Was the Rivers Casino A Lemon of an Investment?
During an assessment hearing one of the Rivers Casino’s owners, seeking to have the facility’s assessment lowered, commented that the Casino has been a “terrible investment”. He lamented that the Casino has not met initial revenue projections and will be adversely affected when casinos begin popping up in neighboring Ohio. However, despite its disappointing performance to date, the Rivers has enjoyed a pickup in revenue recently as have most of the other casinos across the Commonwealth.
It is true that the Rivers has not met its slots revenue expectations for the first full year of operations set by the original ownership ($427 million) or the Gaming Control Board ($362 million). Projections for third year of operations showed revenues climbing to over $500 million. However, as we documented in an earlier Policy Brief (Volume 12, Number 6), the first full calendar year of slots operations (2010) resulted in gross terminal revenues of $241.6 million which was well below either projection. Second year revenues jumped 14 percent to $274.8 million, still well below pre-opening expectations. And thus far in 2012 the first quarter average weekly gross terminal revenues are running seven percent ($5.69 million vs. $5.3 million) ahead of the year earlier level putting the Rivers on pace to reach $295 million for calendar 2012.
In fact, nearly all Commonwealth casinos experienced improvement in the first quarter of 2012 compared to the first quarter of 2011. The largest increase in average weekly gross terminal revenues occurred at Sugar House (32 percent) whose average rose from just over $3.05 million to slightly above $4.04 million. Meanwhile, the Sands Bethlehem had growth of 13 percent followed by Philadelphia Parx and the Rivers casinos each with a seven percent jump. Harrah’s saw slots revenues fall by five percent and the Meadows experienced no real growth.
These figures do not include revenues from table games which debuted in 2010.
In 2011 the Rivers collected $67.5 million in gross revenues from table games for a monthly average of $5.6 million. In the first quarter of 2012 the monthly average from table games came in at $5.95 million, an increase of 13.4 percent over the 2011 first quarter monthly average of $5.24 million. If the first quarter pace continues, the Rivers should top $71 million in gross revenues from table games in 2012.
Moreover, the Rivers was not the only casino to post better first quarter table game revenue. In fact all Commonwealth casinos had increases to their average monthly gross total revenues compared to the same time period year ago. Sands Bethlehem at 47.8 percent posted the largest gain followed by Sugar House (34 percent) and Mount Airy (22.3 percent). The Meadows had the smallest increase at less than one percent.
One possible reason for the increase in table game revenues at these casinos is the number of tables being used. The Sands Bethlehem did increase the number of table games available by 52 percent and Philadelphia Parx added 22 percent. The Rivers Casino had a net gain of four tables going from 104 table games in operation to 108. The Meadows added eight more tables.
Perhaps a better explanation for the increase in revenues both at the tables and slots is the improving economy.
So if the revenue trend at the Rivers is up, is the Casino still a bad investment? If the revenue projections for 2012 hold ($295 million from slots and $71 million from table games) the Rivers should have gross revenues of about $366 million-roughly equal to the Gaming Board’s 2008 prediction (although this estimate was just from slots). Keep in mind that this is gross revenues. We have no data on the costs of operating and maintaining the Casino. It is possible that the Casino’s profitability is hindered by high costs considering the fact table games are more labor intensive than slot machines. Profitability is also hampered by the financial obligations to help pay for debt incurred in building the new hockey arena and other community agreements as well as a minimum $10 million payment to the City. The owner claims actual earnings in the first year came in at about a quarter of projections ($20.2 million vs. $87 million). There was no comment on second year actual earnings.
But of late revenues have been on the rise, from both slots and table games. If current ownership still views the Casino going forward as a losing proposition, they should begin looking for potential buyers. See what some other gaming establishments will offer in a free market bidding process. How else can the true value of the casino be determined? Otherwise, the County’s assessment based on its appraisal methodology will prevail.