Rhode Island has come to rely heavily on Justin Kane and other recreational gamblers like him.
Kane, a Providence real estate investor, likes to blow off steam at Bally’s Twin River Lincoln Casino and its sister site, Bally’s Tiverton Casino & Hotel. There’s something alluring about the chimes and jingles churned out by the rows of slot machines on a gaming floor bathed in a jumble of neon glow.
And there’s the chance of winning some money.
Kane has hit it big a few times, including a $1,500 slot machine jackpot. But he’s also lost hundreds of dollars during some visits.
He’s aware that a large portion of the money that disappears into the video slots – roughly 61 cents of every dollar – is scooped up by the state to help foot the cost of providing public services and paying for public employees. That contribution doesn’t make Kane feel any better.
“It’s no consolation that the losses help fund the government,” he grumbled.
But state officials are certainly happy he and others still keep gambling.
The revenue stream generated through customer losses at slot machines and table games inside the state’s two casinos, in combination with traditional lottery tickets and drawings, is one of the biggest sources of funding for the state’s $13 billion budget.
In fact, no state counts on gambling income like Rhode Island does.
And making the situation here even more unusual is that the money is coming from the slots, tables and sports betting parlors at locations owned by only one company: Bally’s Corp., a publicly traded corporation based in Providence that’s been rapidly expanding to other areas of the country.
With new gambling destinations in the region and a shift among younger people away from lucrative slot machines, some observers worry about Rhode Island’s outsized dependence on the casino cash.
And those worries haven’t dissipated with a 20-year lottery contract that the state signed in June with Bally’s and International Game Technology PLC that allows Bally’s to strengthen its control over casino gambling in Rhode Island.
To a large extent, Rhode Island’s fortunes are inextricably tied to Bally’s success in keeping gamblers interested in continually coming back to Lincoln and Tiverton, even as the landscape grows more competitive and Bally’s attention becomes more divided.
“They’re far too critical [to the state],” Leonard Lardaro, an economist and professor at the University of Rhode Island, said of the Bally’s casinos. “They are too important as a source of revenue. That’s not a criticism of them. That’s a criticism of our state not making enough inroads with growth-oriented industries.”
IN DEPENDENCY
Indeed, few states rival Rhode Island’s reliance on gambling, according to a 2019 report from Washington, D.C.-based think tank The Urban-Brookings Tax Policy Center.
The report found that Rhode Island rakes in revenue that amounts to $428 per adult annually – far more per capita than any other state, thanks in part to its enormous 61% share of the income at the video slot terminals.
Even Nevada, a gambler’s mecca, ranked second at $381.80 per adult.
The report also noted that U.S. states get an average of 2.2% of their general revenue from gambling operations. For Rhode Island, that rate is about 10%.
[caption id="attachment_389764" align="aligncenter" width="1200"]
SPACE MAKING: Derek Sharp, left, senior project manager for Suffolk Construction Co., and Kim Ward, Bally’s Corp.’s regional executive director of public and community affairs, check the progress on the $100 million expansion project at Bally’s Twin River Lincoln Casino. / PBN PHOTO/MICHAEL SALERNO[/caption]
In fiscal 2019, the last full year before the COVID-19 pandemic struck, the R.I. Department of Revenue said casino gambling and lottery ticket sales totaled $397 million, making it the state’s third-largest source of revenue – not counting federal grants – behind only personal income tax and sales/use tax.
Rhode Island is in a unique situation in its dependence on one company to operate its two casinos, says Steven Frias, a Cranston lawyer who has run for a state legislative seat twice as a Republican and has been a longtime critic of the state’s relationship with Bally’s.
Other states that have legalized gambling have several competing operators generating revenue, reducing financial risk for the government, Frias said.
Meanwhile, Rhode Island’s one casino operator seems intent on spreading itself far and wide.
Bally’s – once known as Twin River Worldwide Holdings Inc. until it bought the venerable Bally’s brand last year – is in the midst of a rapid expansion into other areas of the country, snapping up properties to bring its portfolio to 14 casinos in 10 states.
The shopping spree also included a $2.7 billion acquisition of a London online gambling company in October and a move into mobile sports betting. It now has access to sports betting markets in 16 states.
Under the majority control of New York hedge fund Standard General LP, Bally’s has higher aspirations. The company recently announced its interest in building a $1.6 billion flagship casino in Chicago.
Frias finds these moves troubling for Rhode Island.
“We have all our eggs in their basket, but they don’t have all their eggs in our basket,” Frias said. “There is always a danger for a state or community to be too dependent on one company.”
With a long-term monopoly on casino operations in the state, Frias says, Bally’s could prioritize its out-of-state properties, particularly ones that don’t hand over as big a cut as Rhode Island gets from video slots.
“If they see certain casinos across the country that are performing better, they will focus on those rather than ours, and we have no alternative for the next 20 years,” he said. “There could be some bad consequences in the long-run” for the state budget if the local casinos go on a major downswing.
