A tarnished Legacy reveals to a Revel a difficult future and challenging future

View of the Construction of the Revel Resort from the beach in October 2011, Wikipedia

In a month or so, on April 2nd a new casino, Revel, will open in Atlantic City, New Jersey.  It has taken 4 years and $2.4 billion to create the latest casino in the famous boardwalk city.  There will be 12 casinos after Revel opens,  or at least until the first casino closes – an event certain to happen in time. The planning and initial financing for the project was started before anyone truly understood the impact of gaming in Pennsylvania, or the extent of the casino gaming expansion in all of the other states that traditionally provided customers for the Boardwalk casinos.  In those four years the impact has become increasing clear as gaming revenues have declined; casino revenue in AC are now about 60 percent of those before the Great Recession, the casino smoking ban and casinos in Pennsylvania.  Revel and the other casinos in Atlantic City face a very challenging and uncertain future.

That kind of future is one the citizens, politicians and gamblers in Reno understand well.  Seventeen years ago Reno’s own version of Revel opened, the Silver Legacy.  The fate of gambling in Reno and the Silver Legacy in those 17 years can provide a glimpse into the future for Atlantic City.  In 1995, the last major casino – the Silver Legacy – opened.  The opening was thought to trumpet in a new era in Reno, larger, grander and more expensive casinos were sure to follow the Legacy and secure Reno’s spot in the hierarchy of gambling destinations. Unfortunately, none of the trumpeters knew anything of Indian gaming.  Indeed when the Silver Legacy was first planned, financed and built, Indian gaming was almost invisible in Arizona, New Mexico, Idaho, Oregon, Washington and California – almost invisible – careful observers were aware of Indian gaming and its potential.  None of those observers were part of the team that built and opened the Silver Legacy.  However, in the years since Indian gaming has exploded in those states, taking with it much of Reno’s gambling tourist business.  Nine casinos have closed in downtown Reno since then and the remaining ones are still struggling to generate enough business to be profitable. Now, everyone in Reno knows about Indian gaming, but the knowledge came a little late for some.

The Silver Legacy is tottering on the brink of disaster, it is unable to make its debt payments and is struggling to refinance, trying to avoid bankruptcy or a foreclosure by the lender.  The Legacy is in good company, revenues in the downtown have been in decline since, you guessed it 1995; that leaves the state, the county and the city struggling to make ends meet.  The Great Recession exacerbated an already bad situation.

The heydays of gambling in Reno, 1934-1990 are gone and will never return; the competition in all of the feeder markets will not go away, in fact it will increase.  For Reno and its casinos, there are no solutions on the horizon.  To maintain the current levels of service or to add any new services, local governments will have to find new tax sources, as Bill Eadgington says in the article below.  And as he says, economists have been trying to get people’s attention on the subject – diversifying tax revenues instead of relying one industry – for a long time.  I have a copy of a study commissioned by the legislature in 1965, it came to the same conclusion – the state needed a broader tax base to face the variety of challenges the future was certain to bring.  There have been other studies in the last 50 years that drew the same conclusion, but it seems that governments are much like individuals, they have a hard time imagining a future much different from the present.  So while the sun was shinning there was no political appetite to find new any tax base.   However, as it always is, the future of  casino gambling in Reno was very different from its past.  So, while I wish Atlantic City and Revel good luck, all of the competition surrounding the city will continue to eat away at the city’s casino business until there is not enough left to pay the bills. And Revel like the Silver Legacy will have the biggest bills to pay.

The partnership that owns the Silver Legacy Resort Casino in downtown Reno is working with outside advisers to restructure $142.8 million in mortgage notes due March 1, according to a filing this week with the Securities and Exchange Commission.  If that effort is not successful, its auditor has “substantial doubt” about the company’s ability to continue as a going concern, according to the filing Tuesday.  DeLoitte & Touche, a public accounting firm, audited three years of the partnership’s financial records.  If the mortgage notes, which have a 10 percent interest rate, are not restructured, DeLoitte & Touche said the noteholders could foreclose on the property, the partnership could seek bankruptcy protection while it restructures its finances or those owed money could petition to start bankruptcy proceedings. Susan Voyles, Reno Gazette-Journal, 2-9-12

 “Nevada cannot be as dependent on a single industry for tax revenues in the future as it has been in the past,” Bill Eadington wrote. “Economists in the state have been warning about this for 50 years. With the Great Recession, Nevada has finally got burned.”

Fifteen resort properties in Washoe County together are valued at $710 million for property taxes — a loss of about half their value over four years — as their profits have shrunk or turned into losses. It’s a dramatic piece of evidence that Nevada needs to change its tax policies, said Elliott Parker, University of Nevada economics department chairman in Reno. In all, Nevada gaming revenues have fallen hard, shrinking by 15 percent over the last four fiscal years….The drop accounts for $7.5 million in lost property tax revenues for the county and other local entities for the new tax year from three years ago, a small piece of the overall reduction in the county’s taxable values. With the drop, the 14 casinos and CommRow’s tax bills will total $16.5 million in July. Susan Voyles, Reno Gazette-Journal, 2-17-12


1 Response to “A tarnished Legacy reveals to a Revel a difficult future and challenging future”

  1. 1 Anthony Saldavia February 20, 2012 at 8:21 am

    I remember in the 60’s when Reno was the place to go. I loved it. Now I don’t gamble anymore but it is sad to hear and see that Reno is as Bob Dillan use to sing” blowing in the wind”.

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