Analysts: Lawrence County casino deal risky
By Jason Cato
Published: Saturday, Sept. 21, 2013, 9:00 p.m.
A long-delayed casino and racetrack in Lawrence County are closer to the starting line, thanks largely to $50 million elected officials are anteing up to help get it built, although some view the arrangement as a public gamble.
“We are confident that it will be successful, or we would not have taken this step,” Dan Vogler, county commission chairman, said of selling bonds and repaying the debt from money from the Lawrence Downs Casino & Racing Resort, to be built about 60 miles north of Pittsburgh in Mahoning. “But we are not committing in any way, shape or form property tax dollars.”
Philadelphia-based Endeka Entertainment partnered with Penn National Gaming Inc. and this summer applied for a license from the state Gaming Control Board, with a caveat the county chip in to make the deal feasible. The $225 million cost, which includes $66.5 million in licensing fees, would build a facility with Pennsylvania's only one-mile harness racing track. It would feature a casino with 1,250 slot machines, 40 table games, 10 poker tables and a 200-seat restaurant.
Penn National Gaming, North America's largest racetrack gaming operator, did not respond to requests for comment. Company officials have maintained that the county assistance is necessary.
“Absent that, we would not be involved in this project,” Steve Snyder, Penn National's senior vice president of corporate development, said on July 23 during a second-quarter earnings conference call.
Industry analyst Alex Bumazhny questions the deal.
“I think it's a sign that the project is too risky and/or thereturn prospects are not lucrative enough for the private investors to participate using 100 percent of their own money,” said Bumazhny of the Fitch Ratings investment research service in New York City. “It's a pretty speculative project given that there is such a cluster of casinos already in the region.”
That lineup features Rivers Casino on Pittsburgh's North Shore; The Meadows Racetrack & Casino in North Strabane, Washington County; Presque Isle Downs & Casino in Erie; Horseshoe Cleveland Casino; Lady Luck Casino at Nemacolin Woodlands Resort in Fayette County; and West Virginia's Mountaineer and Wheeling Island racetrack/casinos.
There will be competition from Hollywood Gaming at Mahoning Valley Racetrack, a racino that Penn National is building outside Youngstown, Ohio, 20 miles from the proposed Lawrence County project, that will feature casino-style video lottery terminals and thoroughbred racing.
“I view it as gambling with taxpayers' dollars,” said Larry Maggi, a commissioner in Washington County, home of the Meadows. He noted that casino competition has cut into Washington County's take from the Meadows. “That's a big chance (Lawrence County commissioners) are taking. That's a bet they are making that it will work.”
Endeka and Penn National said they do not believe the competition will hurt the success of Lawrence Downs, formerly known as Valley View Downs.
The license application shows that developers project Lawrence Downs would establish 1,180 to 2,700 jobs directly and indirectly through the casino and that $131 million annually could be injected into the local economy by an anticipated 2 million visitors per year, mostly from Lawrence, Mercer, Beaver, Butler and northern Allegheny counties.
“Two million visitors is pretty outlandish,” Bumazhny said. “Two-million levels are typically reserved for casinos located in populous areas with competitive locations or destination resorts with a lot of amenities. The Lawrence County casino does not seem to fit either of these categories.”
Since the Meadows opened in 2009 using no public money, Washington County has gotten about $60 million from The Meadows, state Department of Revenue figures show.
“It's been an important part of our growth,” Maggi said. “We've been able to do a lot of projects we never, never would have been able to do.”
Those include water and sewer projects, restoring buildings and bridges and other infrastructure work, Maggi said.
“We anticipate a replication of that,” Vogler said.
The new casino will have to pay a “local share assessment.” That money — 4 percent of slots revenues and 2 percent of table games — can be used to fund projects for economic development, community improvement, job training and public interest, according to state law.
The county will sell $50 million in bonds and repay them with money collected annually through its local share.
By law, the host county and municipality split 4 percent of slots revenues, with the municipality guaranteed at least $10 million annually — an amount the casino must make up if revenue falls short. From that, the municipality can keep up to half its annual budget. The rest goes to the county.
Mahoning, where the casino and racetrack are to be built, won't come close to getting $10 million. It has an annual budget of less than $300,000, so it will get only about $150,000 despite the guarantee.
The county would receive more than $9.75 million each year in addition to its 2 percent share each of slots and table games revenues.
How much local share money will go to pay off bond debt each year has yet to be determined, Vogler said. “There still will be dollars that will be utilized throughout the county,” he said.
“They can get there pretty quickly,” said Gaming Control Board spokesman Richard McGarvey. “But they first have to get a license, and they don't have one yet.”
A decision could come next year, he said. Two public hearings will occur first.
The county will not guarantee the bonds.
“It's the bond holders who will be assuming the risks,” Vogler said.
Paying back the principal and interest could take up to 30 years, said Linda Nitch, executive director of the Lawrence County Economic Development Corp. The county allots about $70,000 a year for economic development initiatives through her agency. That amount could increase more than 10-fold should the racino open, said Nitch, who praised commissioners for their commitment.
“They are stepping to the plate and investing in their county. That's what their job is,” Nitch said. “There is risk, no doubt about it. But none to taxpayers.”
Jason Cato is a staff writer for Trib Total Media. He can be reached at 412-320-7936 or firstname.lastname@example.org.
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