number of people attending and betting at horse races in the U.S. due to increased competition from other forms of gaming, unwillingness of customers to travel a significant distance to racetracks, and the increasing concern for animal welfare.[12] Indeed, overall the US horseracing industry has experienced no growth, and even declined in revenue in some markets, since 2003.[13] According to the New York Racing Association, attendance at its three tracks, Aqueduct Race Track, Belmont Park and Saratoga, fell from 3.98 million in 1990 to 1.83 million in 2007, a drop of 54%.[14] From 2005 to 2007, Monticello's racing revenue has already declined by 47% to $8.28million in 2007[15]. Although only 10% of Empire's 2007 revenue comes from racing[16], as these trends of declining attendance, Monticello's revenues from racetracks will be further negatively hit.[17]

The fluctuation of interest rates could affect Empire Resorts ability to finance future operations

Though current interest rates are low, the Federal Reserve is expected to increase rates soon to counter-act the weak US dollar.[18] Empire's properties are highly leveraged and the company has an outstanding debt of $65 million[19] (while still earning negative profits) and a debt to equity ratio of 293%[20]. Thus, an increase in interest rates would substantially increase debt obligations and jeopardize future operations. Empire Resorts properties are highly leveraged mainly because of the issurace of notes[21] to pay for the high cost of operations as well as additional borrowings to finance the Concord Casino.

Empire Resorts' revenues are affected by general economic conditions and are vulnerable to downturns

The gaming industry as a whole is vulnerable to economic conditions, as it decreases consumers' disposable income, leading to both fewer visitors and less spending per visitor. Indeed, the 2008 US economic slow down, caused by the 2007 subprime mortgage crisis has already begun to affect the market. Key markets like Atlantic City have declined up to 6.1%[22] in revenue in the first half of 2008, compared to last year, and national gaming industry revenues have fallen by 1.38% overall (and 5.66% overall when factoring out new casinos) in June, 2008, according to the National Revenue Report published by Fantini Research.[23] As a result, Empire Resorts' total revenues have already decreased 14% in Q1, 2008 compared to the same time last year.[24]


Unlike the casino industry which is concentrated in a few big players, the horse racing industry is fairly fragmented and highly competitive. Monticello faces intense competition for off-track betting at many gaming sites within New York state and the surrounding regions. The inability to provide larger purses (to attract higher profile races) for the races at Monticello has limited its ability to compete for off-track wagering revenues.[25]


In New York, the primary competition for Monticello comes from Yonkers Raceway and Aqueduct Racetrack - both located in New York City.

  • Yonkers Raceway: Yonkers Raceway is a racetrack in New York City that also offers almost 5500 VGMs.[26] It primarily caters to local New York residents.
  • Aqueduct Racetrack: Aqueduct Racetrack is a horseracing track located in Queens, New York. Currently the facilities do not include any VGMs, though they are scheduled to be installed in late 2008.

Monticello also faces competition in horseracing from Pennsylvania, especially after Pennsylvania legalized the operation of slot machines at 14 locations in July, 2004. The holders of horse racing licenses in Pennsylvania may apply for 7 of the 14 licenses to operate slot machines, enabling them to become, like Monticello, both a racetrack and VGM operator. The main competition includes:

  • Pocono Downs Racetrack: Pocono Downs Racetrack opened in January 2007 with approximately 3,000 VGMs. It is located in Wilkes-Barre, Pennsylvania, approximately 75 miles southwest of Monticello. [27]
  • Mt. Airy Casino Resort: The Mt. Airy Casino Resort opened in 2007 with approximately 2,500 slot machines and includes a hotel and a golf course. It is located in Mount Pocono, Pennsylvania, approximately 60 miles southwest of Monticello. [28]


Empire's only real competitors are within its regional market. But there are similar national, public companies that operate in nearby markets and thus could make a relevant comparison with NYNY:

Harrah's Entertainment (HET) Harrah's Entertainment is the world's largest gaming company[29] and operates 50 properties globally including in New Jersey and Pennsylvania, regionally close to Empire Resorts' markets. The majority of its revenue (55%)[30] however, comes from its properties in Las Vegas and Atlantic City where Empire Resorts does not compete.

