Rivers Casino Revenues Up But Far Below Expectations

There is some moderately good news from the Rivers Casino–at least from the casino’s perspective. Gross terminal revenue has picked up 20 percent thus far in 2010 compared to the opening five months of August through December 2009.  Moreover, revenues this spring have been running at their best levels since the facility opened. If the historical pattern established by other casinos holds at Rivers, revenues will continue at current levels or improve somewhat through August, after which they will enter a much weaker fall season lasting until Christmas.  

 

 

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Casino Has a Long Way to Go

News that the Rivers Casino enjoyed its best week of gross terminal revenues since it began operations is hardly worth celebrating. The casino has not lived up to its hype and still faces a long struggle to earn the money toreach theirrevenue target.

From February 15th through 21st, the casino had its second best week with $4.8 million in gross terminal revenues (GTR). During its first full week of operation in early August, the casino earned $5.2 million in GTR. Since opening, the casino is averaging a little more than $3.8 million in GTR. At this pace the casino’s first year will earn less than $200 million in GTR-not nearly enough to cover its costs and other obligations. This projection will certainly fall well short of management’s initial prediction of $427 million.

While wagers did hit a record of nearly $61 million, beating the opening week of $60 million, how much did the casino pay in promotions to get people in the door? They have been ramping up promotions and advertising to bring in gamblers, but that only raises costs and cuts into profits.

Considering how poorly the casino has performed when compared to projections, any good news is welcome. But they still have a long way to go toreach their hoped for revenue levels.

Gaming as a Way to Fund Spending a Sure Bet

No cards have yet been dealt, not a roulette wheel spun, and no dice have been tossed, yet several stakeholders are counting on table games to fund their budgetary needs. In Allegheny County this includes the Carnegie Libraries and the Allegheny County Library Association, as well as the tourism agency in Monroeville. Statewide there will be many others.

And this should come as no surprise: the original 2004 slots bill allowed for economic development handouts for debt at Pittsburgh International Airport, to pay off debts related to subsidy programs administered by Pittsburgh and Allegheny County, for a hockey arena, for the convention center, etc., etc.

Of course the state needs the licensing fee money for this year’s budget and then when the table game enterprise is up and running it can count on recurring revenue. As one state representative noted, using slots for budgets and economic development projects is the worst way to raise revenue "’except for all the other worst ways."

This all raises a line of inquiry: how would the state and the region fund its "needs" without the slot money? Would the absence of $150 million for debt at the airport have forced the County and the Airport Authority to raise fees or possibly look at turning the facility over to a private operator to raise money and achieve efficiencies to retire the debt? Would the City of Pittsburgh, caught in the quagmire of legacy costs, be able to find the money to pay off the Pittsburgh Development Fund? How would the hockey arena be built?

As much as it would be desirable to witness, it seems awfully unlikely that the City and the County would have cut general spending in order to save money to devote annual allotments to these projects.

County Gaming Money Sees a Shake-Up

As we have pointed out since the slots gaming law was passed and the disbursement of economic development money was codified into law, the language allowing for Allegheny County to receive $80 million for the "construction, development, improvement, and maintenance of infrastructure projects" was overly broad. The County receives the money in annual installments of $6.6 million and funneled the money through the Redevelopment Authority of Allegheny County to a special entity created within the Authority known as the "Allegheny County Economic Development, Community Infrastructure, and Tourism Board (CITB)".

Just this past week Council acted on a measure that would allow the Redevelopment Authority to act as the agent for handling the money since the CITB plans to "dissolve itself, which shall take place on or before March 31, 2010". The decision to end the CITB must have came quickly as the measure was introduced on December 1st and approved on the 15th.

Given the broad statutory language, some of the awards made by the CITB included disbursing $250k to Point Park University for its academic village, $50k to Monroeville for a traffic signal (the money was moved to help research on a site plan for a health club), as well as to construct a parking lot in Lawrenceville, for new housing in Manchester, for a fountain in Allegheny Commons park, for promotional work in Monroeville, and for a retaining wall in Shaler to help prevent flooding along Girty’s Run.

It is unclear why this change was made and what it will mean when the remainder of the money is handed out in the coming years.

Not So Jolly News for Rivers Casino

Pittsburgh’s Rivers Casino received some not so jolly news this holiday season-a credit rating downgrade from Standard and Poor’s. The downgrade from a B- to a CCC amounts to a lump of coal in the casino’s stocking. But the official statement from management is that the reduction "was entirely anticipated". They rationalize the move as one that is affecting the gambling industry as a whole and not indicative of troubles at the North Shore facility. In keeping with the cheeriness of the holiday season the statement further comments the "Rivers Casino is posting market share gains and is becoming a destination of choice for gaming in Western Pennsylvania".

Management is correct in one facet-the downgraded was to be anticipated. As we have been documenting, the slots parlor has not lived up to neither its, nor the gaming board’s, revenue expectations. Through the second week of December the casino is on pace to earn $196 million in annual gross terminal revenues-far below their projection of $427.8 million and the gaming board’s projection of $362.4 million annually.

