Genting is taking Resorts World Catskills private in a bid to turn the struggling casino’s fortunes around. The property couldn’t hope for an owner with deeper pockets, but the realities of New York’s upstate gaming market aren’t going to make it easy.
As the largest and most expensive of the state’s four commercial casinos, and the closest to New York City, Resorts World has been the biggest disappointment of the group. But all four have failed to generate the gaming revenues they expected in the bidding wars that won them their licenses five years ago. There have been sizable shortfalls in the case of Resorts World, which opened near Monticello just last February, and del Lago Resort and Casino, which debuted farther north and west in Tyre in the Finger Lakes region the year before.
The problem can be distilled down to this: upstate New York is packed with competition five upstate racetracks, all with machine games, including two mega-racinos in and around New York City. There is also an entrenched tribal gaming industry that numbers six full-scale casinos
All are beset by declining populations in the urban areas that comprise everybody’s bread and butter.
Even without the benefit of hindsight, it’s difficult to see how the powers-that-be in Albany were persuaded that dropping thousands more slot machines and scores of table games into this mix would grow the market at levels to support the nearly $2 billion in investment the four casinos represent.
The three that opened in 2016 and 2017 del Lago, Tioga Downs Casino Resort near Binghamton and Rivers Casino & Resort in Schenectady boosted statewide gaming revenues by around 30 percent, but finished their first 12 months a combined $230 million short of what they promised the state when they were licensed, a miss of 39 percent.
“The state was plagued with unrealistic expectations and unrealistic projections,” said Steve Gallaway, a founder and managing partner of Global Market Advisors, one of the industry’s leading research, analysis and business development groups, in an interview with GGB News.
Only Tioga Downs and Rivers have managed to break $200 in daily win-per-slot machine, and only Rivers has improved its average without cutting inventory; del Lago, which cost $440 million to build, finished its first calendar year with around $147 million in revenue, less than half of what it forecast. As Gallaway points out, it opened in the face of direct competition from an established 1,150-unit slot floor at Finger Lakes Race Course and the Oneida Indian Nation’s flagship Turning Stone Resort Casino, which boasts a golf course among its extensive list of attractions and has been central New York’s principal gaming destination for years.
The Seneca Nation’s three casinos in Buffalo, Niagara Falls and Salamanca, though farther west, present redoubtable competition as well.
“I don’t know why their projections were believed,” Gallaway said. “They didn’t make sense.”
There has been improvement. Results compiled by the New York State Gaming Commission show slot win of $40.5 million through the first four months of the financial year that began April 1, good for a daily win per unit of $185. It’s a modest haul compared to most of the Northeast, but 14 percent better than 2018’s average, albeit with around 160 fewer machines. Total revenue will surpass last year’s but not at the pace the current summer peak season would suggest.
In July, Moody’s Investors Service cited del Lago’s “slower than expected ramp up, single asset profile, and the highly competitive nature of the market in which it operates” in its decision to further downgrade its debt, this time to Caa3, while holding to its previous “negative” outlook.
Moody’s believes these factors “may impede the company’s ability to support its capital structure” which is to say, barring a significant turnaround in performance, a restructuring of its finances under the protection of U.S. Bankruptcy Court is looming.
Earlier this month, the Wilmot family, the New York real estate powerhouse that developed the resort, decided it had had enough and sold out to its 50 percent partner, Peninsula Pacific, a Los Angeles-based hedge fund, for an undisclosed sum.
Resorts World Catskills, the presumptive category killer of the upstate market when it opened a year and a half ago with a price tag in excess of $800 million, is on track in 2019 for around $200 million in gaming revenue, 30 percent below management’s forecast. In the first full year after it opened, it generated only $164.6 million. Its daily win-per-slot was the lowest of all four casinos over that period: a mere $122. From April through July of this year the average climbed to $217, but that’s after owner Empire Resorts obtained permission from the state to cut its inventory by more than one-third, more than 500 units, and closed its 1,100-machine racino at nearby Monticello Raceway.
Nasdaq-listed Empire lost $138.7 million last year and was headed for a worse year in 2019, losing $73.7 million through June, and was teetering on the brink of Chapter 11 when it threw in the towel earlier this month and agreed to a takeover by Genting Malaysia and Kien Huat Realty III, a family trust run by Genting Group Chairman Lim Kok Thay, which already owns 85 percent of Empire’s stock. The deal, which is expected to close the end of this year, calls for Empire to be folded into a new joint venture operating company 51 percent controlled by Kien Huat and 49 percent by Genting (USA), a subsidiary of Genting Malaysia. Kien Huat also is boosting its funding commitment by $25 million to help with Empire’s troubled finances.
The idea is that Resorts World Catskills will benefit from Genting’s global reach and, closer to home, from cross-marketing with the company’s giant Resorts World New York City at Aqueduct Racetrack in Queens, the highest revenue-generating racino in the world.
“We can bring synergies to both projects, and by just operating at a higher scale we’re going to be able to put the cost structure in a way that Resorts World Catskills can turn to black and we can make money going forward,” said Genting Americas President Ed Farrell.
Gallaway, for one, is skeptical. As he sees it, “Genting has always had control of that property.” The problem for Resorts World Catskills, in his view, is that its woes were built in.
“It’s not a resort. It’s a casino with a hotel attached. It’s a place you go to gamble. It’s not a Borgata, not even a Sands Bethlehem. It’s not a ‘wow.’ And it’s hard to get to.”
Not that he doubts Genting’s ability, given its enormous financial resources, to keep Resorts World Catskills afloat.
“It’s the other guys”he says, referring to del Lago”that do have a debt problem.”
