Tuesday, August 14, 2007

Losses at Pocono Downs

The Tribe issued its second three-month quarterly earnings report that included a Pocono Downs facility with operational slot machines. Over the past three months, the Pocono Downs has generated a higher average slot win ($431 per machine) for each of its approximately 1,200 slot machines than those generated per slot machine at its Connecticut casino ($413 per machine).

The Tribe does not report on the profit or loss from the Pocono Downs as a unit. However, the Tribe’s financial report shows “income from operations” for Pocono Downs of $6.5 million, a figure that does not take into account interest expense on the debt it took out to purchase and improve the facility. Also not deducted are its share of some operating expenses, such as the corporate department expenses (three-month total cost of $3.2 million) and administration and advertising expenses. Once these expenses are taken into account, then the Pocono Downs is certainly generating losses.

Even as the Pocono Downs’ losses accumulate, the tribal government reports to its membership that the Pocono Downs is “very successful.” Based on public statements made last year in an effort to clarify tax obligations to Plains Township, the Tribe inferred that its forecasted revenues were nearly half of the revenues it has actually experienced since the facility opened. In that sense, the facility is exceeding expectations. But it is still losing money.

A second casino in the Pocono Mountains is expected to open this fall and may draw customers away from the Pocono Downs, further increasing losses. Mount Airy Casino is about 20 miles southeast of the Pocono Downs, in the resort location of Mount Pocono. The Mount Airy Casino is scheduled to open on October 15th and will initially include 2,500 slot machines (twice that of Pocono Downs) and a 188-room hotel in addition to restaurants, bars and a golf course. The website for the Mt. Airy casino is www.mountairycasino.com.

It is not known what effect this new casino will have on the Pocono Downs, however it may result in yet higher losses.

Last summer, Penn National – the company that sold Pocono Downs to the Tribe, agreed to pay the Tribe $30 million over five years which, in part, released Penn National from obligations related to environmental issues. It now appears that the Tribe may have to spend $30 million more than anticipated for remediating the environmental problems at the Pocono Downs site, which would “cancel out” Penn National’s payments to the Tribe.

The $180 million expansion at Pocono Downs is scheduled to open in the summer of 2008. The expansion will add 2,500 slot machines, restaurants, bars and retail stores.