Monarch's revenue increased by 5.2% in 2007, compared to an 8.7% growth in 2006. This falloff can be attributed to factors such as rising oil prices, which hurts the business of the tourist-dependent casino industry. However, the rapidly growing population of Reno enabled Monarch to partially offset this decline.
These trends, coupled with increased competition in the Reno market, has had harmful effects in 2008 as well. MCRI's Q2 2008 revenue was $35.34 million, a 15% dropoff from its Q2 2007 revenue. Furthermore, its net income in Q2 08 decreased by 60% from the year before.
|Segment (Year ending Dec. 31)||2007||2006||2005|
|Food and Beverage||42.36||41.04||38.57|
Monarch's net revenue increased by 5.2% in 2007, while operating income and net income increased by 6.6% and 10.9%, respectively. However, while MCRI's revenue growth decreased from the year before, both operating income and net income grew at higher rates than in 2006.
The company's promotional allowances, which are deducted from the gross revenue to obtain the total net revenue, are defined as the retail value of hotel, food and beverage services Monarch provides to its customers. Promotional allowances went up by 7.7% in 2007, compared to the 5.2% increase in net revenue in the same year.
Revenue from this segment represents Monarch's aggregate net win from gaming activities at its properties. Casino revenues were $110.3 million in 2007, a 6.8% increase from the year before. The key drivers behind this increase were increases in revenue from table games, poker, Keno, and especially slots. Revenue from slot and video poker machines increased by 7.3% in 2007, driven by a shift in customer preferences towards electronic casino games. This increase in slot revenue can also be attributed to Monarch's emphasis on effective marketing and technological improvement of its facilities and equipment. Furthermore, Keno and poker revenues grew by 11.0% in 2007, an increase that Monarch attributes to effective marketing and the quality of its product and service offerings at its property. Lastly, a decrease in this segment's operating expenses contributed to the increase in this segment's overall revenue.
This segment consists of revenue obtained from Monarch's aggregate food and beverage sales at its properties. This includes sales from in-hotel restaurants and bars, room service charges, and vending machine sales. Food and beverage revenues increased 3.4% to $42.4 million in 2007, primarily due to a 3.5% increase in average revenue per cover. Food and beverage revenue may have increased further, but operating expenses increased slightly, up to 47.9% of food and beverage revenue in 2007.
This segment consists of revenues from room rentals in Monarch's hotel. Hotel revenues totaled $27.9 million in 2007, a 5.7% increase from 2006 numbers. The increase reflects an increase in both the average daily room rate (ADR) and occupancy rate in fiscal 2007. The Atlantis ADR increased 5.97% in 2007 (up to $74.04), while its average occupancy rate rose from 93.3% in 2006 to 93.8% in 2007. Furthermore, hotel operating expenses decreased to 30.0% of hotel revenues in 2007, compared to 31.7% in 2006. This decrease primarily resulted from the revenue impact of the increased ADR.
This segment consists of miscellaneous services that do not fall into any of the other categories, such as long-distance phone services, parking services, and in-room movie services. This segment had no growth in 2007, remaining flat at approximately $4.9 million.
Casino/resort operators such as Monarch such as Lodgian depend heavily on overall economic strength for its revenue, as people tend to travel only when they feel they have enough disposable income to afford such vacations. In the first half of 2008, however, the price of crude oil rose to $98.66/barrel, up 76.8% from the year before, causing an increase in the price of jet fuel from $850/metric ton at the beginning of 2008 to $1300/ton by June. The increasing fuel costs lead to spikes in airline prices, which in turn drastically lower the numbers of people who can afford travel costs. This in turn takes business from tourists away from hotels, as evidenced by Monarch's slower growth in 2007.
Although Monarch benefits from the ever-increasing population of Reno, its inability to enter other markets makes it vulnerable to any changes in Nevada's economic conditions. For example, if there is an economic recession in Nevada that causes a steep decline in revenue from Monarch's Nevada casinos, it will be unable to offset these losses through revenues obtained in other markets, as it has no properties either in other American states or internationally. And although Reno's population continues to grow rapidly, the casino industry in the city has suffered in 2008. In the first four months of 2008, Reno's gaming win was $224 million, a 6.5% decrease from 2007. MCRI followed this trend, with its 2008 Q2 revenue decreasing by 15% from the previous year's Q2 results.
Over the past 10 years, the population of Washoe County (where Reno is located) has grown at an average of 2.7% a year. This makes Washoe one of the fastest growing regions in the country, as its growth is well above the national average of a 1.1% average 10 year population growth. This growth can be attributed to a number of factors, such as beautiful scenery and the lack of state personal income taxes, and provides a significant boost to Reno-based Monarch. In addition, Nevada's history of favorable regulations on gaming enable MCRI to operate its casino without fear of losing its business to due a change in regulation. The growing local population in a market with favorable gambling regulations helps Monarch because it provides the casino/resort with a consistently growing number of potential customers right in its own market of operation, especially important in a market that is already in the midst of great difficulties. This helped Monarch partially offset its losses in out-of-state customers due to trends such as rising oil prices, and was the reason Monarch's casino revenue increased more than revenue from its other segments.
Nevada casinos have historically obtained a lot of business from Californians due to California's stricter gambling regulations. However, since 2000, these regulations have become less and less strict, leading to a growth in Californian Native American casino revenue every year since. But 2007 saw a serious decline, with Native American gambling increasing only 1.6% in Southern California, compared to 5% nationally. In February 2008, California voters approved an increase in the number of Native American operated slot machines in the state that analysts expect to increase this growth rate. This affects Monarch because it gives Californians more in-state options for gambling. Both Californian Indian gaming and growing jet fuel prices decreased Monarch's out-of-state clients, increasing the importance of its ability to attract people from its own state, specifically Reno.
As a result of this trend, Reno's revenue growth slowed, from 8.7% in 2006 to 5.2% in 2007. Further, as a result of the higher concentration of local customers, casino revenue grew by 6.7% in 2007 while food and beverage and hotel revenues increased by 3.2% and 5.6%, respectively. This can be explained by the fact that Monarch obtains the majority of its food and beverage and hotel revenue from out-of-state customers, while both in-state and out-of-state customers contribute to casino revenue.
The majority of Monarch's business comes from tourists and, as a result, it competes with other casinos/hotels for the gambling and lodging preferences of these tourists. Further, because Monarch operates wholly in Nevada, it primarily competes with other Nevada-based casino/hotel operators. These companies include:
|Company||2007 Revenue ($ in millions)||2007 Operating Income||2007 Operating Margin||2007 Nevada Casino Revenue ($ in millions)||2007 Nevada Casino Revenue Market Share|
|MGM MIRAGE||7,962||2,864||37.23%||~2,000||~ 15% < X < 20%|
|Las Vegas Sands||2,951||319||10.82%||405||3.43%|
Nevada is the state in the United States with the highest revenue from casino operations, with an estimated aggregate $11.8 billion in revenue for fiscal 2007. MGM does not separate its casino revenue by geographic location, so its $2 billion in Nevada casino revenue is an estimate based on the fact that 68% of its available casino floorspace is in Nevada and its overall casino revenue for 2007 was $3.24 billion. This would place its approximate market share at 15-20% of the overall Nevada gaming market. Wynn's market share is an estimate based on taking the percentage of casino revenue on its total revenue (73%) and multiplying it by Wynn's net revenue from its Nevada operations.