Author: Casino Connection Staff

The Department of Justice is trying to get its way with the Wire Act after New Hampshire District Court Judge Paul Barbadoro ruled the 1961 Wire Act only applies to interstate sports betting but not online lottery sales or online casinos. The DOJ issued a notice of appeal last week of that decision.

The decision came after the DOJ issued a memo in 2018 that contradicted a 2011 memo that said the Wire Act only applies to sports betting. Since 2011, five states have approved iGaming and several more have legalized online sales of lottery tickets. New Hampshire initiated the suit after the 2018 memo seemed to shut down its approval of online lottery products.

The appeal was not unexpected. Jeff Ifrah, an attorney with vast experience with iGaming and founder of the online gaming lobby, IDEA Growth, issued a statement, saying while not unexpected, the appeal is unwarranted.

“The DOJ generally files appeals of adverse district court decisions as a matter of course,” he said. “We hope that, rather than engaging in a protracted, expensive and ultimately unsuccessful legal fight, the department will take this opportunity to negotiate a settlement which will focus the Wire Act and DOJ’s enforcement resources on the right targets—the unlicensed illegal offshore Internet gambling operators who do not create jobs or tax revenue in the U.S. and do not appropriately protect consumers.”

The appeal means that the First Circuit Court of Appeals will consider hearing the case. The court doesn’t meet until early October.

Transportation disruptions and growing concerns over safety stemming from the unrest in Hong Kong are taking a toll on the casinos in neighboring Macau, according to reports from the Chinese gaming hub.

Hong Kong, a city of more than 7 million and a major Asian financial center, has suffered a wave of sometimes violent protests that started in June when demonstrators began pouring into the streets to oppose a bill, which the local government has since shelved, permitting Hong Kong residents facing trials to be extradited to courts in mainland China.

Protestors have stormed the offices of the city government, the liaison office of the Chinese government and recently forced the airport to close. Clashes with police firing tear gas have become a daily occurrence, and it’s reported that units of the Chinese military have been massing at the border.

Australia and the United States are among the nations that have issued Hong Kong travel advisories.

“When you have hundreds of flights canceled out of Hong Kong and some reluctance to travel, I do think that’s impacting the premium end of the business,” said Matt Maddox, chief executive of Wynn Resorts, the U.S. parent company of Macau casino operator Wynn Macau.

Macau is linked to Hong Kong, roughly 40 miles to the north, and its international airport by ferry service and, more recently, by a bridge that also connects to the mainland city of Zhuhai.

The disruption comes at a particularly bad time for the casino market, which is grappling with slowing economic growth in its principal feeder markets on the mainland and escalating trade tensions between Beijing and Washington.

July’s 3.5 percent drop in gaming revenues was sharper than analysts had anticipated, and industry executives and analysts say the protests are likely to affect revenues going into the fall in what is typically a busy period for the market.

At Hong Kong’s Shun Tak Center, where travelers board ferries from the airport for Macau, tour groups said the protests had caused their business to drop 30 percent or more from previous months.

The Macau Government Tourism Office is urging tour groups to bypass Hong Kong and make Macau and Zhuhai the first stops of their itineraries.

Analysts with Macquarie Capital, meanwhile, believe a challenging business climate on the mainland won’t be working to ease the situation any time soon.

“We focus on mainland private enterprises whose leaders, we believe, are today’s VIPs and premium mass,” the brokerage said in a note to investors. “As we look at private business conditions, the outlook is still bleak, with earnings slowing, defaults rising and registered businesses declining.”

The firm believes VIP betting volumes could shrink by 15 percent this year, partially offset by an 11 percent increase in mass market wagering, resulting in gaming revenue for all of 2019 roughly flat with 2018.

The Pennsylvania Gaming Control Board unanimously approved renewing a casino license for Stadium Casino LLC, and also modified its original requirement that the developer build an on-ramp to the Schuylkill Expressway, Interstate 76, to alleviate traffic congestion in the vicinity.

