Happy Thanksgiving from GGB; Newsletter Returns December 4

Final Words on Philly

The Pennsylvania Gaming Control Board held final suitability hearings on five applicants for the second Philadelphia casino license, and heard testimony from the city’s current casino. SugarHouse owner Neil Bluhm (l.) testified that a second casino would devastate an already saturated market.

SugarHouse execs decry cannibalization

The Pennsylvania Gaming Control Board, in its final suitability hearings last week on the five applicants for the second casino license in Philadelphia, heard executives of the various projects explain how they would bring new revenue to the city, while representatives of the current casino in the city, SugarHouse, testified that a second Philadelphia casino would only siphon revenues from the several casinos now in the Philadelphia region.

Each applicant was given a chance to present a final pitch to convince board members that its project would be best for the city and the state. Revenue estimates varied widely—the largest was from Market8, which predicts $363 million in annual revenues from slots in its first year; the lowest was 79 percent less than that, with Philadelphia Live! in South Philadelphia projecting $203 million in the first year. (Both projects projected 2016 as the first year.)

On Tuesday, the first applicant to give its final pitch to the board was Penn National Gaming, which is proposing a $480 million Hollywood Casino Philadelphia, one of the three projects in South Philadelphia near the city’s sports stadiums.

Penn National CEO Tim Wilmott testified that the operator’s experience would combine with a prime location to give the city and state the best revenue return. Penn owns and/or operates 26 properties across the U.S., and has a customer database of an estimated 2.7 million east of the Mississippi. Penn’s familiar Hollywood brand would give the project additional strength, he said.

Wilmott said the location, near not only the stadiums but just off major interstates 76 and 95, make Hollywood Philadelphia convenient to New Jersey as well as points north and south on the I-95 corridor—“tremendous access into markets we believe the other applicants can’t reach into,” he said.

Penn would partner with the city, and before the board, the operator estimated a total economic impact of $155 million in state and city gaming taxes, $30 million in other taxes and $132 million in annual wages. The operator has pledged two-thirds of cash flow to the city’s school district and pension fund.

Penn National Chief Operating Officer Jay Snowden told the board that the ease of access from major highways means that more than half of the project’s revenues would be generated from out-of-state visitors.

Responding to board questions about a lack of non-gaming offerings, Snowden again pointed to Penn’s experience with its other properties. “We believe that, from having surveyed customers, the restaurants we’re offering, the on-floor casino entertainment—they value all those things,” he said. “They want to have great food, great experiences and a great time but, above all, they value convenience.”

Next up before the board on Tuesday was the Provence, the $700 million integrated gaming, dining and entertainment complex proposed by Philadelphia developer Bart Blatstein with operating partner Isle of Capri Casinos. It is one of the two projects in the Center City district, plugged as an “integrated urban entertainment destination” on a parcel of several blocks anchored by the iconic clock-tower building that once housed the city’s two newspapers, the Inquirer and Daily News.

 “We are proposing a project for Pennsylvania that will truly break the mold,” testified Virginia McDowell, president of Isle of Capri.

Consultants from Spectrum Gaming Group estimated that the Provence would generate $439 million in annual gaming revenue, with almost half being from a new customer base—a combination of tourists and convention visitors.

The Provence would feature a casino on the second floor, the former Inquirer newsroom, along with dining, entertainment and a 125-room hotel. Paul Steelman, the architect who is designing the project, told the board the casino resort is designed to appeal to several different kinds of customer. One of the ways is through a strategic use of natural light. “We want a beautiful sky-lit casino,” Steelman said. “We want the sun to shine in.”

The first applicant for Wednesday’s session was Market8, the partnership headed by local developer Ken Goldenberg, with the Mohegan Tribal Gaming Authority to be the casino operator. The $700 million Market8 would be at 8th and Market streets, in the center of the traditional downtown-shopping district.

In testimony before the board, Market8 representatives topped their first-year revenue projection., Financial consultant Peter Tyson testified that ultimately, the project would generate $518 million a year in gaming revenue, and compared it with his own estimate of $458 million for the Provence and $393 million for any of the projects near the South Philadelphia stadiums.

Goldenberg said his site is “the most accessible location in Center City, with proximity both to the major highways and to public transportation—perfectly suited for a dense commercial corridor.” He noted that about 17,500 people walk past the site every day. (The parcel currently is a parking lot.)

Mitchell Etess, president of Mohegan Tribal Gaming Authority, testified that the project would generate more gross gaming revenue than any of the other projects. He also said the Market8 partners have financing in place to build the four-story, 825,000-square-foot casino property within 25 months, with $375 million of their own money plus a $375 million loan already secured from Deutsche Bank.

The group has an arrangement in place with Hersha Hospitality Trust to build a $70 million, 12-story hotel adjacent to the casino.

Tyson testified that Market8 would court downtown workers, conventioneers and people staying in hotels who are “dying for something to do at night” without having to drive to South Philadelphia or Fishtown, the waterfront location of SugarHouse.

Next up on Thursday was Casino Revolution, the $430 million South Philadelphia stadium-district project proposed by PHL Local Gaming, a group headed by local “Tomato King” Joseph Procacci. Joseph Canfora, president of PHL, touted the project as having the advantage of being right next to I-95 and I-76, but farther than any other project from South Philadelphia’s residential neighborhoods.