Clyde Barrow, a gambling industry analyst and general manager of Westport, Mass.-based gaming consulting firm Pyramid Associates LLC, is unaware of any other state that relies on one casino operator as Rhode Island does. Even tiny Delaware has three separate companies operating casinos.
But Barrow, who is also political science department chairman at the University of Texas Rio Grande Valley, said Rhode Island’s one-company arrangement should not be “an imminent worry,” even if a financial catastrophe befalls Bally’s.
“Even a company in bankruptcy Chapter 11 can still operate, it just means them selling the facilities to a new company, which would require the state to give approval anyway,” Barrow said. “It’s not out of the realm of possibility that it goes bankrupt. Casinos go bankrupt. The result is they usually sell to another operator.”
[caption id="attachment_389765" align="alignleft" width="295"]
A NUMBERS GAME
: Net income from the video lottery terminals at Rhode Island’s two casinos has declined significantly since the COVID-19 pandemic first struck in 2020. The state of Rhode Island gets 61% of the net revenue from these machines.
*During this year, Newport Grand closed and the Tiverton casino opened.
** The COVID-19 shutdown and other safety protocols affected
the final four months of the fiscal year.
SOURCE: R.I. LOTTERY[/caption]
NO (NEW) DEAL
A similar situation has already played out once in Rhode Island.
In 2005, the owner of the Twin River casino – then called UTGR Inc. – overextended itself by purchasing what was then an antiquated slot parlor and greyhound racetrack for $445 million, and then sunk another $225 million into transforming it into an upscale gambling destination.
When UTGR started missing loan payments in 2008, its parent company – BLB Investors LLC – turned to the state, offering to make a one-time payment of $560 million in exchange for drastically reducing the percentage the state would get from future video-slot earnings.
BLB argued that it needed to drop the state share from 61% to 25% or else UTGR would be forced to file for bankruptcy.
The response: tough luck.
State leaders refused to water down its lucrative deal, confident that bankruptcy would not prevent the state from collecting its share. They were right. When UTGR filed for Chapter 11 protection a year later, the gambling hall remained open and the cash kept flowing into the state’s coffers.
By 2010, the owners of Twin River emerged from bankruptcy with reduced debt, a lineup of financial backers and a new name that indicated wider ambitions – Twin River Worldwide Holdings Inc.
In 2015, the Twin River group purchased the small Newport Grand slot parlor, and when casino gambling was approved by statewide voters the following year, the company got approval to close Newport Grand and construct a full-fledged casino in Tiverton.
Unlike Frias, Barrow sees the one-company arrangement as more of a benefit for Rhode Island than a vulnerability.
“There’s really no advantage of having two facilities competing against each other when they need to be competing as a unit against Connecticut and Massachusetts,” he said.
NOT WORRIED
State leaders say they’re unconcerned that Bally’s grand expansion plans might distract it from the company’s interests in Rhode Island. In fact, many see expansion outside of the state as a plus.
Proponents of the state’s 20-year deal with Bally’s Corp. to operate legal gambling in a partnership with IGT, said the arrangement ensures that hundreds of jobs will remain in Rhode Island, while also maintaining hundreds of millions of dollars annually in economic activity.
The pact gives Bally’s some ownership of the video lottery terminals, which have long been owned by IGT and leased to the state. In exchange, Bally’s has launched a 50,000-square-foot casino expansion in Lincoln that will cost $100 million. The company also will add 30 senior management positions in Rhode Island in addition to the 1,200 full-time jobs it is already required to maintain. Bally’s said it has 1,800 employees in Rhode Island.
While Bally’s was required to keep its corporate headquarters in Providence, its recent establishment of a technology office in Warwick – bringing 55 jobs to the city – was not required in the deal, according to Alana O’Hare, spokesperson for Gov. Daniel J. McKee.
“Bally’s has also committed to bring senior management employees to work in the state, making Rhode Island a central part of its expansion plans,” O’Hare said in an email. “Bally’s expansion allows it to better diversify its revenue streams, which should allow more stability from regional impacts.”
O’Hare added that Bally’s and its Rhode Island casinos are “closely monitored and regulated” by the R.I. Lottery and the R.I. Department of Business Regulation, “and both agencies work hard to protect the Rhode Island-based assets.”
Legislative leaders share McKee’s sentiments.
House Speaker K. Joseph Shekarchi, D-Warwick, one of the architects of the 20-year deal, called the new positions at Bally’s Warwick office “jobs for the new economy.”
At a ribbon-cutting ceremony for that office last month, Senate Majority Leader Michael J. McCaffrey, D-Warwick, praised the company’s ambitious plans to expand into iGaming, mobile sports betting and casino markets in other states.