According to the Philadelphia Inquirer, the modification “puts the onus on government entities,” not the casino operator, to build the on-ramp.

The $700 million Live! Casino and Hotel Philadelphia, in the works since 2014, is expected to open sometime in 2020. Casino officials and the gaming board “privately negotiated the new terms of the on-ramp promise, which the board approved without comment,” the Inquirer noted. The gaming board did not explain how it arrived at the $3 million figure—far less than the $8 million to $10 million estimated for the on-ramp by the state Department of the Transportation, but more than the $2 million estimated by Stadium Casino’s lawyer, Richard W. Hayden, in a July hearing.

The company’s $3 million obligation will expire if the government does not have an approved and permitted on-ramp project in motion by August 2024, according to the gaming board’s order. If that happens, Cordish would be responsible only for $1 million in traffic-mitigation projects in South Philadelphia.

“They got away with not putting in the ramp,” said Ivan Cohen, a director of the Sports Complex Special Services District, which had argued for the on-ramp. The ramp requirement was added to the project during the bidding process between Cordish and Penn National Gaming; the latter company eventually withdrew from the race and Cordish agreed to build the ramp.

Hayden told the PGCB, “There’s very little, if any, value” to the on-ramp except on “Eagles game days.”

But neighborhood resident Judy Cerrone disagrees. She told the Inquirer, “We didn’t want the casino, but everybody wants the ramp. … It’s a nightmare. You can’t get in or out at all when there’s a game or a concert.”

Live! Philadelphia will be a full-scale Category 2 casino with a 240-room hotel, 2,200 slot machines and 150 table games.

In western Pennsylvania, Stadium Casino, the subsidiary of the Cordish Companies, received final approval from the Pennsylvania Gaming Control Board last week for its Category 4 mini-casino project in a former department store at the Westmoreland Mall in western Pennsylvania.

Dubbed Live! Casino Pittsburgh, the $150 million project, linked to the Philadelphia Live! casino, will create a 100,000-square-foot gaming, dining and entertainment destination at the 1.3 million-square-foot mall in Hempfield Township, around 30 miles from downtown Pittsburgh.

Live! Casino Pittsburgh will feature 750 slots and electronic table games and approximately 30 live-action table games, plus nationally recognized restaurants and live entertainment venues.

The project is expected to generate $188 million in annual economic impact, with an additional $148 million in economic impact from construction, including approximately 960 direct and indirect construction jobs, plus approximately 500 permanent new jobs for local and regional residents. In addition, the project will create numerous construction and operations vendor opportunities for local, minority, women-owned, and veteran-owned businesses, along with considerable support for local charities and nonprofits.

“We’re very excited and honored to have been awarded the license by the Gaming Control Board and thank them for their consideration,” said Joe Weinberg, managing partner of the Cordish Companies. “We look forward to working with state and local officials and the entire community as we move forward with development of a true world-class destination that will attract people from throughout the region for a unique gaming and entertainment experience.”

In a related matter during the hearing, Stadium Casino, LLC also received its Category 2 license renewal from the board for the primary Live! Casino & Hotel, currently under construction in South Philadelphia’s stadium district.

Soon after the Illinois legislature approved a massive gaming expansion bill, including an urban casino in Chicago, city government commissioned a study from Union Gaming Group to determine the best and most profitable outcome. The result? Unless taxes and fees are lowered, a Chicago casino would barely scrape by and wouldn’t attract serious bids from the major gaming companies.

In addition the report says the sites being considered would not draw enough tourists because they are located away from major tourist attractions and are unsafe or inconvenient.

With taxes and fees for a Chicago casino under the current legislation top off at 72 percent and operating costs around 30 percent, the report says even the most efficient—and lucky—casino would have profits in the single digits. Union Gaming says at best in any of the five locations suggested EBIDTA would only amount to $21.7 million. And when you add a $15 million license reconciliation fee, profits are impossible, said Union Gaming.

“The reconciliation fee alone would wipe out any profits generated for many years, if not decades,” the study said. “The return on investment profile for all five sites is subpar, if not negative over the five years projected.”

