Wednesday, September 3, 2008

The Tribe In The Media: Consultant Cannot Determine Viability Of Tribe's Kansas Partnership

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This installment of The Tribes In The Media series is an article in the Kansas City Kansan regarding a Kansas State-sponsored evaluation of the developers/managers proposing a casino in Wyandotte County/Kansas City. The consultants determined that they could not verify the financial viability of the group in which the Mohegans are involved and could not verify the funding that the group said it secured. The State of Kansas will announce their selection in mid-September but it appears from this article that Mohegan and their partners need to tighten up their proposal's financial arrangements quickly in order to be considered a serious applicant.

Casino consultant reports may indicate a favorite
By Sam Hartle and Nick Sloan
Kansas City Kansan
Sep 03, 2008

Topeka, Kan. -
After months of gathering information and research, a team of consultants hired by the Kansas Lottery Gaming Facility Review Board to look over the state’s 10 casino applications made their presentations to the board beginning Tuesday.

Earlier this summer, the consultants reported their findings on the southeast and south central gaming zones. Their reports for two other zones – including the northeast zone, or Wyandotte County – are the topic of discussion this week in Topeka.

Although the review board spent most of its time Tuesday discussing the two casino proposals vying for a bid in Dodge City, Kan., Wyandotte County’s four casino proposals were also discussed during a briefing made by University of Nevada-Reno professor Dr. William Eadington.

Eadington suggested a number of items the review board should do as it prepares to make its selection for the Dodge City and Wyandotte County casinos in less than three weeks: 1) Be able to gauge the probability that a project would be successfully built and eventually be successful in its operation; 2) Compare applicants current proposals with what they’ve built and managed previously; 3) Gauge the financial capability of the applicants; and 4) Determine how to deal with the issue of applicants “sweetening the pot” (see main story).

The professor also addressed a number of items specific to Wyandotte County.
“The [Wyandotte County] casino will step into a mature gaming market that has positives and challenges,” Eadington said.

Positive attributes include the newness of the Wyandotte County projects, their land-based design (all four Missouri casinos are technically riverboats), geographic advantages that place them closer to certain gaming demographics and their ability to dove-tail off of nearby non-gaming amenities.

Eadington cautioned, however, that the county’s casinos won’t be the first ones to the market and that gamblers in the Kansas City metropolitan area have already developed brand loyalty and engaged in the loyalty programs of the four Missouri casinos.

“It’s difficult for a player to walk away from a loyalty program,” he said.

The majority of the consultants’ work on the northeast zone will be reported today, but their presentations have been available on the Kansas Racing and Gaming Commission’s Web site at

Two of the review board’s consultants, William Cummings and Richard Wells, were tasked with developing gaming revenue projections for each of the four Wyandotte County proposals.
Eadington reminded the board that revenue projections for any of the four casino zones are only estimates.

“It’s like interpreting art,” Eadington said Tuesday. “There are limits to what comparable data can contribute to this conversation.”

Both conclude that based on the number of slots and relative location, the Kansas Speedway’s Hard Rock casino proposal has the potential to achieve more annual gaming revenues than any of the other three proposals.

Despite the Speedway’s good showing in the revenue portions of the reports, all four casino reports previously calculated their own revenue projections, and in most cases, the applicants’ revenue projections dramatically exceeded the range of estimates prepared by the consultants (consultant estimates include a number of variables, such as the closure of The Woodlands, that were not included in the applicants’ estimates).

In its initial submission to the Unified Government last fall, officials with Pinnacle Entertainment, which plans to build a $650 million casino near Interstate 435 and Parallel Parkway, estimated their plan would bring in at least $400 million annually in gaming revenue.

But Cummings and Wells’ estimates are much lower, with Cummings projecting Pinnacle’s revenues to reach $239 million by 2013, while Wells projects Pinnacle to bring in $193 million in 2012.

The consultants’ revenue estimates were also lower than the speedway’s estimates. The pair estimated the speedway’s $707 million proposal – which would be located along the backstretch of the racetrack – would generate between $226.7 million and $271 million in annual gaming revenues, compared to the track’s estimate of $358 million.

The other proposals also exceeded the consultants’ estimates. The $770 million Legends Sun proposal – which would be located near 112th Street and Parallel Parkway – estimated their casino would generate $282 million. That figure exceeds the range of $163 million to $212 million projected by the two consultants.

Cummings and Wells’ projections place the Legends Sun application at the bottom of the four proposals for revenue.

While Golden Gaming’s own estimates also proved high, their projections were more in line with estimates from Cummings and Wells. The pair project Golden Gaming’s $660 million proposal – which would be located near Interstate 70 and 110th Street in Edwardsville – could bring in between $178 million and $259 million in annual gaming revenue. Golden Gaming estimated its proposal would bring in $266 million.

Based on the two consultants’ gaming revenue projections, the Kansas Speedway would generate the most in tax revenue to the state.

