Harrah's and Philadelphia (Determin the casino executive thought process)

Just a quick review. Harrah's owns four casinos in Atlantic City which are bringing in about 44% of the revenue in NJ. Unless the rules are changed they are not permitted to run more than half of NJ (although I doubt that they will be forced to divest if other casinos are closed). They also own one racetrack casino in Chester, about halfway between Philadelphia and Delaware.

The casino just outside of the city limits on the opposite side of Philadelphia (PARX) is by far the largest of the PA casinos. They are in the midst of expansion plans for next month. The new casino in downtown Philadelphia (Sugar House) that just opened up has about the lowest revenue of any PA casino. Approval has been granted for a 500 slot machine casino at the Valley Forge Convention Center in King of Prussia (another Philadelphia casino). Naturally there is already competition in Delaware, and NJ might get smart and put a casino in Camden to prevent the loss of all that money to PA.


Now I hear that Harrahs is thinking of investing in the last Philadelphia casino (formerly Foxwoods, and briefly a Wynn project). What could possibly be driving that thought process? Surely they can buy out somebody at a fraction of the cost of building a new casino from scratch amidst all this competition. Sheldon Adelson has said that he would probably sell the casino in Bethlehem PA since it is almost a distraction from the truckloads of money he is making in Asia.

I don't understand what spreadsheet these guys are looking at.

BTW- They are finally going to change the corporate name to Ceasar's (for the third time).

I think the thought process is simple. Possibly TOO simple.

NJ is losing a lot of gaming action to the neighboring states. Harrah's is just trying to get a piece of that action. Providing a local choice for all the Total Rewards players, is actually a pretty logical idea.

Quote: DJTeddyBear

I think the thought process is simple. Possibly TOO simple.

NJ is losing a lot of gaming action to the neighboring states. Harrah's is just trying to get a piece of that action. Providing a local choice for all the Total Rewards players, is actually a pretty logical idea.

I would buy that argument except that Harrah's already has a casino only 15 miles away in Chester, PA. They would be only 3 miles from the Sugar House casino which just opened in September 2010.

Another Harrah's in downtown Philadelphia would have all that competition. Sheldon Adelson strongly hinted to the media that he regretted building the casino in Bethlehem, since it went over budget and was barely profitable. Since the table game introduction, Poker has been a huge moneymaker in Bethlehem.

I would think that Harrah's would be trying to acquire a casino instead of building a new one. In reality, they have built very few casinos over the life of the company, and have primarily grown by acquiring existing properties.

Oh. I forgot about Chester.

Maybe the thinking is to build brand loyalty by having multiple locations.

Of course, that doesn't answer the build/accquire question...

Frank -

I'm wondering if Harrah's is trying to develop the Foxwoods site, and then they would close or divest the Chester site to another buyer who wants in the market? That would give them a more upscale casino in the area, and give an independent buyer (not that I think anyone is in a buying mood these days) a toe hold in the lucrative Pa. Market.

-B

I realize that Harrah's would want to grow. It is never going to get rid of that debt by offering city wide buffet deals. I fully expect them to be a player in the new Ohio casinos, and they are always chomping at the bit to get into Massachussets where the CEO lives.

But they have so little experience building a resort from the ground up. Philadelphia already seems so crowded, and some of the market for the Foxwoods site will undoubtedly steal from Chester. Plus, these brownfield sites sometimes produce some nasty expensive cost overruns (ask Sands Corporation).

The Chester site is still the 2nd biggest revenue site in Pennsylvania. They have 4 airport hotels only 2.5 miles from the racino. While the City of Chester is a run down industrial city rapidly losing population, the county of Delaware, PA is one of the wealthiest counties in the country (think Katherine Hepburn in the Philadelphia Story).



The only thing that I can think of is that the previous developers (On February 26, 2009) tried to relocate the site from the industrial riverfront to onto three floors of the former Strawbridge's flagship store. The former Strawbridge's store is right downtown less than a mile from the train station with frequent service to major cities in New Jersey and Manhattan. Such a location may bring a different level of customer and encourage out of state visitors.