There were other reasons why the preferred locations were the big impediment, according to the report.

“Tourists generally will not patronize a casino in an area that is inconvenient relative to where they are staying or perceived as unsafe, nor will tourists be eager to book a room at a casino’s hotel if there are no other easily accessed attractions nearby,” the report noted. “For these reasons and more we would not expect a material number of tourists to patronize any of the five sites analyzed herein. Instead, these sites will primarily draw patrons from persons living within close proximity.”

The report recommended that the casino be “centrally located to high-quality hotels and other notable tourist attractions” in order to “meaningfully penetrate the robust tourism trends” of Chicago.

But tourism and convention officials are hesitant to site the casino downtown near the city’s massive convention building, the McCormick Center, for fear of losing convention attendees to the casino floor.

The Illinois Gaming Board has 90 days to ask the legislature to reconsider the terms of the bill for the Chicago casino.

Mayor Lori Lightfoot says now the state can reconsider the terms of a Chicago casinos.

“We have been clear from Day One that the creation of a new casino for Chicago has to be financially viable and address the revenue needs of the city of Chicago,” she said in a statement. “While the study confirms our concerns about the tax structure that the legislature passed, we know that this can be addressed, and we look forward to working with the governor and legislative leaders to revise the legislation.”

The report didn’t reject the notion of the city owning the casino and leasing to an operator-manager. This idea was shot down during the initial negotiations because of ongoing corruption scandals on city council. Lightfoot said she’s like it to be reconsidered.

“Obviously, that was something that we asked for,” the mayor said. “But I think we’re going work within the construct that we have just to make sure that we get the tax structure right.”

A successful Chicago casino, however, would return almost $260 million in revenue that now goes to Indiana casinos, where Caesars, Boyd, and Spectacle Entertainment now operate.

The report also stresses a long timeline for a Chicago casino. Assuming a license is issued in 2020, “which would then be followed by a two-year construction cycle with the casino opening on or about January 1, 2023. Given the illustrative one-year ramp period, we would largely expect 2024 to represent stabilized revenue and cash flow.” The goal of bringing more tax revenues for Chicago wouldn’t be reached until at least 2023.

That timeline was disputed by several of the major players, including Rep. Bob Rita, who would like to see a casino opened by late 2020.

“We need some time to analyze this, but the process is playing out a lot like we anticipated,” Rita said.

The bill also permits slots at Midway and O’Hare airports, which the report says would perform better than the slots in Nevada airports. With 500 machines at the airports, winning $200 a day, revenues could reach $37 million.

The South Side of Chicago isn’t a great location either, says the report. Proximity to a newly approved casino in southern Cook County, a new racino nearby and existing casinos in Aurora and Joliet make the South Side a saturated market.

In a survey of Chicago residents, about one-third of the 10,000 respondents wanted a casino downtown and a little less than one-third preferred an area that needed redevelopment.

You’d expect the arrival of a category-killer like Wynn Resorts’ $2.6 Encore Boston Harbor to shake up the status quo in any regional gaming market𑁋and that’s precisely what’s happening, in the early going at least, in coastal New England.

In the first month, Encore grossed $48.5 million in gaming revenue, with $27.4 million coming from table games and $21.1 million from slot machines. The casino paid $12.1 million to the state in taxes.

But Encore’s impact on neighboring casinos was substantial.

Connecticut’s Foxwoods reported a 11.2 percent dip in slot revenue, while Mohegan Sun was hit even harder with a 15.1 percent decrease.

Foxwoods and Mohegan Sun ramped up promotional spending to counter the obvious threat to their premium table games business. No surprise there.

In neighboring Rhode Island, Twin River Worldwide Holdings wrapped up its second quarter with the expectation that combined 2019 operating income at its flagship Twin River Casino Hotel, which serves the greater Providence market from the town of Lincoln, and its smaller Tiverton Casino Hotel farther south, could drop by 10 percent.

