Monday, June 29, 2009

The Nation's First "Racino" Is Bankrupt

I find it difficult to shut off my journalistic sensors while I travel. For one thing, these tough economic times require me to do as much work as I can generate. For another, from the start of my full-blown freelance life when I lived in China, there's always been a rush that came with finding a story where I'm not expected to do so and then selling it. And yes, Miles has a love-hate relationship with this; it helps provide for us and we end up meeting interesting people and seeing unusual things that ordinary tourists never do. But it also means less time to just bump around and power down.

But, anyhow, this explains how I came to write about the Swiss effort to outlaw cat fur in garments last year, why I witnessed the opening of Sands Casino Resort Bethlehem last month and why, over this weekend on our Boston-Rhode Island-Connecticut swing for a family wedding, I covered the turmoil related to the nation's first "racino," Twin River in Lincoln, R.I., for the New York Times.

Here's the lowdown: Twin River opened 61 years ago as a horse track in this bucolic town 15 miles north of Providence. By the 1980s, it was a greyhound track with betting available as well on simulcast races occurring elsewhere. And in 1992, the state and the then-owners, Wembly LLC, agreed to add slot machines. Thus, the advent of the "racino," a word Miles had never heard of before but now finds quite a bit of fun. (?)

The casino part looks like every other casino floor of this sort, see?

There is an itty bitty difference, though. Those 4,700 slot machines are actually known as "video lottery terminals" and are owned by the state. They're administered by the Rhode Island division of Lottery, which keeps 60.08 percent of the revenue and doles out the rest to the owners and other governmental entities.

As I understand it, a VLT is the same as a slot machine except that all of their outcomes are determined by one large central computer for the whole casino which generates random numbers to determine wins. Slot machines, by contrast, are individualized units with their own computerized chips; their outcomes are usually unrelated to other machines. The VLT thing was a way for Rhode Island to add slot machines and call them a form of the lottery without having to get approval of the town of Lincoln to "expand gambling," per state law. The VLT is seen as an addition of an existing gambling practice -- the lottery, y'see.

Oh, and the revenue from these slot-machines-by-another-name now amounts to the third largest source of revenue for Rhode Island behind income and sales taxes.

In 2005, BLB, an investment group that includes the Kerzner folks who own the gigantic Mohegan Sun in Connecticut, bought the joint for $465 million, renamed it Twin River and spent $225 million expanding it. Now it has a larger casino, much more parking, a range of restaurants, a comedy club and a concert venue.

Also, some cute design features:

Oh, yeah. And a greyhound track.

A word about the track before we continue: It's a very weird deal. Twin River is currently obligated by law to have 125 days of live races in order to also have the slot machines. They're also required to give $9 million to the Rhode Island Greyhound Owners Association to fund the entire dog-racing industry and spend about $2 million to operate the track even though it only generates about $1.5 million in revenue. Why? Because Rhode Island is a heavily unionized state and the General Assembly feels it's important to force the casino to keep the 225ish jobs associated with the dog races intact.

But Twin River has bigger trouble. BLB overspent on its upgrades and can't afford its debt, so last week they struck a voluntary bankruptcy deal with their lenders and the Rhode Island governor's office. The lenders will forgive nearly $300 million if the debt, BLB will find another operator for the facility and the state will let the casino stay open 24/7 and dump the dog racing.

This solution has made lots of folks mad. Folks like Hal Perry...

...who lives in this house directly across from Twin River:

He put up that sign himself, by the way. He and his other neighbors -- the Twin River property is bordered by residential homes on 1-acre lots -- are upset by the prospect of more noise, traffic and bright lights coming from the casino if it operates 24/7. As it is, it stays open 24 hours Friday-Monday and closes at 2 a.m. on other days.

And, of course, the greyhound folks are mad. They're also powerful; on Friday, the Democratic legislature voted to increase the number of required racing days to 200, a thumb-in-the-eye to the Republican governor and a move that could compromise the agreed-upon bankruptcy deal. Like I said, it's all a weird deal.

Oh! Oh! Oh! And here's the best part! Guess who wants to be the new Twin River operator?

I'll give ya a second and show some fun images of Twin River I shot. Here's the second-floor glassed-in no-smoking gaming area...

...and the carpeting for those casino-carpeting aficionados out there...

...and I'm not real sure why this sign, which reads "Area of Refuge" means...

...or what "sharps" are.

And imagine my surprise when I found Ed, the cover model for my book, "Gay Vegas..."

...dealing virtual blackjack in one of these creepy machines.

I also have a question here. I get the lottery-like aspect of the slot machines. But what about games that involve skill, like video blackjack or poker? How does the central computer control the outcome? How is that not different than the random numbers generated by a lottery?

But anyhow, so who wants to take over Twin River? Why, these folks do!

As it happens, Harrah's has been trying to get into the RI market for years. They wanted to build a $1 billion, full-fledged resort-casino in West Warwick, R.I., but they got rebuffed again and again until the effort finally went down for good in 2006 with a statewide referendum that rejected it.

Now they've got another shot, and Harrah's veep Jan Jones is all over it, confirming talks are ongoing. "We’re interested, very interested," she told me. "We like Rhode Island, we think we understand that market very well. We think Total Rewards would be a significant revenue driver to Twin River."

I wondered why she loves RI so much. It's half the size of Clark County and has just 800,000 residents. Ah, she said, but it's smushed between Massachusetts and Connecticut. And Harrah's nearest casino is in Atlantic City but they have hundreds of thousands of Total Rewards members in New England that they could bring to Lincoln.

What about the dogs?

"I know the dogs are very important to Rhode Islanders," the former politician said. "That’s a decision made by banks and legislatures, but I know Rhode Island feels strongly about their dog tracks."

So Harrah's would turn Twin River into a destination resort with a hotel and all that?

"Well, you couldn’t build a hotel right now, you couldn’t get the zoning," she said. "So all of this is a process. But it's the beginning of the process and the point is that it's an excellent opportunity."

I'm sure folks like Hal Perry are just thrilled to hear that.


Anonymous said...

sharps = needles (legitimate or otherwise drug use!)

Anonymous said...

Steve - The WSJ wrote about this racino some years ago and this is from memory, but the winnings were largely from those who are chronic gamblers at the lower end of the economic spectrum. It's a very regressive tax.

Can't say I am surprised about Harrahs. Is Harrah's going to put in skin in the game for equity of merely manage the property lending their name and getting more people for their Harrah's club?

Let's say the dogs bring in $1.5 million and cost $9 million. Getting rid of the dog track generates $7.5 million of additional EBITDA by doing nothing. Put 4 or 5 multiple on that you have $30 million to $37.5 million in value just by dumping the dogs and the union cronies.

If you are going to be in Providence go their Little Italy section.


Michael said...

VLT's for VP are also predetermined meaning if you are dealt a full house and throw it away, you'll get a full house on the draw. The draw is just for show, as it's still a predetermined outcome. Florida has these types of machines as well. And I expect Ohio to put these type in at some point, since they can't get the base to approve standard slots or table games of any type.