Making the News

Pittsburgh Post Gazette

Originally Published:Thursday, May 6, 2010
http://www.post-gazette.com/pg/10126/1055709-55.stm

Casino revenue hasn't met expectations, but greater tax relief anticipated

By Janice Crompton
Pittsburgh Post Gazette

Local casinos have been seeing more action off their gaming floors than on them in recent days as major tweaks and changes in their operations are under way.

Rivers Casino, on Pittsburgh's North Shore, recently outlined its plan for 86 table games at a state gaming control board hearing, while The Meadows Racetrack & Casino in Washington County secured approval for its plan to install 62 table games.

In response to sagging performance, Rivers Casino asked the board to approve its application to eliminate 126 of its 3,000 slot machines.

The casino also recently made a scheduled $5.2 million installment payment toward the Penguins' new arena as it finalizes plans for a May marketing initiative that planners hope will be as successful as those rolled out in March and April, when the casino saw a significant uptick in revenue.

Meanwhile, Nemacolin Woodlands in Fayette County has been laying out plans for a mini-casino it hopes will generate $120 million in annual revenues, while the Valley View Downs racetrack and casino in Lawrence County continues to flounder due to a lack of financing.

So, what does all this mean for local taxpayers and residents?

Plenty.

Casinos had been touted as a way to eliminate or significantly reduce the property tax burden, and they have resulted in some reduction, though perhaps not as much as expected.

During the next fiscal year - which begins July 1 - Pennsylvania property owners will each see roughly $200 in property tax relief, about $10 more than last year.

Lawmakers and Gov. Ed Rendell had hoped the savings would be more significant, but annual slots revenue has yet to reach the anticipated $1 billion mark because of ongoing snags with two planned Philadelphia casinos and problems at Valley View Downs.

Still, the 34 percent state tax on gross terminal revenue - that's what is left after winners have been paid - from the state's nine operating casinos generated $772 million this year, providing tax relief for almost 2.7 million households.

Host counties and municipalities have been reaping a windfall through a 4 percent slots revenue tax levied on each casino. The benefits also have been felt in neighboring communities, such as Beaver County, where table games employees from The Meadows are being trained at the county's community college.

Nemacolin Woodlands

One of the ways the state plans to bump up casino revenue is with two resort casinos, each of which could have as many as 600 slot machines and 50 table games.

One of the resort licenses already has been awarded to a Philadelphia convention center, but that project has stalled due to a lawsuit.

Five other entities are competing for the remaining license, including Nemacolin Woodlands, the 3,000-acre resort tucked into the Laurel Highlands.

According to an application submitted early this year, the resort plans to join forces with St. Louis-based Isle of Capri Casinos and invest $50 million in the project, which would be called the Lady Luck Casino.

They want to convert a former outdoor store at Route 40 and Smith School Road into a casino.

Jeff Nobers, Nemacolin spokesman, said the 50,000-square-foot facility would be expanded by 20,000 square feet to accommodate 600 slot machines and 28 table games. Within a year of opening, Mr. Nobers said, the casino would expand further, adding 22 more table games.

Isle of Capri, one of the unsuccessful bidders for the Pittsburgh casino license, would manage the casino, which was proposed but withdrawn three years ago by Nemacolin when the resort's owners felt state requirements were too cumbersome.

If the Nemacolin/Isle of Capri proposal is successful, the results for Fayette County - one of the poorest counties in the state - would be "staggering," said county Commissioner Vince Zapotosky.

Preliminary estimates from the resort call for $19 million in annual state taxes and 1 percent revenue streams to the county and the host municipality of Wharton, each of which would receive $1.2 million a year, along with $2.4 million to be used for local economic development and infrastructure initiatives.

That's a significant impact for a county with a $23.3 million annual budget.

The resort, already the county's largest employer with about 1,000 employees, would add 600 new casino and hotel jobs if the application is approved, helping to relieve the county's 13.5 percent unemployment rate, also among the worst in the state.

Gaming analyst Joe Weinert of New Jersey-based Spectrum Gaming Group said the gaming control board, which won't make a decision about the license until later this year, likely will judge applicants on their potential revenue, the impact on the local community and nearby gaming competitors, and whether the site would import significant out-of-state gaming dollars.

