Friday, May 2, 2008

Pocono Downs Could See New Competition Soon

By Ken Davison

It is the tribe's hope that their Pocono Downs racetrack-slot parlor, located in Pennsylvania, will someday become profitable but additional competition is yet on the horizon.

Perhaps the next installment of about 1,300 slot machines will result in profits at that facility. In a press release, the tribe stated that after the current expansion is completed in August, the Pocono's facility will include "approximately 2,500 slot machines, three fine dining restaurants, a 300-seat buffet, a quick-serve dining area, 7,000 square feet of retail shopping, two nightlife venues."

The tribe, through its Mohegan Tribal Gaming Authority business arm, paid about $300 million in acquisition costs for the property and is expected to spend close to another $300 million in total improvement costs (including the expansion that created the initial slot parlor and the current expansion). The $600 million estimated combined price tag for the facility does not include accumulated operating losses for the facility which, when combined with other diversification expenses such as the MTGA's "corporate" diversification department and the $50 million licensing fee paid to Pennsylvania, will add at least another $150 million in costs, bringing the grand total investment in Pocono Downs to over $750 million.

It is irrefutable that the tribe's slot parlor is currently losing money (which has more to do with the limited amount of slot machines currently in place and the excessive debt load related to the facility than the existing management, which executed an opening that tribal members can be proud of) and the question of future profitability cannot yet be answered. The additional 1,300 slot machines are not yet installed as the Pocono Downs' current expansion is expected to be completed in August.

Although additional machines will certainly help the facility, increased competition is also on the horizon. Last October, the Mount Airy Resort's slot parlor opened 20 miles away, as the crow flies, but now two other smaller slot parlors in the Poconos are currently being considered for gaming licenses by the state's gaming board while a massive slot parlor about 70 miles away, called Sands Bethworks and located in Bethlehem,Pa., was approved in 2006 and is expected to open in June 2009.

Sands Bethworks is slated to cost $800 million and include a 300-room hotel, a 3,800-person capacity concert/event center, a retail mall that will house 200,000 square feet of retail shopping and 8 restaurants while its slot parlor will open with 3,000 slot machines and expand to 5,000 machines after its first six months, according to CEO Sheldon Adelson.

Two applicants for slot parlors in the Pocono Mountains that are currently being reviewed by the state's gaming board will only be allowed up to 500 slot machines each and its customers, by state law, can only be those guests who are staying at the resorts' hotels. One of the 500-slot parlor applicants is Fernwood Resort, which could quickly install slot machines in its existing event center, and Split Rock Resort. A public hearing on Fernwood was held yesterday and Split Rock's hearing is being held today. Valley Forge Convention Center is third applicant, located in the city of King of Prussia, and is in competition with the two resorts for the two 500-slot "amenity" licenses available. A decison on which of the three applicants are awarded the two amenity licenes is expected this year.

Since Split Rock and Fernwood Resort, both of which are in the Pocono Mountains, would renovate existing spaces to accomodate slot parlors, which means their slot parlor rooms could be functioning within months of their approval by the state's gaming board.

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