Thursday, April 26, 2012

There are bad investments and there are bad investments

One of the owners of the Rivers Casino says the business is a terrible investment. Just terrible.  In context you can't ignore that the statement is made as part of litigation to lower the property's assessed value for tax purposes. 

So here is the deal.  Maybe he is right, maybe he isn't.  The Rivers Casino could be an awful investment or a great one.   What is a bit clearer is that the value of the casino has only gone up since he invested in the business.  When Don Barden and his coinvestors were supplanted as the equity owners of the casino there were no table games in PA casinos. No assurance there would be table games in the future. Since then the law changed and they all jumped into table games quickly.. because it made such financial sense.  Table games have been very very lucrative for Pennsylvania casinos.  Not only do tables games incur a lower tax rate on gross revenues but they bring more people through the door which has been pushing up slots revenues as well. Add in the detriorating economy at the time and other reasons to think that the price paid at the time was actually pushed down from what it might have been a year earlier or a year later.  One way or another the value of the casino has gone up since that investment was made.

Consider that if it was a bad investment, the new owners were clearly warned of that fact by just how well all the previous investors fared. The 'bad' part of the investment was not hidden and assuming the investors were not unsophisticated they took all the available information into account when deciding what price to pay.

Remember it was not just the late Don Barden who took a bath, but his co-investors and even the folks who backed the loans he took out.  That would include the Detroit public pension system.. someone may need to check to see what the outcome was of that story.  The point is that the casino was probably worth what it was paid by the new owners at the time they made the investment.. and the whole enterprise can only have increased in value since. 

Recall Don Barden's financing scheme for the casino early on.....

2 Comments:

Anonymous MH said...

Everybody does bad enough not to be able to pay taxes but not bad enough to replace the management.

Thursday, April 26, 2012 9:16:00 AM  
Blogger BrianTH said...

This is a good point (that it was a bad investment for the first guys, not the guys who took over from the first guys).

I'd also underscore that the revenues effects from table games and recovery from the recession are not theoretical: Rivers' revenue has been growing at a really rapid rate.

So basically they are trying to convince the court to look backwards and not forwards. I suspect that won't work.

Thursday, April 26, 2012 4:50:00 PM  

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