The Pennsylvania Gaming Control Board got a bit of a variety pack in Thursday’s casino hearings.
From 9 a.m. to roughly 9:30 a.m., it heard from Bart Blatstein and his Tower Investments team, who gave their response to the synagogue and two schools that intervened regarding the casino proposal and presented their case on Wednesday. The groups, Rodeph Shalom Synagogue, the Mathematics, Civics and Sciences Charter School and the Friends Select School argued that Blatstein’s Provence casino and entertainment proposal would disrupt their institutions by causing traffic and parking problems.
The last of the five applicants seeking the remaining casino license, the Live! Hotel & Casino team led by Cordish and Greenwood Gaming, made its pitch to the board and face gaming commissioner’s questions. This proposal would be located on Packer Ave. near the stadiums and another Cordish development, XFINITY Live! The team has previously said its location and experience makes them the best choice, and that they would turn 10th Street into a walkable destination. (see what Live! told PlanPhilly about their proposal here)
SugarHouse Casino argued that the right choice for the remaining license is not to issue it yet, because the market is already saturated and adding another gaming operation will hurt SugarHouse and other regional casinos.
This means SugarHouse sort of wants the same fate for this second license as their anti-gaming adversaries, including Casino-Free Philadelphia and the national STOP Predatory Gambling. Watch the video of this and the other Philadelphia suitability hearings at the PGCB website, here.
The PGCB commissioners could vote to not award the license to any of the five applicants, said PGCB spokesman Doug Harbach. “They could reject all proposals,” he said. Or, they could try, but fail to reach the necessary qualified majority, in which all four legislative appointees to the board, and at least one gubernatorial appointee, agree. (see previous story, here, for more details)
Only the legislature can kill the second Philadelphia license, though, Harbach said. So if it rejects all five or can’t get the right votes for – scenarios he stresses are unlikely – the board would probably just reopen the license application process.
Something akin to that happened when the board awarded the category three license to Valley Forge, Harbach noted. There were four applicants, and two licenses to give, but the board could only reach a qualified majority on one option.
The board re-opened applications, some teams dropped out and some new ones jumped in, and eventually, Lady Luck Casino Nemacolin was chosen.
Several gaming commissioners, perhaps most vocally Greg Fajt, have stated during the week’s proceedings that they indeed believe the market is saturated. He has said he believes “just a casino” won’t be enough. He’s looking for a proposal with more amenities to attract a new audience. A “wow factor,” he called it when he walked into Ballroom A this morning.
Fajt also doubts that “none-of-the-above” will be the boards choice, saying he thinks a license will be awarded to one of the five contenders. “I think we’ll arrive at some consensus,” he said. “When that will happen is anybody’s guess.”
On behalf of Tower Entertainment, attorney Ray Quaglia asserted that some evidence presented by Rodeph Shalom Synagogue, the Mathematics, Civics and Sciences Charter School and the Friends Select School – specifically videos taken from a car traveling through the area – was not a valid way to show roadway capacity.
Traffic engineer Eric Ostimchuk of Traffic Planning & Design, Inc. noted that traffic studies are based on observations over time, and that the videos were taken in an extreme situation, the day after a large snowfall. Ostimchuk also said that the interveners talked about unavailable parking lots that are actually not part of The Provence’s parking plan, and there are adequate spaces provided in the current plan. Blatstein confirmed to the board that he has committed to PennDOT that he’ll add an additional 1,000-car garage if it’s necessary – after first joking that he didn’t recall the conversation.
Several commissioners questioned Tower on the number of people they say would come to the casino and entertainmnet complex by means other than cars, and on the methodology that was used to reach that number. Ostimchuk said the estimate of roughly three of 10 customers is based on the unexpectedly high percentage of SugarHouse patrons who don’t use cars to get there – about two of every 10 casino-goers. Since SugarHouse doesn’t have the amount of transit near it that The Provence would, Ostimchuk said this was determined a safe estimate.
During questioning from commissioners, PennDOT’s Francis Hanney said PennDOT also thinks this is a reasonable estimate, especially since The Provence would include many non-gaming uses that would attract a different demographic, which would be more likely to use alternate means to get there. Hanney also said PennDOT is comfortable with the Tower team’s conclusions that with improvements Tower has committed to the project it would not have a negative impact on traffic or parking in the area.
Live! Casino & Hotel hearing
The folks behind the Live! proposal presented with one, unified theme: You, commissioners, have heard some nice proposals, but many aren’t realistic for this market. Let us tell you how it really is.
Before they got to that, though, the Greenwood/Cordish team opened by addressing a concern in the suitability report compiled by the PGCB staff – a report the public has not seen – that one owner, Bob Manoukian, has more than a 33 percent ownership stake in the casino, which would be in violation of state ownership laws, since Greenwood Gaming owns Parx in Bensalem.
Attorney Alan Kohler, representing Live!, said that through Greenwood, Manoukian has a 28.32 percent ownership stake. Through Sterling Trust, however, there’s 17 percent held for the benefit of Manoukian’s three sons, who are the trust beneficiaries. “As the suitability report points out, together that exceeds 33 percent,” he said.