Other than that relocation plan, the default site is basically the third industrial location along the river. Renovating the riverfront probably seemed a good idea in 2005 when the Gaming Commission selected the sites, but in today's economy it doesn't seem as if there is room for all these casinos.

Isn't "casino executive thought process" an oxymoron?

Quote: mkl654321

Isn't "casino executive thought process" an oxymoron?

Yeah.

I think that's why Paco was asking us to try to explain it.

I am trying to understand the thought process. They can't all be morons.

One idea which met a lot of objections was to locate the Foxwoods casino on Market Street right down instead of the waterfront. However the current casino on the waterfront runs this free bus up and down Market street twice an hour (the bus loop is about 3.5 miles one way). The bus stops at four locations convenient to tourists and businesses in downtown Philadelphia. I don't know how much strategic value it would be to be located right downtown.



But the downtown river front location for Sugar House is raking in much less revenue than the suburban horse track racino locations,

The three current Philadelphia casinos are making close to a $1 billion a year. They intend to add more tables and try and increase that number.

My only thought is that if Harrah's puts a second Philadelphia location, it inevitably has to cannibalize their Atlantic City revenue. Maybe they think that they can add hotels rooms and turn Philadelphia into a destination resort.

The latest new release from Harrah's announced that they have cancelled their IPO because the $23 billion in long term debt is so severe that investors are balking at the stock price. The article re-emphasizes that they are trying to re-start the Philadelphia casino (formerly Foxwoods Philadelphia) along with two casino in Ohio.

I don't see how any project in the USA will generate enough revenue to make a dent on the interest on $23 billion. Since Macau seems closed off, I think that they should try to begin a massive project in Europe. The only other thing that I can think of to help Harrahs / Ceasars is some kind of ground breaking legislation that says if States permit Indian gaming, then they have to permit Commercial Casinos

States that have Commercial Casinos
1 Colorado
2 Illinois 
3 Indiana 
4 Iowa 
5 Kansas
6 Louisiana 
7 Michigan 
8 Mississippi 
9 Missouri 
10 Nevada 
11 New Jersey 
12 Pennsylvania
13 South Dakota 


States with some Indian Casinos

1 Alabama
2 Alaska
3 Arizona
4 California
5 Connecticut
6 Florida
7 Idaho
8 Minnesota
9 Montana
10 Nebraska
11 New Mexico
12 New York
13 North Carolina
14 North Dakota
15 Oklahoma
16 Oregon
17 Texas
18 Washington
19 Wisconsin
20 Wyoming


States with no casinos at all (as of today)
1 Ohio
2 Massachusetts
3 New Hampshire
4 Vermont
5 Maine
6 Hawaii
7 Utah
* District of Columbia

Quote: pacomartin

... States with no casinos at all (as of today)
1 Ohio
2 Massachusetts
3 New Hampshire
4 Vermont
5 Maine
6 Hawaii
7 Utah
* District of Columbia

Seems as if you must have left some out. You don't have a total of 50 states listed in all categories.

Sorry, very careless of me to forget the following states (no casinos)
Arkansas
Delaware
Georgia
Kentucky
Maryland
Rhode Island
South Carolina
Tennessee
Virginia
West Virginia


Obviously the list from American Gaming is somewhat dated since Delaware, Ohio and West Virginia now have gambling.

I appreciate that Harrah's wants to become the McDonald's of gaming, but even if there is massive legislative change, I don't see how they will raise the money for building new places without being able to issue stock. I think it is limited how many casinos they can acquire via assumption of debt.

When your long term debt is almost four times your yearly revenue it doesn't look very good.

Quote: pacomartin

Sorry, very careless of me to forget the following states (no casinos)
Arkansas
Delaware
Georgia
Kentucky
Maryland
Rhode Island
South Carolina
Tennessee
Virginia
West Virginia
...

