January 14, 2018

The Update Desk: Casino Gambling

Last November, I shared the news ( in this Meanwhile Back in Albany post) that New York's gamble on allowing private, non-Native American casino gambling was not doing as well as expected.

The majority of voting New Yorkers who remembered to turn over their ballots back in 2013 decided we would amend our constitution back in 2013 to allow for up to seven new casinos "for the legislated purposes of promoting job growth, increasing aid to schools, and permitting local governments to lower property taxes through revenues generated."

As I noted in that post in November, the first three casinos - del Lago Resort and Casino (Waterloo) Tioga Downs in the Southern tier (which has its own crazy story) and Rivers Resort and Casino (Schenectady) are all under performing, by some $200 million or so, according to projections.

Competition is increasing - the fourth of the 'up to seven' casinos will open in the Catskills later this spring. The new place, Resorts World Catskills, will have a 100,000 square foot casino, 2150 slot machines, and 134 table games, along with a hotel, spa, golf course, and multiple dining options.

Also opening soon is Point Place, the latest offering from the Oneida Nation, which owns Turning Stone Resort Casino in Verona (east of Syracuse) and another mini-casino in Chittenango. Point Place, in Bridgeport, is supposed to cater to folks in Onondaga County, where the Legislature doesn't want to be in the gambling business and repeatedly turns down even putting up an OTB parlor, as well as from the communities around Oneida Lake and points north.

As noted in this recent article on Casino.org,
When Point Place Casino near Syracuse opens on March 1, the boutique $40M, 65,000 square foot casino will feature 500 slot machines and 20 table games. And while that might be great news for area gamblers, it's not quite as welcomed by the competition.
New York gambling venues have been sprouting up across the state since legislators opted to legalize four commercial casinos in 2013. The result has been a increasingly crowded upstate market, with private and Native American gaming operators fighting for the same customer base. 
NY legislators and Governor Cuomo don't seem to be too worried. For example, here's a fabulously irresponsible comment from Senator John Bonacic, the Mount Hope Republican who happens to be chair of the Racing, Gaming and Wagering Committee in the state senate, who noted in effect that developers always lie to get approval for their projects.
It was a very competitive process for four casino licenses, and of course their consultants were going to put rosy projections in order to get the Gaming Commission to hopefully give them a license. 
Gee, thanks for the oversight, Senator -- you do know that means oversee, not overlook, right?

For his part, our ever optimistic Sonofa Gov noted about the new casinos
They've all been wildly successful in creating jobs and building beautiful complexes.
Which, as we know, counts for everything with him. The state is littered with beautiful buildings created as part of these economic development, money-for-schools or tax revenue generators (but that's a whole nother post.)

So as we look to March, and hundreds of thousands of square feet of new gaming space, we have this dreary outlook on Wilmorite's del Lago from Moody's, which landed on January 10th.
Moody's Investor Services downgraded Lago Resort and Casino, LLC's Corporate Family Rating today to Caa2 from B3 even while the company's Probability of Default Rating was lowered to Caa2-PD from B3-PD. At the same time, Lago's 1st lien revolver and term loan were downgraded to Caa1 from B2 and its 2nd lien term loan was downgraded to Caa3 from Caa2. The rating outlook is negative. 
In English, what does that mean (emphasis added)?
Key credit challenges include Lago's slower than expected ramp up, single asset profile, and the highly competitive nature of the market which it operates that may impede the company's ability to support its capital structure. There are five gambling facilities, including four racinos and one Native American full scale casino within 100 miles of del Lago's location...
The negative rating outlook considers Moody's expectation that, despite the likelihood that Lago will cover its cash interest obligations and remain in compliance with its financial covenants during the next 12 months, albeit marginally, without a substantial improvement in the rate and degree of ramp-up or an additional equity investment by the owners, Lago will not be able to achieve a level of performance that can support its existing debt capital structure. 
 Lago's rating could be lowered if it appears there will be debt restructuring that involves impairment to existing lenders..
Now, it would be unfair if I failed to mention spin-off economic benefits stemming from del Lago and the other new casinos. For example, the State of New York might be making some extra money.
Data obtained from the State Thruway Authority shows Exit 41 (del Lago is just across the Thruway from the toll booths) had a monthly average of 266,306 vehicles the year before del Lago opened, the casino says. Since the casino opened, average monthly traffic at Exit 41 has increased to 381,477 vehicles...
Another real success story is the Magee Diner, just down the road from del Lago. It's one of several local businesses where gamblers can use their rewards points. The diner's owner, Gary Schlegel, has seen sales increase 15% since the casino opened.
We see more and more new faces in our restaurant every day, and 80 percent of the time my customers tell me they are on the way to or from del Lago.
Schlegel plans on adding outdoor dining and said he's going to see about getting a liquor license, too. This is great news, but as with any other downstream economic effect, this will last only as long as del Lago lasts. Like those shiny under-leased or empty new buildings I mentioned above, hopes and dreams of small business owners are also scattered across the landscape.

I don't want the casinos to fail -- we're already over-invested in them. And I certainly don't want the small business owners who are seeing a bump in business go back to where they were, or worse - fail completely - should the casino 'trickle-down' revenue streams dry up. 

What I do want, though, is responsible stewardship and leadership from our elected officials. That, my friends, shouldn't have to depend on a roll of the dice or the luck of the draw. 

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