The owners of Twin River may be in financial trouble and may need to seek bankruptcy protection, but state leaders say Rhode Island’s share of the $300 million-plus annual take at the video slot parlor isn’t in danger of disappearing.
That’s why Gov. Donald L. Carcieri and legislative leaders have so far turned down owner BLB Investors LLC’s offer 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 has said it needs to drop the state’s share from 61 percent to 25 percent – “a more competitive level,” said Twin River spokeswoman Patti Doyle – to help satisfy its lenders, which are owed about $577 million.
If state officials don’t agree, Doyle said alternatives could range from restructuring the debt to bankruptcy.
The state’s response so far: tough luck.
“Whatever happens at Twin River, the state will continue to receive its share of the revenue first,” said Jeff Neal, the governor’s spokesman. “So why give up a great deal for a much worse deal? We would stand to lose a great deal of money.”
House Speaker William Murphy, who met with Twin River representatives along with Senate President Joseph Montalbano earlier this month, apparently feels the same way. Murphy’s spokesman, Larry Berman, said last week that nothing had happened with the proposal since the meeting.
Why is Twin River experiencing such financial difficulties?
Clyde Barrow, director of the Center for Policy Analysis at the University of Massachusetts-Dartmouth, said he believes BLB paid too much for the antiquated slot parlor and greyhound race track in 2005 – $445 million – then spent too much on transforming it into an upscale gambling destination with upscale restaurants and a comedy club. The renovations completed last year cost $225 million, about $125 million over the initial budget.
While BLB spent $665 million to buy and remodel a slot parlor, Barrow noted, a small Atlantic City casino, the Trump Marina Hotel, recently sold for $316 million.
“[BLB] paid casino money for a ‘racino,’” said Barrow, using an industry term for a race track with slot machines.
Barrow suspects BLB had hoped that it could convert Twin River into a full-blown casino eventually. “But they haven’t been able to get there as quickly as expected,” he said.
Doyle said a sagging regional economy and a slowdown in the gaming industry nationwide have hurt. “It’s a confluence of circumstances,” she said.
But Twin River’s revenues have been growing, according to the R.I. State Lottery. With one month left in fiscal 2008, Twin River has brought in $372.54 million in net revenue. That’s a 20.3 percent increase over the $309.6 million from the same period a year ago.
Last month, Twin River generated revenues of $38.97 million, the highest monthly total since VLTs were installed more than 14 years ago.
And Twin River has received assistance in other areas. Earlier this legislative session, the General Assembly agreed to allow the video slots to operate overnight on weekends at both Twin River and Newport Grand. The Lincoln Town Council approved a measure to allow some eateries at the slot parlor to remain open, too.
In another bid to boost revenues, Twin River recently received state approval to offer free-play rewards to visitors.
Meanwhile, the number of VLTs has grown from about 2,500 when BLB purchased the facility from Wembley PLC in July 2005 to 4,750 last month. Twin River now offers more than VLTs, including virtual blackjack that features computerized dealers at a table.
Still, the debt problems loom.
In recent months, Twin River parent company UTGR Inc. – a subsidiary of BLB Investors – has missed two loan payments, had its bond rating downgraded and had liens totaling $6 million placed against it by a contractor that had performed extensive renovations.
Doyle said the main lender, Merrill Lynch Capital Corp., has held off taking action against UTGR because of a forbearance agreement, which Doyle said is due to expire on July 31.
Where would that $560 million upfront payment come from? If the proposal were to be accepted by the state, Doyle said, that might spur the lender to help out. “They would be more likely to offer up that initial payment,” she said.
The state has come to rely heavily on the money raised at the state’s two video slot parlors. In fiscal 2007, the VLTs at both locations brought in net revenues of $416.59 million, of which the state took $257.48 million. (The state’s share of Newport Grand VLT revenues is 63.49 percent, according to lottery officials.)
Twin River’s $560 million offer came as state legislators grappled with a projected $425 million shortfall next fiscal year, starting July 1. The House passed a $6.89 billion budget last week that closed that gap through widespread job and program cuts but no major tax increases. The budget proposal was expected to be approved by the Senate June 20.
Despite those spending cuts, the Carcieri administration had no interest in altering the agreement with Twin River, at least not the extent initially proposed.
Neal said the governor’s office hadn’t done in-depth calculations on the proposal, but he said it was clear that over time the state would lose out if officials accepted the offer.
“It’s such a great deal for taxpayers right now,” he said. “Taking an upfront payment of that size would be a short-sighted decision.”
Under the existing agreement, of the $342.02 million in revenue generated by VLTs in Lincoln for fiscal 2007, the state kept about $208.63 million. Under Twin River’s proposal, that number would have been $85.5 million.
The revenue model used with both Twin River and Newport Grand puts the state in a strong position, Barrow said. The slot parlors don’t own the VLTs – the state leases them from GTECH and collects the revenue, taking its share first before divvying the rest out.
Only three other states – New York, Delaware and West Virginia – have such arrangements, Barrow said.
Short of Twin River closing down, some officials said, the State of Rhode Island will continue to get its share, even if there’s a bankruptcy.
“The state would do everything possible to make sure the facility continued to operate,” Neal said.
Percentage-wise, Rhode Island’s take of the slot revenue is the second highest in the country, Barrow said. New York’s take is about 70 percent of the revenues from racinos, although Barrow said the state is considering reducing that number because some locations are struggling.
He said Rhode Island officials should think twice before changing the 61-percent rate. “[BLB] did agree to that rate when they made their investment,” he said. •
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Twin River is in serious problems if they are cutting gaming attendants and cashiers.That place has no humans all computers and machines if you have a problem good luck.I hope blb loses money to the point where they can not feed there families and die.Those people do not care about customers,employees only money and they over spent boo hoo hoo poor blb.They sent out coupons for free meals on a sunday.guess what when the guests showed up the buffet was closed.they wonder why no one is going anymore.