Well, West Virginia has four commercial casinos that I have played in and one that I haven't made it to yet. I think the data base you are using must be flawed.


Edit: Your post (now) points out and corrects everything in my above comment. Was it there originally and I just wasn't paying attention? If so, I sincerely apologize, Mr. Martin.

Quote: pacomartin

Sorry, very careless of me to forget the following states (no casinos)
Arkansas
Delaware
Georgia
Kentucky
Maryland
Rhode Island
South Carolina
Tennessee
Virginia
West Virginia


Obviously the list from American Gaming is somewhat dated since Delaware, Ohio and West Virginia now have gambling.

Maryland, too. Rhode Island has a (very popular) racino. Tennessee has an Indian casino.

South Carolina also has the Myrtle Beach boats...technically I guess its in "international waters" but it operates out of South Carolina

It does appear that I copied out of the AGA database incorrectly. I didn't realize that a "commercial casino" is ranked differently from a "racino". See
American Gaming Association list of states

The CEO of Harrah's, Gary Loveman, in his speech cited that there are only 13 states that permit commercial casino and stated obviously that he wants to build them anywhere he wants subject to local approval.


Of the 13 states that permit commercial casinos , only 4 of them do not have a Harrah's casino
Colorado
Kansas
Michigan
South Dakota

Harrah's has some kind of agreement to operate a single Indian Casino in each of another 3 states
Arizona Casinos
California Casinos
North Carolina Casinos

Since I would presume that Harrah's would try and operate multiple Indian casinos in states like California, they may be restricted by law to operating a single casino only. I find it hard to believe that they would not be competitive enough to get more contracts.


BTW, talk about preaching to the choir. Would there be anyone at a gaming convention expo that would be against opening up gambling in more states?

Quote: pacomartin

The only other thing that I can think of to help Harrahs / Ceasars is some kind of ground breaking legislation that says if States permit Indian gaming, then they have to permit Commercial Casinos.

I wonder how 'ground breaking' that would be.

The entire Indian casino industry began as a result of a series of law suits, several of which went to the Supreme Court.

One of the keys is that the Indians operate on sovereign land. I doubt that commercial operations can find a similar key to fight with.

I think the "key" would be a changed attitude regarding gambling. San Diego is fairly well developed as far as casinos go. There are at least 6 major casinos and some slot clubs. But they are ruining the backcountry, since that's where the reservations were located. Now the roads are handling far more traffic than they were designed to carry.

But people might not be against opening a casino near Imperial Beach (oceanfront near Tijuana) as an urban rejuvenation project.

I think the concept behind the Singapore Marina Sands may make many urban cities rethink casinos. Here you have an architectural marvel that not only makes as much as $2 billion a year, but will bring people in from all over the world that will see the city. Casinos are still thought of as somewhat nasty places that should be hidden away by a lot of people. Los Angeles has card clubs in Commerce, but as a major Pacific Rim city, they may someday have a Singapore style casino downtown or near the airport. I know a lot of people in California and Connecticut are wondering why these Indians should get so rich. Why not open it up to commercial casinos?

Quote: pacomartin

San Diego is fairly well developed as far as casinos go. There are at least 6 major casinos and some slot clubs.

Are these real casinos or just glorified card clubs? Is roulette and craps allowed in CA?

No, these are real casinos. I left off the card clubs and the slots only truck stops.

Viejas Casino & Outlet Center
Barona Casino
Harrah's Rincon Casino and Resort
Sycuan Casino
La Posta
Pala Casino Spa & Resort
Pechanga Resort & Casino (just across the SD county border in Riverside County)



They permit versions of roulette and craps in california, but I think it is required that neither player nor casino operator can touch the gambling device (except cards). So they have to be specially modified wheels and balls. You can roll dice only if it is via some contraption that the dealer operators.

Quote: pacomartin

They permit versions of roulette and craps in california

I just looked and its not roulette at all, its some flunky dice game thats 'like roulette'. No its not......