[caption id="attachment_389766" align="alignright" width="262"]
CARD CARRYING: Blackjack dealers Rithy Sen, foreground, and Hoa Lam are ready for gamblers to step to the tables on the casino floor at Bally’s Twin River Lincoln Casino. / PBN PHOTO/MICHAEL SALERNO[/caption]
“As long as Bally’s continues to grow, their budget in Rhode Island will continue to grow,” McCaffrey said.
And Shekarchi said in an emailed statement that it’s not like Bally’s has a guaranteed monopoly in Rhode Island.
The speaker noted that another casino operator could try to set up shop in the state. Such a move would require the passage of legislation by the General Assembly, then it would be put to referendum vote both statewide and in the proposed host community.
“This process occurred in 2006 when the state and local voters rejected a proposal by Harrah’s to build a casino in West Warwick,” Shekarchi said.
For its part, Bally’s declined to comment, instead pointing to a previous statement from Elizabeth Suever, vice president for government relations.
“It’s important to underscore that Bally’s commitment to Rhode Island remains as strong as ever, perhaps more so,” said Suever, adding that the deal with the state assures that it will remain a “vital and significant” part of the state economy.
GAME CHANGING?
But Rhode Island officials acknowledge that the state’s reliance on casino cash might have to evolve.
Casino revenue here is facing a long-term decline, the result of increased competition from Plainridge Park Casino, a video table games and slots parlor in Plainville, Mass., and Encore Boston Harbor, a full-fledged casino that opened in 2019.
And the industry is still shaking off the effects of the COVID-19 pandemic, which forced the closure of Rhode Island’s two casinos for more than two months in spring 2020.
After the next fiscal year, when the casino industry is expected to stabilize from the impact of the COVID-19 pandemic, the state of Rhode Island’s gambling revenue is projected to decline annually due to competition, according to an economic forecast released on Dec. 8.
Right now, the majority of the state’s gambling revenue comes from the gamblers who push buttons and pull levers at the more than 4,000 slot machines at Bally’s Twin River and another 1,000 at Bally’s Tiverton, amounting to $209 million in profits in fiscal 2021, according to a recent state auditor’s report.
That’s down 2.2% in comparison with slot revenue from the prior fiscal year when the COVID-19 pandemic only affected the final 3½ months.
Since 2012, the cash generated by slot machines in the state has plateaued, after net terminal income peaked at $527.3 million in fiscal 2012, reaching above $500 million just four times since then, according to R.I. Lottery financial reports.
While crucial slot revenue has been trending down, sports betting – introduced to Rhode Island in 2018 – is a potential source of revenue growth for Bally’s and the state budget, according to Richard McGowan, a finance professor at Boston College who studies the local gambling market.
The potential is even greater because Massachusetts lawmakers have repeatedly pushed off proposals to legalize sports betting, he said.
“Sports gambling is the future of gambling,” McGowan said. “Rhode Island has been very aggressive with its entry into sports gambling and sports gambling is clearly going to be the driver of gambling revenue for state governments.”
However, Rhode Island is now losing some of its sports betting business to Connecticut, where online betting was legalized this year and where Foxwoods Resort Casino and Mohegan Sun Casino recently opened sportsbooks.
Sports betting revenue pumped $19.1 million into Rhode Island’s general fund in fiscal 2021, derived from the total $37.1 million in profit collected by the sportsbook. It amounts to a 51% take for the state.
“When revenues go down, states add new gambling operations to their portfolios to make up for temporary declines … adding sports betting or adding table games,” Barrow said. “It’s been a never-ending process of gaming expansion.”
For now, the video slots remain Rhode Island’s biggest moneymaker at the casinos, in part because of the state’s 61% take. But, in other ways, it could be a cause for concern, said Paul DeBole, assistant professor of political science at Lasell University in Newton, Mass., and an observer of the local gambling industry.
DeBole says younger people seem to be less interested in slots, instead seeking more nightlife and gambling experiences such as sports betting. In addition, he has concerns that Bally’s is handing over too big a share of revenue to the state to allow the casinos to make enough of a profit to remain healthy. “At a certain point, states become majority partners, rather than regulators,” he said. “That’s always dangerous.”
The 25% tax collected by Massachusetts on gambling operations at its resort casinos is much lower than Rhode Island’s take, DeBole notes, although Rhode Island now collects less on table games, at 12.7%.
Barrow has similar concerns.
Where casinos were once considered recession proof, he says competition is taking away that certainty. “I think Rhode Island is pushing the limit as to how much it can expect to collect and have its operator remain viable,” he said.
Nonetheless, with a new 20-year agreement with the state in hand, Bally’s seems satisfied as the company continues to grow its digital presence alongside its casinos.
“Rhode Island will forever be our home,” said Adi Dhandhania, chief operating officer of Bally Interactive, the company’s digital division, at the formal opening of the Warwick office. “We look forward to expanding our operations here further.”
Marc Larocque is a PBN staff writer. Contact him at Larocque@PBN.com.