But Kohler said while Manoukian holds legal title to the trust, only beneficiaries hold equitable title, and that is what matters. The supreme court has addressed this, he said.
While the team believes this is a non-issue, Kohler said that should the board disagree, it should keep in mind that the 33 percent stake rule is a licensing issue, not an eligibility issue, so it shouldn’t keep the board from chosing the Greenwood/Cordish team. If the board determines Manoukian’s ownership stake is an issue, the situation could be remedied.
Greenwood Chairman Bob Green opened the team’s pitch by reminding the board of their own words about the threat of cannibalization and the need to attract new customers rather than take them from existing casinos. “Simply slicing the same pie up differently…won’t do anyone any good,” he said. “This in my view is the critical factor in the decision-making process.”
Green said he has more knowledge of the local market than anyone, and indicated other candidates are misinterpreting it. He lives in Philadelphia – a few blocks from The Provence site. He said it was his job to “escort you out of the world of fantasy and into the world of reality.” To that end, he said the roof-top swimming pool of The Provence and amenities proposed by Market8 wouldn’t work. “Either one of those sites would be an absolute disaster,” he said. He said both would get most of their revenue from people who now go to SugarHouse, and awarding one of them the license would put both that new casino and SugarHouse in financial jeaopardy.
He said he heard what all the traffic engineers have said, but just walking the neighborhoods near Market8 and The Provence convinces him even 100 more cars would lead to gridwalk. He called Market8’s revenue projections “surreal” and said their reliance on tourists made no sense, since tourists are here to see The National Constitution Center, The Betsy Ross House and the Liberty Bell. “These people are not gamblers.”
Cordish President Joe Weinberg noted that between the two of them, Cordish and Greenwood operate two of the three top-grossing casinos in the mid-Atlantic, Parx and Maryland Live! He noted that the Philadelphia project would be paid for by the team, and was not dependent on financing. He said it was important to consider that the people paying would also be the ones operating the casino.
Weinberg said it would take 15 months to finish the project from the start of construction, and hinted that the city permitting process wouldn’t take long, since the project is designed so that it needs no variances.
The big advantage to the Live! location lies in highway accessibility and proximity to the stadiums and XFINITY Live, he said, noting that the city has already granted approvals for a 400,000-square foot XFINITY Live expansion. That plan “allows for the full integration of the stadium district” into a single destination, he said. The casino plan puts activity on 10th Street, he said, and this “urban” development style would make 10th Street a walkable way to move among all the area attractions.
Cross marketing to the 8 million people who already visit the stadium district would include hosting “coaches corners and celebrity apperances to things going on in the stadium district,” he said.
During board questions, Tony Ricci, chief executive officer of Greenwood, noted that his company is a sponsor of The Flyers and Phillies, and in talks with them, they have come to realize that 50 percent of people who go to sports events are also gamblers. That’s one reason, he said, why the partnership was so bullish on their location.
The proposal’s bottom line has been bumped up to $425 million from $406 million because of “discussions of a potential ramp” improvement to I-76, Weinberg said. He committed to building the ramp at the hearing, so now any of the stadium-area proposals would, if granted the license.
Live! would include a 2,600 space parking garage, a single-story gaming floor with 2,000 slots, 125 table games, five restaurants and bars and a live music venue.
Weinberg said that garage is key, because all surveys of regional gaming customers say convenient parking is a top concern.
Consultant Ernie Gambrosio of Strategic Market Advisors said his market analysis shows the stadium-area casino would generate $10 million more in gross gaming revenues annually than would a Center City site, canibalize $30.6 million less and pay $17 milion more in taxes annually.
The team’s traffic consultant said, in short, that there’s ample highway capacity around the Live! site, and that with minor improvements to key intersections – changes in signal timing and additional turning lanes, for example – any impact from the project could be mitigated.
During the QnA session, Commissioner John McNally asked about competition from on-line gaming in New Jersey. Greenwood President Ricci said he’s seen no impact on Parx. Weinberg said New Jersey is missing an opportunity to use on-line gaming to market its bricks-and-mortar casinos.
While on-line gaming for money isn’t legal in Maryland, Maryland Live! has a free on-line site it uses to draw people in, he said. Should the legislature legalize on-line gaming, it could go to a paid site with the flip of a switch, he said, but for now “we’re finding those people who come to us from the internet are our best and most valuable customers.”
Weinberg said if given the license, Live! would offer a free, on-line gaming site for marketing in Philadelphia, too – with the same ability to make it for-pay should the legislature approve.
Several commissioners asked if Live! the casino and XFINITY Live! might not be in competition with each other. Weinberg said he’s confident because of a symbiotic relationship he’s seeing already between XFINITY Live! and the stadium events, and, in Maryland, between Maryland Live! and the adjacent shopping mall. He noted that unlike most casinos, Maryland Live! had a banner month during the holiday shopping season.
Several commissioners asked about the Manoukian ownership issue. Fajt asked Chief Enforcement Counsel Cyrus Pitre if he agreed with Live! attorney Kohler’s assessment that since Manoukian didn’t have equitable title to the trust, it was a non-issue. Pitre said it wasn’t that simple. He said Kohler’s interpretation was reasonable, but there were other reasonable interpretations that would reach a different conclusion. Which one to apply, Pitre said, was a decision the board had to make.
