The Rivers Casino Profitability Disadvantage

As we have documented in past Policy Briefs, the Rivers Casino has gotten off to a rocky start-first with ownership problems and then with weak gross terminal revenues from slots operations.  At the completion of its first full year (August 2009-2010) we noted that the $222.3 million earned in gross terminal revenues fell woefully short of its own projections of $428 million as well as the $362 million projected from the Pennsylvania Gaming Control Board (PGCB).  It did not even compare favorably to its southern competitor, the Meadows Casino in nearby Washington County, which had earned $252 million during the same time frame-above both its’ own projections and that of the PGCB. 



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Good News for Rivers Casino?

Since its opening at the beginning of August, the Rivers Casino has been beset by one problem after another and has experienced much lower than forecast gross terminal revenues. These lower than anticipated revenues have been blamed on a variety of factors such as poor access on the North Side, the G-20 conference, and competition from not only the Meadows slots parlor, but from professional and college football games in neighboring Heinz Field. They have been threatened by the members of the State Legislature for not coming up with their obligation for the new hockey arena and have seen their credit rating downgraded. Not much has gone well for the new gambling parlor.

Maybe things will start looking up.

In what might be a reversal of fortune, a future competitor has announced it will enter bankruptcy protection. Centaur LLC, a company that specializes in gaming, has announced that it has sought court protection from creditors which will undoubtedly push back the opening of a Lawrence County race track and casino from its target of September 2010. The filing jeopardizes not only the company’s slots license, which it has been promised but not yet purchased, but its harness racing license as well.

Furthermore, the legalization of slots gambling in Ohio will be placed in front of the voters in the upcoming election. Lawmakers had passed a law but Ohio courts put it before the people in a referendum and it’s no sure bet to pass. If it does then casinos in western Pennsylvania, Rivers, Meadows, and Presque Isle, will see their customer base shrink as Ohio residents will no longer have to cross state lines to lose money.

All of this could be good news for Rivers Casino. However, it underscores the fact that legalized slots parlors are not the savior they were promoted to be.

As Leaves Fall so do Gaming Revenues

Pennsylvania’s slots parlors are now deep into gambling’s fall slow season. This coupled with the impacts of a national recession has caused one area casino to announce that up to 100 employees will be laid off. Instead of the beleaguered Rivers Casino laying off workers as might have been expected, it was its southern neighbor, the Meadows.

That the Meadows Casino made the announcement came as a bit of a surprise. Their Gross Terminal Revenues (GTR) to date had been well above expectations-they are averaging $5.9 million per week since the beginning of June which gives them a pace of more than $307 million. Even though wagering and GTR at the Meadows had declined slightly with the opening of Pittsburgh’s casino, they should easily beat their initial forecast of $236 million in annual revenues.

Compare these results with those of the Rivers Casino. Since opening to much fanfare in August, the Rivers is averaging just more than $4 million for annual pace of $210 million-well below their projections of $427 million. Their performance to date has been so worrisome that they renegotiated their annual payment for the new hockey arena when it was clear they would be unable to pay the full $7.5 million by the end of October. Instead they made a partial payment of $2.35 million with the balance due in April. (It’s worth noting that the Meadows’ has no such community benefits obligation.) Standard and Poor’s also lowered the Rivers’ credit rating from a B to a B-. It’s fair to say that things are not working as the owners (and politicians) had imagined through the first few months.

However, true to their all-is-well mentality, management at the Rivers insists everything is fine. In fact they claim to be in hiring mode to staff their newest restaurant with several more open positions at the facility. Is this whistling past the graveyard or do they expect activity to pick up? As we noted in a recent Policy Brief (Vol. 9, No. 52), the fall season has typically been low for Pennsylvania’s casinos and activity remains low through early spring.

Pittsburgh’s Casino on Thin Ice

Pittsburgh’s Rivers Casino is on thin ice. Their gross terminal revenues have been woefully under projections and as a result they are having difficulty making their obligated $7.5 million payment for the new hockey arena. This payment was due September 15th. They have been in negotiations with the arena’s owner, the Sports and Exhibition Authority, to alter this obligation. They have recently come under fire from the State’s Gaming Control Board for being delinquent on the payment of nearly one month.

The Gaming Control Board’s Bureau of Investigation has filed a complaint stating the Rivers has violated a condition of its gaming license by not making the payment by October 1st. The Gaming Board will look at the complaint and decide whether a fine or other action is warranted. Negotiations with the SEA continue with the possibility of splitting the payment into smaller amounts, but no agreement has yet been reached.

Furthermore the Casino’s problems will only get worse when Allegheny County performs a property assessment on the facility. Once completed the slots parlor could end up paying property taxes of about $12 million. If they are struggling to make a $7.5 million bond payment, coming up with an additional $12 million may plunge them through the ice, unless something dramatic or unexpected happens to enhance their revenue.