No surprise there either, considering that in July, Encore’s first full month of operations, revenue from Twin River’s 4,000-plus machine games fell 17 percent compared to last year, while win from its 125 tables was down a whopping 34 percent.

This was worse than management and the analyst community had anticipated when the Q2 numbers were released. Coupled with news reports that management will be looking to lay off some tables staff, it was enough to send investors running for the exits. The stock (NYSE: TRWH) fell roughly 10 percent as early August unfolded, and currently is down more than 30 percent from its peak in April, when TRWH started life as a public company via a merger of the Rhode Island properties and Delaware’s Dover Downs Hotel & Casino.

Yet experts say it would be a mistake to write off the Rhode Island portfolio, and Twin River in particular, as inevitable casualties of the Las Vegas-scale competition Wynn has brought to metropolitan Boston.

That’s certainly the view of Frank Fantini, a noted publisher of gaming industry research and a long-time investment advisor in the space. “There has been a lot of speculation at this point. I think if you look at the results so far, it’s only been one quarter, and for the slow summer period this is normal.”

Stifel analysts Brad Boyer and Steven Wieczynski agree. “Call us crazy, but we are sticking with our Buy rating on TRWH shares following in-line 2Q19 earnings and news of Encore Boston’s greater than anticipated impact on the company’s flagship Lincoln, R.I., property,” they wrote in an August 13 research note obtained by GGB News.

Of course, the analysts are looking at share price as a function of TRWH’s broader prospects, and what they see is a well-managed mid-sized player in regional gaming nationwide with a solid balance sheet, access to capital, plenty of free cash flow, $170 million on hand to return to shareholders through buy-backs and a track record of growth through strategic M&A𑁋think Dover Downs and Hard Rock Biloxi, and last year’s deal with Century Casinos to acquire three properties in Black Hawk and, most recently, a $230 million all-cash deal with Eldorado Resorts to add Isle of Capri Kansas City and Lady Luck Vicksburg to the portfolio.

As Boyer told GGB News, “This isn’t a company that will be generating 70 percent of EBITDA from Twin River.”

But there’s a bigger picture framing Twin River, too, he says, and certainly it’s shifting, and will continue to do so as Encore ramps up. Yet, he wonders whether the longer-term fundamentals really have altered all that much.

“I think Twin River has locked down a convenience market, if you will, especially when you branch out from northern Connecticut, that market north to the coast. That’s always been fertile land for Twin River.”

He believes Twin River, a racino originally and a fixture of New England gaming since 1992, enjoys a “first mover” advantage that can’t be discounted, and geographically, a deeper, closer-in relationship with its core customer of machine gamers. That consumer demographic will reassert itself when fall arrives, they curtail their travel, and the convenience factor kicks in.

“Twin River obviously doesn’t have the amenities set of a Vegas-style resort property, and Encore comes into the market with a property that’s as good as anything on the Las Vegas Strip,” said Boyer. “If you’re a high-end table player really there’s no reason to go to Twin River. Especially on the table games side, players want the amenities, they want to be pampered, to be sent of Vegas, and all the rest of it. In that respect, Encore is probably hitting (Foxwoods and Mohegan Sun) more than anything. They’re really the only other resort-oriented properties in the market.”

Fantini said, “It’s going to be interesting as time moves on to see the impact of Encore on Foxwoods and Mohegan Sun, because they’re much more of a competitor in table game play.”

For Boyer, it’s instructive in this respect to look at Plainridge Park Casino in southeast Massachusetts, which took a percentage hit on the slot floor in July very similar to Twin River’s.

“Speaking with management there, they don’t expect that to hold. They think it should moderate,” he said. And he expects this will apply across the state line as well, where “weather and traffic favor Twin River.”

“One of the things I found interesting on the Wynn (second quarter) call,” Fantini noted, “they talked about the slots at Encore, they didn’t say they were bad on slots, but they did say they were looking for improvement. I think you can infer that they were disappointed.

“We don’t know what’s going to be true in six months, but the results so far are pretty much what you’d expect: the high-end companies are going to be stronger on tables, and mid-range companies like Twin River are going to be stronger on slots.

