The cancellation of Mount Airy Resort Casino’s plans for a mini-casino in Beaver County came as abrupt, unexpected news to the public, but the project had been doomed months ago by trouble obtaining needed financing.
The Pennsylvania Gaming Control Board, without objection from Mount Airy, voted Wednesday to deny a Category 4 license to the Monroe County casino for the satellite operation it had wanted some 300 miles across the state.
There was little discussion of the decision at the board meeting, just a brief, rather bureaucratic reference by the board’s staff to financial issues that meant Mount Airy was “unable to satisfy requirements to establish the operational viability of this particular project.”
But a written order from the board explaining the decision described how Mount Airy was rebuffed by lenders in pursuing the tens of millions of dollars in financing the project would have required.
Difficulties were noted by casino in July
The casino first notified the board July 1 that its development aims in the rural location 35 miles north of Pittsburgh were imperiled by financing roadblocks. By Aug. 22, the staff made a decision to recommend denial of the license, according to the written order, though it took more than two months for the matter to eventually reach a board vote.
Mount Airy officials have declined to address questions about the reversal. A statement issued Wednesday by chief operating officer Todd Greenberg said the family-owned casino was disappointed to scuttle the project, but that it had no bearing on operations of the main casino in the Poconos, which he said is “doing quite well.”
The board’s order, however, suggested the lack of growth in revenues at Mount Airy was one factor that concerned potential lenders. That was despite strong efforts by Greenberg in pursuing the financing, considering Mount Airy bid $21.2 mm at a February 2018 gaming board auction for rights to develop the project, and it will now have to forfeit 25% of that, or $5.3 mm.
“Several lenders contacted by Mr. Greenberg expressed a lack of interest in the marketplace to fund stand-alone casino projects after recent failures in that sector in other jurisdictions,” the board’s order stated, without specifying those other failures.
It stated that Mount Airy’s first lien lenders wanted the casino to make a 60% equity contribution to the project, but that the casino was in no position to do that considering it was already in the midst of a $40 mm expansion project at the main casino.
“Mr. Greenberg expressed to several lenders that Mt. Airy would be willing to pay above market interest rates on financing for Mount Airy Pittsburgh, yet they each declined,” the order described.
One concern: Casino revenues have not been growing
The order said that despite best efforts and expenditures for the project that will cost Mount Airy more than $6 mm overall, it was clear the casino lacked funds not just for construction but the new facility’s ongoing operations. And part of the problem is that the existing casino’s gaming revenue has been “relatively static,” standing at about $188 mm annually compared to $185.4 mm in 2011.
“Unfortunately, as the gaming market in Pennsylvania matures, with revenues for Mount Airy and some other Pennsylvania casinos stabilizing, Mount Airy’s desire to establish a second casino in Western Pennsylvania is untenable in the eyes of financiers and this development is fatal to its application,” the written order concluded.
Mount Airy Pittsburgh was planned as one of five mini-casinos in the state, two of which are licensed by the gaming board and under construction in Berks County by Hollywood Casino and in Westmoreland County by Stadium Casino LLC. Both are slated to open in late 2020.
Two others await their licenses: a York County project by Hollywood Casino and a Cumberland County satellite for Parx Casino.
The 2017 law authorizing them — enacted to generate revenue for the state — allows mini-casinos up to 750 slot machines and 30 tables games upon opening, making them less than half the size of most of Pennsylvania’s existing casinos.
Other mini-casinos seem to have no financing issues
As to whether any of the other projects had financing problems known to the board similar to Mount Airy’s case, board spokesman Doug Harbach said he knew of none.
Jeff Morris, a spokesman for Penn National Gaming, which owns Hollywood Casino, echoed that there are no financing concerns for its two projects, nor any reconsideration of its intent to develop them.
“No second thoughts — we look forward to opening our new properties in Morgantown and York,” he said.
No information was released on how much financing Mount Airy needed for its development, though its officials had previously stated they were planning to invest “north of $50 million” on top of the auction bid.
Morris said Penn National was planning to invest between $110 mm and $120 mm, including the auction fees, in each of Hollywood’s satellites.
Door opens for another Western PA mini-casino, but …
The timing of the board’s rejection of Mount Airy’s proposal is a bit problematic for the state, in coming two months after its last auction to determine if any additional mini-casinos would be developed.
No bidders emerged from that Sept. 4 process, but at the time the non-competition zone occupied by Mount Airy’s project — as well as pragmatic considerations about saturation and revenue potential — prevented any other operator from pursuing a location along the 100-mile corridor between Pittsburgh and Erie.
The potential attractiveness of another gambling destination in the area, within reach of Ohio residents and near mid-sized cities such as New Castle, Mercer, and Butler, was highlighted by Sands Casino Bethlehem’s interest in a mini-casino in the region in February 2018. It bid $9.9 mm at auction, only to be rejected by the board because its chosen location in Mercer County encroached upon Mount Airy’s previously approved geographic area.
New bidders might appear if another auction were now held after Mount Airy’s withdrawal, but Harbach noted that the same legislation this year that mandated the failed September auction by the board bars it from scheduling another one of its own volition.
“The board has no authority to hold additional Category 4 auctions, unless directed by the General Assembly,” Harbach said.
Key lawmaker is open to new bill, but nothing planned
State Rep. Jim Marshall is one with special interest in the topic: The Republican is both chairman of the House Gaming Oversight Committee and the representative for Big Beaver, where Mount Airy’s satellite was to be located.
Asked whether new legislation might be introduced for another auction, Marshall said after learning of Mount Airy’s cancellation, “I would consider it, if we felt there was interest, but at this time, no one’s approached me.”
He said there had been no advance word from Mount Airy that the project was in trouble, and he called the loss of the mini-casino disappointing for local residents and for government officials who had counted on an economic boost. There is also a loss of some $16 mm for the state from the amount that will be refunded to Mount Airy from its bid payment.
As to having potentially just four mini-casinos instead of five, when 10 were authorized by the 2017 gambling expansion law, Marshall was unperturbed.
“Four would work. You really hope that every venue’s successful, and that success could breed more success, with the potential for adding more,” he said. “It’s still early yet. If there’s interest [in seeking more], I certainly wouldn’t oppose that, but I don’t think that the number of Category 4’s is really much of an issue.”
Photo courtesy of Shutterstock.com