Of course, with the casino at only 45 percent of expected revenue, many people are worried because the City and region have pinned a lot of hopes on the success of the facility. Not only will the projected community payouts be in doubt-like the $7.5 million per year for the new hockey arena-but the future of the slots parlor itself could be in doubt. And that brings up a whole new set of questions. What happens if the Rivers Casino declares bankruptcy? Remember that one of its owners has already declared bankruptcy. Who takes over the casino and will they be required to pay for the new arena or will a bankruptcy judge relieve them of that obligation? While this is the season of giving, the Rivers Casino may need more than Santa can fit in his sleigh.

Good News for Pittsburgh’s Casino Fleeting

The run of good news for the Rivers Casino was fleeting. Last week we noted that things may be looking up for the beleaguered slots parlor as a potential rival filed for bankruptcy and Ohioans heading to the polls were not certain to pass that state’s referendum on gambling. What a difference a week makes.

On Election Day the referendum legalizing gambling in Ohio passed. While the ballot question only authorized slots casinos in the four major cities-Cleveland the closest to Pittsburgh, is more than two hours away-it opens the door to competition for Ohio residents and their gambling dollars. It will certainly have a negative impact on wagering and gross terminal revenues at Pennsylvania casinos.

And now news reports indicate that workers at the Rivers Casino are in the process of organizing. Security and surveillance employees are scheduled to vote on Monday to unionize while other unions are actively recruiting remaining casino employees. It seems many of the retirees who frequent the parlor are former union workers who are providing contacts for these employees.

For a facility whose revenues are running woefully under projections, this news may be the worst of all. Competition and low wagering can be combated with marketing, promotions, and advertising. Unionization will raise labor costs and further weaken the viability of this underperforming facility. With so much riding of this casino, payment for the new hockey arena and host fees for the City and County, the events of the last week are disappointing to say the least.

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.

Is the Casino Being a Good Citizen?

When Pittsburgh’s casino license passed from Don Barden to Neil Bluhm, the latter agreed, as a condition to the transfer, to honor all obligations associated with that license-which includes an annual $7.5 million payment for the new hockey arena. The original agreement called for the first payment to be made October 2009. Mr. Bluhm first balked at making this payment earlier in the summer and while negotiations with the Sports and Exhibition Authority continue, this deadline looms closer. If his casino doesn’t honor this obligation, state taxpayers will be on the hook.

Through an arrangement of leases and subleases, the Commonwealth of Pennsylvania-i.e. the taxpayer-is responsible for paying the debt for building the new Penguins’ palace if the casino is unable. But here’s the catch: the money has to be appropriated by the Legislature. This is an interesting situation considering the State doesn’t have a full budget and is lamenting falling revenues. It’s highly unlikely the Legislature will approve the gubernatorial request to cover the casino’s first payment.

The main reason for the casino’s objection is that they just opened in August and hasn’t had time to earn the money to make the payment. Since its initial opening the casino has earned gross terminal revenues of $20.1 million-well below their projections-of which 55 percent must be paid in taxes. That leaves roughly $9 million to pay expenses such as personnel, maintenance and operations, and debt service.

But the payment is coming due and the taxpayers should not be saddled with his problem. The Rivers Casino could more easily find the money by perhaps borrowing against future revenues. When he took over the slots license Mr. Bluhm promised to be a good citizen. Stepping up and making the payment would be a great first step in keeping that promise.

Pittsburgh Casino Revenues Flat

Wagers at the Rivers Casino seemed to have hit a plateau in the fourth week of operations. Revenue data for the week of August 31st shows the casino accepting wagers of $52.9 million, up slightly (less than one percent) from the previous week of $52.5 million. This slight increase was also reflected in the week’s gross terminal revenues ($4.34 million vs. $4.26 million).

The casino started out below projections and had seen weekly wagers and revenues decline in the following two weeks prior to this small up-tick. After four weeks of play, the average weekly gross terminal revenue for the Rivers Casino is $4.63 million. Projected over a full year, the casino is on pace to earn gross terminal revenues of $240.8 million. This represents only 56 percent of the Casino’s initial expectation of $427.8 million. While excuses abound, this has not been a great first month for the slots parlor.

Casino managers have plenty to worry about and should not get too excited about a less-than-modest increase in revenues. While stopping a three week slide in revenues is positive, it may not be a harbinger of things to come-after all, even the Pirates win an occasional game.

Bluhm on the Hook but Squirming: Taxpayers May Get Tab

With less than a month until the Rivers Casino opens in Pittsburgh the slots parlor is facing a $7.5 million payment due this October for its share of the hockey arena debt service. Predictably, casino owner Neil Bluhm is balking at making his first payment so quickly. Instead he insists that his first installment is not due until 2010 at the earliest and possibly not until 2012. Will this be settled amicably or through the courts?

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