Tuesday, September 2, 2008

The Tribe In The Media: Kansas Consultants Analyze Casino Proposals

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This installment of the Tribe In The Media series is an article in the Kansas City Star which discusses reports on the remaining casino proposals that were prepared by consultants hired by the state of Kansas. Casino developers have been chosen for two of the four regions in Kansas. The casino developer for the region in which the Mohegan Tribe wants to be involved - Wyandotte County/Kansas City - will be announced by September 19th.


Final Kansas casino reports reveal no surprises
By Rick Alm
The Kansas City Star
September 2, 2008

The latest (and last) wave in the flood of Kansas casino consultants’ reports issued during the past year are in.

Those willing to slog through hundreds of pages of arcane econometrics and consultant-speak gobbledygook and graphs will eventually arrive at a not-surprising bottom-line chart that suggests Kansas is unlikely to collect the estimated $200 million in annual gambling taxes that state officials think they’re going to rake in.

One consultant points out other worrisome particulars on the balance sheets of applicants seeking to manage one of four “state-owned” casinos.

The Kansas Lottery Gaming Facilities Review Board meets today and Wednesday in Topeka to discuss this latest data and, one last time, quiz applicants in Wyandotte and Ford counties before announcing its decisions Sept. 18 and 19.

The seven-member panel should have plenty to talk about today, starting with would-be Wyandotte casino operators’ rosy revenue estimates.

Consultants stacked up the casinos’ estimates — based on marketplace potential — and compared those forecasts to their own.

The gaps, as the phrase goes, were yawning.

The Kansas Speedway-Cordish Co. partnership, for instance, predicted by 2012 its Hard Rock casino at the speedway would be winning $358.1 million a year from gamblers. That’s a breathtaking half of the $720 million Missouri’s four casinos together squeezed out of this bistate marketplace last year.

A pair of experts independently came up with more conservative estimates for the speedway casino that averaged out to a more plausible $222.7 million — which still would hover near the Kansas City’s market’s single-casino annual revenue record of $259.2 million set by Ameristar Kansas City Casino and Hotel in 2006.

The flabbergasting $401.4 million revenue estimate by Pinnacle Entertainment for its casino that would be linked to the proposed Schlitterbahn Vacation Village water park is more than twice the consultants’ average guesstimate of $193.2 million.

There’s the problem. All these estimates are just guesses.

And that’s why the panel’s imminent decision to select the most lucrative casino partner for the state must be tempered by prudence in also selecting the one with the soundest balance sheet and business plan.

In that, consultant John R. Mills, a business professor at the University of Nevada, appears comfortable with the corporate finances and debt/equity plans offered by both the speedway group and Golden Gaming, which proposes a casino just south of the speedway in Edwardsville.

He’s less comfortable, however, with Pinnacle and with the Leg Sun LLC partnership that includes Connecticut’s Mohegan Tribe and five investors in Kansas City-based RED Development, which developed the Legends shopping and entertainment district north of the speedway.

Confidential documents reviewed by Mills show the Legends partners would invest up to $100 million in their project. Their equity apparently would draw on a line of credit from the Dallas Police and Fire Pension Fund System. But Mills indicated terms of that loan deal are not yet adequately spelled out.

Mills also sounded a caution on the tribe’s “highly leveraged” casino gambling projects in other states.

But he noted the tribe has a solid track record of high cash flow plus a longstanding relationship with a syndicate of investment banks led by Bank of America.

And Mills looked critically at Pinnacle’s corporate growth strategy that leans toward building rather than buying existing casino properties.

While all that construction debt is eroding corporate earnings and bears watching, Mills said Pinnacle appears financially able to handle another new casino in Kansas, particularly if it taps a proposed partner, Kansas City-based Entertainment Properties Trust, for a debt or equity position in the project.

The consultants did not examine applicants’ ancillary sweeteners such as the speedway group’s promises to add a second NASCAR cup race, a sports car road course in the track’s infield and an annual RV trade show on the grounds if they get the casino nod.

Review board members, however, would be remiss if they do not consider the tourism potential of such promises — and get them in writing.

Consultants’ reports and reams of other market research data on each of the state’s four gambling zones is available on the Kansas Racing and Gaming Commission Web site at www.ksracing.org.