July 13, 2006

Examining the Casino Promises II

Carroll Andrew Morse

Katherine Gregg of the Projo and Ryan Gainor of the Kent County Times reported yesterday on the details that have been released about the deal between Harrah’s and the Narragansett Indian Tribe. According to the summary released to the public, the Narragansetts get 5% of the casino revenue that’s left after the state takes its share. Based on the optimistic revenue estimates released earlier this year, that translates to about $21,000,000 per-annum for the tribe by the 3rd year of casino operation.

According to Narragansett Indian Tribe attorney Jack Killoy (as quoted in the KCT) the 5% that the tribe will receive is not much less than the profit Harrah’s will clear in operating the casino…

[Killoy] emphasized that because the tribe is getting 5 percent of revenue after taxes, it does not mean 95 percent of that money will be making its way to the Las Vegas desert.

"Our opponents are not accounting for the maintenance or operating costs," he said.

Killoy said after those costs Harrah's would make only slightly more than the tribe in profit.

The Projo article mentions a $45,000,000 owners share, which means Mr. Killoy's "slightly more" probably refers to Harrah’s making about $24,000,000 per year in profits, after operating costs are subtracted.

Now, the most conservative figure I’ve seen for the cost of building a West Warwick casino is $650,000,000 (and that figure is several years old). This means, if we take Mr. Killoy at his word, Harrah’s is looking at at least 27 years (650M divided by 24M) to recoup its initial investment.

It is difficult to believe that it takes a casino developer 27 years to break even -- that it is an industry standard for casinos built in 1980 to just start breaking even today. (Would any business owners reading this like to comment on what reaction they think they would get if they presented a business plan to investors that said “under optimistic estimates, we expect to recoup our initial investment 27 years from now”?) Call me cynical, but it seems more likely that the summary that has been presented doesn’t include all of the revenue streams that Harrah’s intends to draw out of Rhode Island.

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How can you tell when Harrah's is lying?

Her lips move.

Classic, but true.

There's something going on here that only someone with a forensic accounting degree will be able to figure out 20 years from now after Rhode Island is referred to as "That casino that used to be a state".

Posted by: Greg at July 13, 2006 11:18 AM

“I want to put our opponents on notice,” he said. “Attacks on this project, attacks on our effort to establish a tribal casino, attacks on our supporters or our partner will be considered a direct attack on the Narragansett Indian tribe.”

The chief is clearly an idiot. No wonder his people live in poverty. They're lead by a lightweight.

Posted by: Greg at July 13, 2006 3:06 PM

"That casino that used to be a state."

The first problem with casino revenue, of course, is the big lie about property tax relief. A friend pointed out another problem: it will comprise such a large percentage of the state budget that the casino will have a disproportionate and unhealthy influence on state government.

(Thank you for your prior comment, Greg.)


Posted by: SusanD at July 15, 2006 5:24 PM

I think it is time that the tribe starts to get their people out in the work force. They have been crying much to long. They receive $6 million a year from the taxpayers and they can receive another $10 million from Lincoln if they weren't involved with the Harrah's fiasco.

If it passes and the passes the constitutional test it will be 3 years before it is built. According to the Chief BS they will start receiving $20 Million a year.

If they drop Harrahs they stand to gain at least $60 million from Lincoln and I am sure in six years Lincoln's number will be approaching $20 Million.

The Indians need to hire a financial consultant. I know they are planning to work at the Casino but that is not a plus for the bottom line.

The numbers just don't add up.

What am I missing?

Posted by: cappy at July 19, 2006 8:21 AM