|By Rick Stouffer, The Pittsburgh
Tribune-ReviewMcClatchy-Tribune Regional News
Aug. 07, 2010--One year after its grand opening, Rivers Casino is performing woefully short of its own revenue projections and estimates by the state Gaming Control Board, and industry watchers and rating agencies are concerned.
Standard & Poor's Ratings Services, which follows the casino's fortunes for investors in the parent company's debt, downgraded the North Shore casino's debt ratings three times in the past year.
"They spent about $800 million on the property, one of the most expensive in the state, but the most recent figures show its revenues are fifth or sixth (out of nine) casinos in the state," said Michael Listner, an S&P analyst who follows Rivers Casino's parent, Holdings Gaming Borrower LP. "It's pretty mediocre results."
Elected officials say they are pleased with the performance of Pennsylvania's casino industry as a whole after nearly four years of legal slots and billions of dollars in tax revenue. But analysts don't like what they see in Pittsburgh.
"As of Aug. 1, the Rivers' revenue since opening was about $217 million," said Frank Gamrat, a senior research associate with the Allegheny Institute for Public Policy in Castle Shannon. "The owners projected $427 million in revenue in its first year, and the Gaming Board projected $362 million. The casino's not living up to its hype."
All casinos take time to ramp up operations, to determine things like the proper mix of employees and the total number of workers needed, experts said.
"It's not uncommon for properties to take up to a year to reach operational efficiencies in their operations," said Grant Govertsen, a partner and analyst with investment bank Union Gaming Group in Las Vegas.
Casino leaders say the newness of being able to locally and legally play a pick of more than 2,800 slot machines and, for the past month, table games hasn't worn off at Rivers after a year.
"We're very pleased with the business we've done," said Todd Moyer, Rivers' general manager.
Some industry watchers say the idea of being able to gamble legally in Pennsylvania remains fresh at all nine casinos in operation.
"The only domestic gaming market that hasn't suffered considerably from the adverse effects of credit markets drying up and the recession was Pennsylvania," said Eugene Christiansen, CEO of Christiansen Capital Advisors LLC of New York. "Because the state actually was late to legalize slots, you had all the people who were used to going to West Virginia or New York staying home to go to the bright, shiny, new facilities."
Like his Rivers' counterpart, Sean Sullivan, general manager of The Meadows Racetrack & Casino, is happy with his facility's performance.
"We're very pleased with the wagers," Sullivan said from the North Strabane location, which opened a temporary casino in June 2007 and its permanent facility in April 2009. In 2008, The Meadows was projected to gross $118 million. It grossed more than $231 million.
"We're doing extremely well during the midweek," Sullivan said. "We need more parking."
Data from the state Gaming Control Board shows that since Pennsylvania's first casino opened in November 2006, gamblers wagered more than $76.9 billion, and the facilities paid out $70.2 billion.
Last year, the nine operating casinos sent to Harrisburg nearly $1.1 billion in taxes -- nearly a quarter-billion dollars more than Nevada's 260 casinos sent to Carson City. However, Pennsylvania's casinos pay a 55 percent tax, and Nevada levies an 8 percent tax.
"We are very pleased with how all the casinos are performing," said gaming board Chairman Greg Fajt. "Since November 2006, when the first casino opened in the state, $3.8 billion in tax revenue has been generated, which has meant $2.1 billion in property tax relief, about $190 per year for each property owner."
Fajt further broke down the money collected from Pennsylvania's 55 percent tax, including $335 million to the communities where the casinos are located, $687 million to the state's horse racing industry, which he said was "flat on its back" prior to the influx of gaming levies, $290 million to economic development and tourism, and $125 million to fire departments statewide.
"The casinos have surpassed my expectations tenfold," Gov. Ed Rendell said Friday during a visit to Pittsburgh. "When you consider that Pennsylvania's tax revenues from gaming last year surpassed those of Nevada, that 125,000 seniors have had their property taxes eliminated, that another 235,000 had their property taxes cut by 50 percent, that the Penguins aren't playing in Kansas City because of gaming funds, I'm ecstatic about gaming."
Rivers pays $7.5 million annually to help pay off the $321 million Consol Energy Center. The agreement to build the replacement for Mellon Arena in the Hill District helped keep the hockey team in Pittsburgh.
Fajt said the No. 1 issue with all of the casinos was job creation.
"The casinos have created more than 12,700 jobs directly tied to the gaming industry, both slots and table games," the gaming board chief said. The average annual wage of the created positions is between $35,000 and $45,000, he added.
"The Rivers is a world-class facility -- a great addition to the waterfront," said Megan Dardanell, spokeswoman for Allegheny County Executive Dan Onorato. "It's contributed property taxes on that site, and the casino has been a wonderful community partner, contributing to the funding of the Consol Energy Center, plus it's another entertainment venue."
But S&P's downgrades don't breed confidence.
"I don't think things are as rosy at the casino as they say," Gamrat said. "And we know that the casino industry's revenues slack off in the fall."
S&P's Listner said he remains concerned that Holdings Gaming can generate enough cash at Rivers to make payments on its debt as well as maintain the property.
"The opinions of rating agencies have no impact whatsoever on the operations of Rivers Casino," responded Rivers spokesman Jack Horner.
Property maintenance, specifically casino upgrades, can become a big strain for any casino, consultant Christiansen said. Casino owners must spend huge amounts of capital every five to seven years to refresh their properties.
"Those in the casino industry always are trying to make themselves the next great property by constantly updating, adding new equipment," Listner said. "Five years down the road could be a real challenge for the Rivers' owners. We're concerned now with the level of cash flow to meet debt service as well as upkeep."
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