Wednesday, August 27, 2008

The Tribe In The Media: Rhode Island's Twin River Dilemma

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This installment of The Tribe In The Media series is an article in today's The Day newspaper on the Twin River racetrack-casino's financial problems. Keep in mind that the article below says that Mohegan's former outiside management company "walked away with an estimated $600 million buyout deal" but, in reality, it will turn out to be over $1 billion over the 15-year buyout deal that ends on December 31, 2014.

Will Slots Hall Make It? Place Your Bets
By David Collins
August 27, 2008

Friday looms as the deadline for the owners of the Twin River in Rhode Island to either come to terms with their lenders or consider a last resort, filing in bankruptcy court for protection from creditors.

A spokesman for the slots hall, Patti Doyle, who has raised the possibility of a Chapter 11 bankruptcy filing in assessing Twin River's money problems, said Tuesday they expect to “come right up against” Friday's deadline to renegotiate the terms of their loans.

It's an improbable showdown for two of the principals in the project, eastern Connecticut developer Len Wolman and South African casino mogul Sol Kerzner, two of the wizards behind the creation of the Mohegan Sun.

When the Mohegans' first partners walked away with an estimated $600 million buyout deal, including 5 percent of the annual gross revenues of Mohegan Sun, it sure looked like they had the golden touch.

Even more curious, their subsequent creation, Twin River, is actually doing well.

Bucking the national downward trend in the gambling business, the slot machine numbers in Rhode Island are up, as much as 12 percent over last year's.

And that makes state lawmakers happy, given that the converted greyhound park in Lincoln, R.I., is contributing some $250 million to the state budget.

It is also a good reason why Rhode Island officials have been cool to suggestions from the Twin River principals that the state help them out of their financial straights by lowering the amount of slot revenue they have to contribute to the state budget.

Rhode Island gets a 60 percent share of the slot win, kind of a staggering number compared to the 25 percent Connecticut gets from Foxwoods and Mohegan Sun.

You can see how Rhode Island lawmakers might have heard simply “blah, blah blah” in listening to the pitch from Twin River principals to make a one-time payment of $500 million in exchange for cutting the state's long-term share of the slot win by more than half.

The state has offered some givebacks, though, allowing Twin River the opportunity to stay open 24 hours on weekends, to create a casino-style player reward program and to use coupons for free slot machine play to entice customers.

So what's gone wrong in Rhode Island and why is Twin River at this financial precipice?

Industry observers suggest that the owners, BLB Investors, including Wolman and Kerzner, simply paid too much when they bought the aging track in 2005 for $440 million. The other principal bidder, MGM Mirage, reportedly offered considerably less.

BLB invested another $220 million in renovations, adding new restaurants and an arena, and installed 4,500 slot machines, making it one of the largest slots halls in the country.

But in the end they paid a casino price for a facility that still doesn't and can never have table games or a hotel, two casino mainstays.

To make matters worse, Wolman and Kerzner have actually wacked their Connecticut golden goose. Slot numbers are down at Mohegan Sun, and some of that is clearly related to the success at Twin River.

Surely high gas prices have a lot to do with declines in slot win in Connecticut that correspond to increases in Rhode Island. After all, a slot machine is a slot machine, and players in Massachusetts and Rhode Island must see the savings in gambling closer to home in a tough economy.

By Friday, we'll know whether the Twin River owners can wiggle out of their financial squeeze. But the long-term effect of Twin River's marketing promotions and new customer loyalty programs may continue to squeeze the Connecticut casinos for a long time to come.

This Is The Opinion Of David Collins.