Wednesday, April 04, 2012

Yinz and Yang of Casino Finance

Compare and contrast the two recent news items that don't seem to intersect much if you just read them separately:

Only in Pennsylvania is the argument that an $800 million dollar investment is worth less than 10 cents on the dollar for tax purposes.

Well, I guess it isn't novel for some business to make the claim, but only here is it even conceivable to be taken seriously.  In fact the casino wants its assessment lowered well below what it was set at BEFORE it was allowed table games. Go figure that. Is it arguing table games hurt their bottom line?  Realize the casino property is likely valued on the basis of what potential income it can generate, so all of this is relevant.  

Actually, that $800 million number was the reference number early on. I forget what the Lehman line of credit was just in itself that Don Barden had lined up (and which did him in when it unraveled).  Since then there has been investment in the table games and I think some reconfiguation of the structure itself to accomodate them.  That plus adjusting for inflation makes me wonder if the casino represents a $billion dollar invesment in current dollars.  Just don't dare tax them at even $100 million!!

Funny looking at old news related to this. Check out the line from 2007  'a report by Lehman Brothers, calling Majestic Star the "best long-term buy in the gaming universe.'   Some corollary of  'even paranoids have enemies' in that Lehman may have gotten that right.  Of course that was self serving since I think Lehman was backing the enterprise at that point. (and full disclosure I once was a minion on the derivatives trading floor at Lehman).
Then there is the rosetta stone question.   Did the North Shore Connector raise or lower the value of real eastate on the Near North Shore to include the casino property?  Someone might want to point out that the casino has voted with its checkbook by underwriting the fares between downtown and the stop closest to the casino.  They are not doing that out of altruisim one can presume, so there must be value there for them. 

Yeah, I know I stopped updating my "Casino Watch" there on the right.  No time to do such things. 

For the record, I do know that the casino represents one of the biggest tax payers in the city (see the old graphic I once made up below which I believe was from 2010) which may irk them.  But it is also true that the casino in itself represents one of the biggest real estate investments in the city in the last decade so it all makes a certain perverse sense.  Put another way, the $$ spent on the casino could have literally bought all the real estate in a dozen or so city neighborhoods. Probably more now with the new reassessment lowering values in a lot of neighborhoods.

Effective Property Tax by City of Pittburgh Neighborhood (with Rivers Casino identified on its own)


Blogger BrianTH said...

One random comment: Rivers is now officially killing Meadows, even in just slots (yoy Rivers's slots revenue was up 9.8% to $26.7 million, Meadows up 1.67% to $21.3 million). Old news at this point, but there was some question in the early days of Rivers about this, so I thought it was worth pointing out.

Anyway, that 9.8% revenue growth is particularly relevant to the assessment issue. Annual revenues of $500 million are supposedly out of reach according to the Casino (this is their main argument for rejecting the cost approach, that they overestimated revenue potential when building). But that proposition looks less and less obvious with this sort of sustained revenue growth--and we are still in a recovery from a pretty bad recession (not as bad here as some places, but still significant).

Wednesday, April 04, 2012 9:39:00 AM  
Anonymous Jeff said...

Nice post which that $800 million number was the reference number early on.What the Lehman line of credit was just in itself that Don Barden had lined up . Since then there has been investment in the table games and I think some reconfiguation of the structure itself to accommodate them. Thanks a lot for posting this article.

Saturday, May 12, 2012 11:46:00 PM  
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