Penn National Gaming (PENN) Penn National Gaming owns 12 casinos, 7 racetracks, and off-track betting facilities in 14 states in the U.S. and in Ontario, Canada.[31] Its casinos and racetracks generate revenues primarily through house winnings in table games, slot machines, and wagers on races. Like Empire Resorts, the majority (87% in 2007) of Penn's revenue came from gaming revenue.[32]

MTR Gaming Group (MNTG) The MTR gaming group owns and operates casinos, racetracks and hotels across the U.S. In particular, it owns the Presque Isle Downs & Casino in Erie, Pennsylvania, and the the Mountaineer Racetrack and Gaming Resort in West Virginia.[33]

Dover Downs Gaming & Entertainment (DDE) Dover Downs owns and operates the Dover Downs Casino, Dover Downs Hotel and Conference Center and Dover Downs Raceway in Dover, Delaware. Dover Downs Casino is a video lottery casino complex that features slot machine offerings and multi-player electronic table games with virtual dealers, while the Dover Downs Raceway is a harness racing track with pari-mutuel wagering on live and simulcast horse races. Like Empire Resots, a majority (approximately 90% in 2007) of Dover Downs' revenue is derived from VGM operations.[34]

' Empire Resorts MTR Racing PENN Dover Downs
Revenue ($M)73.11429.892436.79242.37
Net Income ($M)-25.79-11.36160.0526.09
Operating Margins-7.99%6.14%20.43%19.35%
Market Cap ($M)90.194.962490254.38
Number of properties17123

Market Share

Horse racing

Empire Resorts, which earned $8.28 million from horseracing in 2007, only commands 0.056% market share of the total US domestic horse racing industry, which in 2007, earned a total of $14.7 billion in betting revenue.[35]


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U.S. Gaming Market: Marketshare (2007)[36]

Empire Resorts, which earned $64.69 million from VGM operations in 2007, only commands 0.2% market share of the total US domestic gaming industry, which in 2007, earned a total of $32.42 billion in betting revenue.[37]

Market share for each company below is based on their net revenue as a percentage of the overall US domestic market gaming revenue in 2007.

' Revenue ($M) Market share
Empire Resorts64.690.2%
MGM Mirage7691.6423.7%
Las Vegas Sands2950.579.1%
Wynn Resorts2687.528.3%
Boyd Gmaing 1997.126.2%


  1. NYNY, 2007 10K, Item 6: Selected Financial Data, Page 37
  2. "NY approves Empire Resorts' $1B development" Forbes, June 25, 2008
  3. NYNY, 2007 10K, Item 1: Business, Page 3
  4. Reuters Company Profiles: Empire Resorts
  5. NYNY, 2007 10K, Item 8: Financial Statements, Page 37
  6. NYNY, 2007 10K, Item 6: Selected Financial Data, Page 37
  7. NYNY, 2007 10K, Item 6: Selected Financial Data, Page 23
  8. NYNY, 2007 10K, Item 6: Selected Financial Data, Page 26
  9. South Coast Today, "Gambling revenue declines across U.S.", July 27, 2008
  10. NYNY, 2007 10K, Item 6: Selected Financial Data, Page 26
  11. NYNY, 2007 10K, Item 1A: Risk Factors, Page 17
  12. The Washington Post, "Governing Body Urged for Racing Industry", June 20, 2008
  13. Business First, "Bettor days ahead for Thoroughbred racetracks? Horse-racing industry faces long odds trying to attract new fans, grow gambling business", May 2, 2008
  14. NYNY, 2007 10K, Item 1A: Risk Factors, Page 12
  15. NYNY, 2007 10K, Item 6: Selected Financial Data, Page 37
  16. NYNY, 2007 10K, Item 6: Selected Financial Data, Page 37
  17. NYNY, 2007 10K, Item 1A: Risk Factors, Page 12
  18. USA Today, "Dollar's decline could be close to end after Europe raises rate", July 9, 2008
  19. NYNY, 2007 10K, Item 1A: Risk Factors, Page 12
  20. NYNY, 2007 10K, Item 6: Selected Financial Data, Page 36
  21. NYNY, 2007 10K, Item 1A: Risk Factors, Page 12
  22. Courier Post, "Shore gaming revenues slip 11% in June", July 11, 2008
  23. South Coast Today, "Gambling revenue declines across U.S.", July 27, 2008
  24. 2008 10Q, Item 1, Page 2
  25. NYNY, 2007 10K, Item 1: Business, Page 6
  26. "Video slot gaming revitalizes Yonkers Raceway", Oct 11, 2007
  27. NYNY, 2007 10K, Item 1: Business, Page 6
  28. NYNY, 2007 10K, Item 1: Business, Page 6
  29. Fortune Magazine, The 35 Largest Private U.S. Companies: Harrah's Entertainment
  30. HET 2006 10K, Item 1: Business, Page 4
  31. PENN, 2007 10-K, Item 1: Business, Page 1
  32. PENN, 2007 10-K, Item 7: Management's Discussion, Page 41
  33. Google Finance Company Profile: MTR Racing Group
  34. Thomson Reuters Company Profile: Dover Downs
  35. The Washington Post, "Governing Body Urged for Racing Industry", June 20, 2008
  36. American Gaming Association: New AGA survey shows U.S. casino industry characterizd by significant growth and high approval ratings, May 8, 2007
  37. American Gaming Association: New AGA survey shows U.S. casino industry characterizd by significant growth and high approval ratings, May 8, 2007
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