As Gateway Casinos and Entertainment prepares for a $100 million initial public offering on the New York Stock Exchange under the symbol GTWY, it is revealing information to potential investors that hasn’t been known by the public before. The information is being filed with the US Securities and Exchange Commission.
The company does not plan to pay dividends on stocks issued on the NYSE and plans to retain future earnings for development, operation and expansion.
The company operates casinos in several Canadian provinces and recently acquired the Central Gaming Bundle that included Casino Rama, near Orfilla. It operates the bundle under the Ontario Lottery and Gaming Corporation (OLG.)
Gateway was previously awarded the North and Southwest Gaming Bundles, which include nine existing casinos and the rights to build in Kenora and North Bay. All told Gateway’s casino territory will go from Kenora in Northwestern Ontario to Innisfil in Central Ontario, and includes six casinos in Southwest Ontario.
The Central Gaming bundle, which extends for 20 years, includes Casino Rama, Gateway Innisfil, and the permit for the Wasaga Beach casino.
In the filing Gateway writes: “The gaming technology used in Ontario gaming properties has failed to keep pace with the industry. In the limited time we have owned these properties we have already experienced positive results by updating our Ontario gaming equipment.”
That particular casino, which is on First Nation lands of the Chippewas, is causing Gateway some concerns.
The 239 page filing details some of the arrangements that Gateway has between the OLG that was reached in June. Gateway is concerned that any changes made to the operation would have to include consultations with the Rama First Nation’s Casino Rama Inc. since Gateway is sub-leasing the property, first from OLG, and then from Casino Rama Inc. The government of Canada is actually not in charge of the lands.
The resort employs 1,400 people, the largest number of employees Gateway has in any one location.
Challenges with Sudbury
Meanwhile Gateway plans to spend $220 million to renovate six properties in the Northern bundle that includes casinos in Thunder Bay (to be called “Cascades”), Sudbury and the Sault, with the ability to build in Kenora (to be called a “Playtime Casino”) and North Bay (also to be a “Cascades” casino). It paid $79,349,000 for the bundle.
That doesn’t include the Sault Ste. Marie Casino, which opened in 1999, and which has always been considered an interim casino. It has 61,000 square feet, 425 slots and 11 tables. It has 120 employees. According to the SEC documents, “There is very little investment planned for this location in the immediate future,” aside from new gaming software and some “minor renovations.”
Although Gateway has announced plans to expand the Sudbury property, its SEC filings indicate that it is worried that legal challenges that have been filed against the Kingsway Entertainment District (KED) in Sudbury could create delays.
The challenges were filed with the Local Planning Appeal Tribunal, which has begun hearing them.
In its SEC filings Gateway notes: “While we have received initial municipal approval for the relocation of this property, an appeal of that decision has been filed in the Local Planning Appeal Tribunal by certain individuals and community groups which, if successful, would delay the proposed relocation pending further appeals or court challenges.”
The first hearing will be next summer with a decision in September 2019 by the best possible estimate. The filing says, “If the relief sought is granted, it could have a material adverse effect on the relocation of the Sudbury Downs facility and the anticipated growth therefrom.”
One of the critics who filed the appeal to the LPAT, Tom Fortin, said the decision is likely to be even later than September 2019. “This date is optimistic as the appeal has run into a serious delay due to the process itself being questioned in the rail deck case,” he said.
Fortin told the Sudbury Star: “The appeal must wait for the rail deck issues to be resolved in divisional court before a hearing will be scheduled. For this purpose, a second case management conference will occur in late January 2019 where a hearing date may or may not be set. The current lead time for LPAT hearings is eight months based on previous LPAT cases. This puts our hearing in September 2019 at the earliest, with a decision likely at the end of 2019. The bottom line is that the LPAT appeal is going to take considerably longer than expected and the casino may be forced to cancel its plans for the Kingsway.”
Fortin urges the city not to spend money on the district’s development, including site preparation costs, until LPAT makes its final decision.
Fortin also criticizes the project because, he says, although the city sees it as attracting tourists, Gateway sees it differently. He quotes Gateway’s filing: “Locals-driven markets generally attract a more consistent flow of casino patrons over time, leading to greater stability as measured by total wagers net of prizes paid.”
Fortin adds, “The filing with the U.S. Securities and Exchange Commission also confirms what we have been saying all along concerning tourism and casinos in the north. This casino is to focus on a locals-driven market and not tourism. This is the main issue we raise in our objection to the casino, as the revenue and jobs in the Kingsway casino will simply be diverted from existing businesses in other parts of Greater Sudbury.”
The company currently operates the former Sudbury Downs, but would replace it with a “Starlight Casino” in the Kingsway district where it would spend $55.5 million 21,600 square feet of gaming space and increase slot machines from 427 to 600. It would add 21 tables, where before there were none. It will also add new food and beverage vendors. This could be completed by mid-2020 if no more delays are imposed. But that’s the rub.
As part of the filing Gateway writes: “We plan to add table games where there is market potential, optimize floor layout and implement our successful branding and (food and beverage) strategies in order to transform our Ontario properties into the vibrant local entertainment destinations for which our brands are already well known in British Columbia and Alberta.”
The city council several months ago granted the needed rezoning, which would also include a publicly funded $100 million arena next to the casino, and a hotel.
Ontario is the largest gaming market in Canada and the fourth largest in North America. Casinos provide nearly half of Gateway’s revenues, with lottery tickets providing the remainder.