Mr. Nobers said that of the approximately 350,000 people who visited the resort last year, 60 percent were from other states, primarily the Washington, D.C., Virginia and Maryland area.

The resort, which features 335 rooms, two golf courses, a spa, three hotels and 14 restaurants, is competing with hotels near Harrisburg, Reading and Gettysburg and a resort in the Poconos.

Rivers Casino

Earlier this year, the underperforming Rivers Casino finally began bucking the downward spiral it had been experiencing since opening to much fanfare in August.

Expectations for the casino were high: The gaming control board predicted the casino would be the most lucrative in the state.

But with average gross terminal revenue of about $16 million per month through the end of 2009 - less than half of what was predicted - the casino was more than a disappointment.

It was one of the worst-performing casinos in the state, prompting concerns that financial commitments - such as 30 annual payments of $7.5 million for the new Consol Energy Center - might not be met.

As a result, the casino's credit rating was twice downgraded, while public misconceptions about matters such as parking fees ran rampant.

The concern about parking stemmed from a plan last year to charge $50 to Steelers fans for game day parking at the casino's parking garage, unless they spent at least $80 in the casino.

That requirement was later dropped to $20 in casino spending, but misconceptions persist about parking, which is free for patrons.

Starting March 1, the casino hired a new general manager, followed by a new vice president of marketing, a new vice president of gaming, a new executive chef and new vice president of food and beverage.

Also, casino revenue lurched from $17.2 million in February to $22.3 million by the end of March. During the first 25 days of April - the latest figures available from the gaming control board - revenues totaled $17.4 million. If business continued at that pace for the rest of April, monthly revenue would total about $21.7 million.

Although that represents a 19 percent increase over two months, some experts are still concerned about the casino's financial viability.

Michael Listner, the Standard & Poor's analyst who downgraded the casino's credit rating twice last year, said the new revenue figures haven't assuaged his concerns that the casino may not be able to meet its financial obligations this year.

The specific concerns revolve around debt payments and pre-existing obligations, such as the $7.5 million annual payment for the Penguins arena. Another scheduled payment of $7.5 million is due in October.

"Based on the performance so far, I think they'll be challenged," Mr. Listner said. "Even if they were to do [$22 million] a month, it would still be a challenge for them."

But spokesman George Matta said the casino will make good on its promises and is thrilled with the increased traffic.

Meadows Racetrack & Casino

Unlike Rivers, revenue at The Meadows Racetrack & Casino in Washington County has far outpaced all predictions.

Even after taking a 30 percent revenue hit when the Rivers Casino opened in August, The Meadows last year posted annual revenue of $278 million, bringing in about $11 million for host municipality North Strabane and the county, which spends its share on economic and community development projects.

The gaming control board anticipated that the state's three stand-alone casinos, including Rivers, would be among its top performing and that its six racetrack casinos would lag behind.

The Meadows was predicted to be the state's least lucrative casino with $118 million in annual revenue.

So how could predictions be so off?

Mr. Weinert said it has nothing to do with racetracks versus stand-alone casinos.

In his view, it's all about location.

"Suburban properties seem to be doing better than something more urban where there's competition," he said. "It's ease of access."

And, urban casinos typically have a much larger capital investment, he said.

That leaves smaller suburban casinos with more money to spend on marketing efforts.

One need only look to the local casinos to see that theory playing out.

The Meadows' $485 million investment is dwarfed by the $800 million that Rivers has spent on capital expenses and fees since opening its casino, which is also 100,000 square feet larger than The Meadows.

Rivers Casino was recently tagged with a $199.5 million property assessment, which it is appealing, while The Meadows has been valued at far less. It was assessed at $20 million, but that's based on 1980 figures, so that amount is misleading.

Operations at The Meadows still may need some tweaking, though. It was fined $20,000 last month for allowing two people on a statewide self-exclusion list to gamble.

People with gambling problems have the option to ban themselves from casinos for a year at a time. It is the responsibility of the casino to deny entry to self-excluded people and to cite them for criminal trespass.

Last year, the casino lost about $400,000 to three men who were accused of illegally exploiting a software glitch in a slot machine. They are awaiting trial.

The Meadows expects table games to be available in early July.

Planners want to begin work on the new casino layout as soon as possible.

Janice Crompton: jcrompton@post-gazette.com or 724-223-0156.

 

 

 

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