Kohler and the team stressed that if the board should find the current situation objectionable, it could make changes to the structure without bringing in a new owner who would have to go through the PGCB vetting process.
Chairman William Ryan, noting that the proposal anticipates “that a good part of the business the project would hope to see would be from the event participants down at the stadium complex,” asked for more details.
Ryan said that there was a similar casino, Rivers, near stadium facilities in Pittsburgh. He asked if they had done any studies or known of any that looked at the correlation between fans and gamblers.
The marketing team said they haven’t seen studies, but they don’t believe Rivers has fully capitalized on the marketing possibilities. They also noted that parking there wasn’t as condusive to stadium patrons visiting the casino.
Ricci said that Greenwood is a sports team sponsor, and said Parx and the teams have discovered a lot of commonality between their customer data bases. “Fifty percent of people who go to sporting events are gamblers,” he said.
When Ricci said he didn’t think the casino and stadium relationship was comparable, Ryan asserted it was very much the same. “I would suggest you reach out to them.”
SugarHouse asks board to wait on the second license decision
SugarHouse asked the gaming board to push the pause button on the second Philadelphia casino license.
The board should wait for the results of a state legislature study on gaming, for the economy to improve, and for SugarHouse’s expansion, set for 2015, SugarHouse officials said.
Attorney John Donnelly said the five entities seeking the license have all told the board “a fiction” that they will grow the gaming market.
He said they act as if “there is tribe of gamers lost in the mid-Atlantic states that no one has found and no one has brought in to game anywhere. That by building a building, the lost tribe will find themselves at the casino and start gaming. There is no lost tribe of gamers out there.”
SugarHouse General Manager Wendy Hamilton said the planned SugarHouse expansion will grow the casino by more than 100 percent, but will increase the gaming floor by only 27 percent. Mostly, she said, the expansion will provide event and meeting space, a parking garage and restaurants. The expansion isn’t about soaking up more of an expanding market, she said, but about “expanding to stay alive in a hyper-competitive one.”
Hamilton said it was “downright offensive” for the applicants to say existing casinos are missing potential customers. “We market to every segment imaginable,” she said, including the “general, non-gaming public. Anyone who tells you there is even $100 million in new revenue in Philadelphia in the short term is living in crazy town.”
Opening a new casino would weaken all existing casinos, she said.
It would lead to employee layoffs, and it would lead, in SugarHouse’s case, to tough decisions about funding things like the Mummers Parade and New Years Eve fireworks.
Hamilton said if the board grants a license now, it will make one applicant very happy. “But I guarantee three years down the road, the applicants who didn’t get the license will be even happier.”
Mary Cheeks, senior vice president of finance for SugarHouse and Rivers Casino, said that Valley Forge’s revenue increased $38.4 million between 2012 and 2013, but during the same time, SugarHouse, Parx and Harrah’s revenues dropped by $46.6 million. Valley Forge opened in March 2012.
Cheeks used to work in Atlantic City, and said she left for her current job after she saw what competition was doing on that side of the river. She spoke of smoking a cigarette to calm her nerves before having to tell people they were being laid off.
While the South Philadelphia applicants said they could grow the market by enticing people going to sporting events and other stadium events, Cheeks said Rivers had not had that experience. She said she didn’t want to provide the details in a public forum, but game days hurt Rivers’ business.
SugarHouse consultant Steve Rittvo of The Innovation Group said there might be 5 or 7 percent potential growth left in this gaming market. The SugarHouse expansion will absorb the majority of what’s left in the market, he said.
“My recommendation is to postpone this decision, or look for another location in the center of the state that is underserved.”
SugarHouse Chairman Neil Bluhm, who is also an owner of Rivers, said that some of those seeking the license have projected cannibalizing $100 million per year from SugarHouse, and that would devalue the business to such an extent that the property would not be worth its debt. He predicted a similar financial crises for Harrah’s.
Bluhm said he has a casino in Illinois, near a Chicago airport. Illinois limits the size of casinos, and the market there is underserved, he said. Each slot machine, after payout, brings in $800 per day there, he said. At SugarHouse, each brings $300.
Bluhm said that yes, SugarHouse knew there was going to be a second license issued in Philadelphia when they competed for theirs. But that was before the recession and before gaming expansion in other places. A second license made sense then, he said, but it doesn’t now.
Commisisoner Woods asked Bluhm if there was a particular applicant that posed the most threat to SugarHouse’s bottom line. Bluhm said he was concerned about all of them, but added he did not want anyone to think that a stadium district casino would not hurt the existing casino. “We have a lot of customers from South Philadelphia,” he said.
If what the board was just told was correct, Ryan asked Rittvo, why would Greenwood, which owns Parx, be part of the Live! Hotel & Casino proposal in the stadium district?
“It would not be the first entity I’ve seen that looked to protect its total share of the market versus an individual facility,” Rittvo said.
Fajt noted that any decision the board would make really doesn’t apply to the current market. After the decision, then the appeals, then construction time, it’s really the market three years hence that matters, he said.