“Twin River can be happy being mainly a slots operation. Which is how they started.”

July was another positive month for New Jersey’s gambling industry with Atlantic City casino revenue and statewide sports betting revenue increasing compared to 2018.

Atlantic City casinos took in $323 million, an increase of 7.8 percent from July 2018. Though it breaks a long streak of monthly double digit increases in revenue, July was the first month that revenue was compared to a full nine-casino market in the city. The Hard Rock Atlantic City and Ocean Casino Resort both opened in late June 2018 and immediately invigorated the market.

The state’s total sports betting handle—which includes sports books at the Meadowlands Racetrack and Monmouth Park racetrack—was more than $251.3 million with more than $213 million bet through online or mobile apps.

Overall, sports betting generated $6.82 million in revenue for the casinos and $17.88 million statewide. Year to date, Atlantic City casinos and their online/mobile sports betting partners have generated more than $48 million in revenue. Statewide, sports betting has generated $127.5 million in revenue, according to the Press of Atlantic City.

Online gambling brought in more than $39 million, an increase of nearly 52 percent from last year. Among internet-only entities, Resorts Digital took in $10.5 million in July, up nearly 169 percent from a year ago, and Caesars Interactive-NJ won just over $5 million, up nearly 35 percent, according to the Associated Press.

July was an especially good month for the Borgata Hotel Casino & Spa in Atlantic City. The casino took in nearly $88 million in casino and sports betting revenue. That’s a record for the casino—which just opened a new $12 million sports betting facility—and a 15 percent increase over 2018.

The Ocean Casino Resort took in $20.1 million from gamblers in July, up 18 percent from 2018. The figures indicate the casino, now under new ownership, has reversed its fortunes after losing money for its first several months of operations.

Hard Rock Atlantic City took in $40.7 million in July, an increase of nearly 25 percent from its first month a year ago. The Golden Nugget won $34.5 million in July, up 17.4 percent and Resorts, at $18.1 million, was up 1.8%.

The numbers, however, spell continuing trouble for Caesars Entertainment casinos. The company through its merger with Eldorado Resorts now owns four Atlantic City casinos,

According to an AP analysis of figures released by the New Jersey Division of Gaming Enforcement; Tropicana won nearly $33 million, down 11 percent and Harrah’s Atlantic City won just under $30 million, down 5 percent from a year ago. Caesars, brought in just under $25 million, down 15.2 present and Bally’s, at $18.2 million, was down 11.3 percent.

So far this year, the casinos have taken in $1.84 billion, an increase of more than 18 percent from the same period last year.

Springfield, Massachusetts Mayor Domenic J. Sarno last week issued an executive order ordering the region’s Casino Advisory Committee conduct its first meeting by September 30—more than a year late.

The committee was supposed to have convened in August 2018, when MGM Springfield first opened. Quarterly meetings were then required under the city’s 2013 host community agreement with the $960 million MGM casino.

In a news release, Sarno stated, “The Advisory Committee will help make sure that both MGM Springfield and the City of Springfield are successful through the promotion of economic development initiatives involving travel, tourism, business development and job creation.”

In June and then again in August, Johnny Ray McKnight, a member of the 11-person committee, complained to the Massachusetts Gaming Commission that the body had never met, according to Masslive.com. Other members of the committee were appointed by Sarno, the Springfield city council, MGM Springfield and the Springfield Regional Chamber of Commerce.

In his complaint, McKnight suggested that the gaming commission fine the city and MGM Springfield.

Instead, Sarno took the lead, saying he was doing so “by authority vested in me as Mayor of the City of Springfield.”

Meanwhile, MGM will celebrate its first year of operations in Springfield on Saturday, August 24. The event will include appearances by the New England Patriots Cheerleaders, and Mayor Sarno and MGM Springfield President Michael Mathis will lead a “Happy Birthday” sing-a-long before blowing out the candles on a five-tier birthday cake. MGM Springfield will also host Aerosmith in concert at the nearby MassMutual Center.