Though all four proposals negotiated different contracts that included the state’s percentage of revenues, the revenue estimates place all four applicants at the 22-percent-to-the-state threshold.
Cummings and Wells estimate the speedway could generate $54.8 million in state revenues, followed by $48.2 million from Golden Gaming, $47.5 million from Pinnacle and $41.4 million from Legends Sun.

The speedway’s higher estimates also mean that the project would generate more revenue to local governments in Wyandotte County as well as the state’s problem gaming fund.

The review board also charged Cummings and Wells with estimating the number of annual visitors to each casino, a figure that includes both local residents and tourists.

Wells estimates the speedway would generate the most visitors at 3.2 million per year, followed by 2.7 million at Pinnacle, 2.5 million at Golden Gaming and 2.3 million at Legends Sun.
The team of consultants will complete their presentation today. The review board plans to allow applicants up to 45 minutes today to make any rebuttals to the consultants’ reports.

All four of the applicants will likely need all of that time to explain why their numbers are more accurate than the consultants.

John R. Mills, a professor of accounting for the College of Business Administration at the University of Nevada-Reno, also filed a report on the financial feasibilities of the four proposals.
In his report, three casinos receive mostly positive reviews while a fourth didn’t garner hardly any review.

Those receiving positive evaluations include Kansas Speedway, Pinnacle and Golden Gaming. Mills said he didn’t have enough information on Legends Sun to make a recommendation.

“(International Speedway Corp. and Cordish) have clearly shown that they have the resources to adequately fund and maintain this proposal,” Mills writes. “There is no question that this joint venture proposal has the ability to put together a complete financial package. It cannot only provide the equity contribution, but it also has good sources of funds for on-going operations.”
Mills also gives a thumbs-up to the Golden Gaming project in Edwardsville, Kan.

“The Sartini Family Trust appears to be quite flexible in its ability to put together a financing package,” the report states. “A review of their financial worth as of 3/31/2008, as well as their liquid assets, shows that they can provide the necessary equity contributions from their cash and stock securities.”

Although Mills states that Pinnacle Entertainment has “financial flexibility and solvency” to take advantage of the current market situation, he does seem to have some concerns about a potential cash crunch looming on the horizon for the company.

“It has a very favorable debt-equity ratio which allows it to not only find additional financing, but it should also be able to negotiate reasonable equity and interest positions,” Mills reports. “It is my opinion that Pinnacle should not have a problem putting together a construction package for the proposed project.”

But Mills was unable to provide an official review of the Legends Sun proposal because he felt he didn’t have full information on one of the project’s partners, RED Development.

“There is not enough information to make a decision whether Red Leg Sun or its source is a viable financial entity,” Mills writes. “At this time, I am not able to make any comment on the arrangements by Red Legends Sun.”

Mills said there is “no evidence” concerning an arrangement to borrow cash from the Dallas Police and Fire Pension Fund System. Red Development will contribute about $100 million and Mohegan Resorts Kansas are contributing $200 million.

Additional reports generated by PROBE Strategic Solutions attempted to outline the impact that non-gaming amenities, such as hotel, retail and recreation offerings will have on the existing market and their potential for revenue generation.

While the report supports the notion that any of the four would increase tourism and generate significant dollars for the Kansas economy, each have caveats.

The golf courses at both Legends Sun and Golden Heartland are a concern due to the higher-end golfing market in the Kansas City area, the report states. The report adds that there is some concern with the retail portion of any of the casinos due to the already-saturated market at Village West.

PROBE also expresses concern with the unofficial partnership between Pinnacle and the Schlitterbahn Vacation Village due to the “family nature” of the water park.

In measuring the total ancillary revenue (revenue generated by non-gaming sources), Legends Sun would pull in more than the other three. About 26.1 percent of revenue would be generated by non-gaming aspects of the plan for Legends sun. Pinnacle Entertainment has 21.6 percent in non-ancillary revenue, while both Golden Heartland and Kansas Entertainment have about 19 percent.

PROBE’s report closely mirrored the efforts of Civic Economics, a consultant group that provided a report measuring the economic impacts of the proposed facilities in Wyandotte County through the construction stage and once it opens.

A breakdown, by each casino proposal:

• Hard Rock: The proposal would have about 6,503 employees as a result of construction and would have a total an economic output of $657.8 million. It is estimated that 2,205 employees would be hired at the casino.

• Golden Heartland: About $688 million in economic output would occur during the construction phase; 6,763 employees would be required during the constructions phase. • Legends Sun: In the construction phase, $732.1 million in economic output would be generated and 7,221 employees would be hired.

• Pinnacle Entertainment: About $722 million in economic output and 7,111 employees would be created during the construction phase.

A final report, conducted by Meridian Business Advisors, attempted to gauge the impact each of the casinos would have in their host communities. The report included a breakdown on the revenue and expenses incurred by city, county and state governments, as well as highlighting impacts on area school districts