April 8, 2018 by

$300,000,000 Debt Coming Due in 2020

A failing casino in upstate New York has asked the state government for a bailout.  This has brought about quite a firestorm of criticism among which is the call for legalizing online casino gaming in the state.   After all, there are thousands of online casinos so if one fails players simply move on to another one.


Del Lago Casino

In 2013, the casino was granted a permit to be built in the town of Tyre, New York which is just immediately to the north of the famed Finger Lakes Region of New York State.  The casino opened in 2017 and had a rough first year.

First there is the matter of location.  It is surrounded by other casinos in a 30-50 mile driving radius.  The casino would naturally need to draw from the big cities of Rochester and Syracuse but, because of the plethora of casinos in the area, people from these cities have many options.

Del Lago claims that it isn’t the competition from the other casinos that made its first year so difficult.  They claim that they are not playing on an even playing field; that other casinos, especially those on Native American land have received better deals from the state.  So Del Lago denies that it has asked for a bailout; they claim that they are asking the state to give it the same benefits enjoyed by other casinos.

A spokesman for Del Lago clearly pointed the blame at the Seneca Indian Nation which runs three nearby casinos but is not paying state taxes because it is involved in an ongoing dispute with the state over those taxes.  The problem with the unpaid taxes, in the view of Del Lago Casino, is that the Seneca Nation didn’t put the tax money in escrow pending the outcome of its argument with the state but used the money as a kind of windfall with which it was able to win new players by offering extraordinary promotions that no other casino, such as Del Lago, could match since they were using the money to pay taxes.

Even if the Seneca nation were not withholding the taxes the state claims it owes, it would be benefiting from the sweetheart tax deal it has in place.  The non-Native American casinos pay 37% of slots profits as taxes while the Native American casinos pay only 25%.

Effect on the Local Economy

Jeff Shipley, President of the Seneca County Chamber of Commerce says that the casino has infused the area with more tourists, more employment, and has added to the positive atmosphere of the Finger Lakes Region for business generally.  Mr. Shipley also pointed out that Del Lago has brought in to the state economy less than the low level of its projected economic benefit.  That is, the casino has generated about 45 million dollars and the lowest projected contribution to the state’s economy was about 50 million dollars.

Del Lago says that it employs 1200 people and that it would sharply have a negative impact on the local economy should it be forced to close for weak performance.  Many individuals have invested sizable sums in business ventures in the area basing their optimism on the generally rising economy and on the success of the casino.

Faulty Planning?

Del Lago is owned by a Rochester shopping mall builder and proprietor.  He remains optimistic about the future of Del Lago and rejects the notion that the area is simply too saturated with casinos; that there needs to be some winnowing of the over-abundance of casinos.  As a builder of very large and expensive malls, he should know how to evaluate the potential of any project that would cost close to 500 million dollars to build.

Competitive Bidding

Clyde Barrow, a Professor of Political Science at the University of Texas was commissioned by a group in the Mohawk Valley in 2014 to study how much the Del Lago Casino might affect the local economy.  Professor Barrow estimated first year revenues of 158 million dollars and the casino brought in about ten million dollars less.

The problem, according to Professor Barrow, is that the state of New York had instituted a competitive bidding system to determine who would receive the licenses to build and run a casino.  The Del Lago presentation to the state estimated first year revenues at about 250 million dollars, fully 100 million dollars higher than the Professor had projected.

So, it could simply be that Del Lago wildly over-estimated their earnings potential given the regional competition for every gambling dollar or the system gave them the incentive simply to lie about projected and expected earnings.

Debt Burdens

Del Lago presently has a debt burden of 300 million dollars.  The state of New York has a far higher debt burden.  In addition, there are many land based casinos in the state.  So, New York is not close to giving Del Lago any kind of tax benefit.  In the state’s view, the casino knew everything it faced opposite its competitors.  It could be that Del Lago saw itself as something it could not be and spent far beyond its more realistic means.

Governor Andre Cuomo said that he was “not sympathetic” to Del Lago’s request for a tax break to cover expenses.  Given the financial situation of New York State, the Governor might have expressed his opposition to a bailout more forcefully.  It seems that he was leaving the door open for a change of heart.

Online Gambling

The discussion about bailing out a local business has ramifications beyond the gaming industry.  Should the state bail out a factory that couldn’t sell enough of its product to stay in business?

Online casinos cannot ask for a bailout if things don’t go well financially.  For one, it costs far less to open an online casino.  Secondly, no one ever has to travel to play at an online casino unless they live in a jurisdiction that makes online casino gaming illegal.

So, some are asking: Why not legalize online gambling in New York?  Why not, actually?