“We have the best location, hands down, hands down,” Canfora said. He added that by reusing existing Procacci property, the project can be open with 1,500 slot machines within nine months, beating any other proposed casino. The remainder of the project, including a 250-room hotel, would be complete within 20 months, he said.

The project also includes a family entertainment park on more than 30 adjoining acres, with an indoor pool, golf driving range, outdoor music venue, zip line and restaurants.

Partners, he said, are investing $130 million of their own money in the project, combined with a $300 million loan from Wells Fargo and investment firm Jefferies & Co.

Annual revenue is estimated at $358 million.

“I love South Philadelphia,” Procacci said in testimony before the board. “I will build a casino that I will be proud of and that you, my fellow Pennsylvanians, will be proud of.”

On Thursday, final applicant presentation before the board was from the partnership of Greenwood Gaming, owner of Parx at Philadelphia Park in local suburb Bensalem, and Maryland’s Cordish Companies. The partnership is proposing a Philadelphia Live! casino adjacent to the Philadelphia sports stadium complex. 

Representatives of the Live! project focused on the combined experience of Greenwood and Cordish, which operates Live! casinos and entertainment complexes nationwide, including Xfinity Live! in Philadelphia.

“Anyone outside this market will be shell-shocked when they come into it,” Greenwood CEO Tony Ricci said, noting that Greenwood is the only applicant currently operating in the Philadelphia market.

The Philadelphia Live! project would reprise the Cordish theme most recently employed at Maryland Live!, that state’s largest casino, as well as capitalizing on the stadium location to take full advantage of the sports fanaticism that is a well-known characteristic of local Philadelphians.

Joseph Weinberg, a Cordish president and managing partner, plugged the company’s track record in testimony before the board, noting that Cordish runs two of the five top-grossing casinos in the country. Parx is the top-grossing casino in Pennsylvania. Weinberg also noted that Cordish has a database in Pennsylvania and the mid-Atlantic markets totaling 1.5 million players, and would cross-market between all properties through a common player’s club card.

Cannibalization also was a central subject of the hearings.

Applicants were asked to estimate not only how their projects would add revenue to the city and how they would affect currently operating casinos, but how their proposals would add to losses by Philadelphia-area gamblers.

There are four current casinos in the immediate Philadelphia area: SugarHouse, on the Delaware River waterfront in Fishtown; Harrah’s Philadelphia, just south of the city in Chester; Valley Forge Casino Resort, at the convention center in King of Prussia; and Parx at Philadelphia Park, in Bensalem. Mohegan Sun at Pocono Downs, Sands Bethlehem and Mount Airy Resort are all within a two-hour drive of the city.

SugarHouse was granted the opportunity to testify at the hearings after a request to intervene in the process, on the basis that any new casino in the city will cannibalize the existing properties. At the final hearing, officials repeated the warnings of oversaturation included in a document previously submitted to the board.

Neil Bluhm, the principal owner of SugarHouse, flew to Philadelphia from his Chicago headquarters for the hearing and was critical of the hearing for a second license.

“I felt I had to come down and tell them that if these numbers are right, they’re going to have a mess on their hands,” he says.

Market8 says $100 million of its gaming revenue would come at the expense of SugarHouse, which posted $265.6 million in gaming revenue last year.

“Anything near the numbers that the proponents have used—and we’re using their numbers—would result in our property not being worth its debt, and that would result in severe financial problems when we have to refinance the debt,” Bluhm said.

“Simply put, the supply of gaming product has outstripped demand,” SugarHouse attorney John M. Donnelly wrote in the request to intervene. “The casino market in the Northeast, and in the greater Philadelphia area in particular, is not capable of absorbing additional gaming supply. The novelty and scarcity of casino gaming is gone.”

Bob Green, the chairman of Parx Casino in Bensalem, just north of Philadelphia, agreed with the SugarHouse officials, particularly if the casino is cited in Center City Philadelphia. He told the board that it was his role to bring members “out of the realm of fantasy into the realm of reality,” and that any such casino would clearly draw gamblers from SugarHouse, a situation that would not be good for either casino.

“That will put SugarHouse and any downtown facility in financial jeopardy from Day One,” he said.

All of the applicants for the second license disagree. In addition to Blatstein’s estimate that half of Provence revenues would be from out of the area, Casino Revolution’s Procacci estimated that 83 percent of its revenue would be new money for the city. Market8 officials projected that 78 percent of the property’s revenues would be new to the city.

Philadelphia Live! projected that its location near the sports stadiums would bring $41 million a year in new money over the Center City locations, and $170 million more than the other projects in state tax revenue over the next decade. Penn National provided cannibalization reports to the board, but did not release them publicly.

Meanwhile, Blatstein’s Provence contributed to its own effort by sealing an agreement with community groups under which a portion of revenues from the casino would be specifically dedicated to community improvement. Blatstein signed a pledge with six community groups, under which their support for the Provence project will be recognized with a contribution of $300,000 a year, rising to $450,000 after five years, to a nonprofit controlled by representatives from five groups: the North Broad Community Coalition, Logan Square Neighborhood Association, West Poplar Community Development Corp., Callowhill Neighborhood Association, and the Church of Jesus Christ of Latter-day Saints.

In a similar development, the Washington Square West Civic Association has endorsed the Market8 project, which has made a commitment to invest $1 million a year to maintain and upgrade services, make physical improvements, and promote businesses along Market Street East.