9/27/13

Do We Have a Plan for Twin River Revenue Loss?



Demand for table games at Twin River casino has prompted the Lottery Commission to grant the facility additional gaming tables, and the state’s take from the combination of video slot machines and table games is going up each month as a direct result of the tables in place.

The 14 new tables to be added will make for a grant total of 80, forcing a reduction in video slot machines in the floor areas where the new tables will be added. More gaming tables will surely be added down the road.

I suppose we should all be cheering about this because of the enhanced revenue stream the state will enjoy, which it desperately needs, but it begs a larger and more troubling question: what will happen to Twin River – and more importantly to the state – when Massachusetts’ three casinos and its single racino slot parlor come on line?

Adding a hundred more tables at Twin River is not going to stop Rhode Island from losing $100 million a year in revenue. That’s an estimate of course: it could be more. Rhode Island gamblers can cross state lines too.

Oh, that’s years from now, appears to be the attitude of lawmakers and state officials. After all, Massachusetts hasn’t even awarded the licenses yet, even as swarms of casino developers and promoters are blanketing the state in an attempt to seal the deal with potential host communities.

There are currently 11 casino enterprises chasing licenses for the trio of casino venues and the racino parlor. Bay State destination casinos won’t go operational until five years from now, so there’s no need to push the panic button just yet. In typical Rhode Island fashion, let’s do nothing until the problem is about to overwhelm us. 

However, now that the Plainridge trotters track in nearby Plainville right off 495 has new owners – Penn National Gaming – the prospect of competition for slots from a facility less than 20 miles away from Lincoln is now back on the table.

Penn National specializes in revitalizing horse tracks through the addition of slots. It operates 11 racinos in a number of states, and is looking to add Massachusetts to its list.

Up to the time of the unexpected implosion of Plainridge’s bid for the slot parlor license, prompted by unauthorized fingers in the counting room till and attempts to cover that up with supposed “loans” to one of the former ownership’s partners, Plainridge was considered to be the odds-on favorite to get the license.

Plainridge has been actively preparing for conversion to a racino since 2010 – even before the gaming legislation finally passed. It has built a new garage and has lobbied heavily on Beacon Hill. There was even a rumor that its former owners purchased slot machines and was storing them in anticipation of being awarded the license. 

Voters in Plainville, as expected, approved the host community agreement with Penn National. The license for the racino is to be announced on December 15th and conversion of the track’s main building to a racino is expected to take no more than a year.

So if Plainridge beats out its three competitors for the slot license we can expect to see Twin River’s revenue begin be affected as soon as the doors open, which will be January 2015, little more than a year from now.

The big three casinos will follow and there goes the $100 million that the Ocean State depends upon. Does the state have a plan to replace the lost revenue? No plan has been presented yet nor has any meaningful discussion taken place, at least publicly. In fact, there might be no ready solution to replace the lost revenue. So what do we do then?

This pending big problem is analogous to the state’s dithering over doing anything meaningful about its growing pension problem in the mid to late-2000s. Overall inaction and small reform measures here and there ultimately led to a fiscal crisis.

Now is the time to start facing the casino revenue problem, and it should be an issue for public debate as we move to new elections in November 2014. 

  



Moving the Needle on TF Green


Work is finally about to begin on the long-contested T.F. Green runway expansion and other airport improvements after years of struggles between the host City of Warwick and the RI Airport Corporation (RIAC) and the FAA, but changes happening in the domestic airline market may cancel the chance for West Coast flights and improved passenger traffic at the state airport. 

A longer runway for Green came with the expectation that airlines would then be able to use Green to reach California destinations, in effect providing coast-to-coast service. Providing the West Cost option was also seen as a way of boosting passenger traffic numbers at Green, which has experienced less travelers passing through the Bruce Sundlun Terminal in recent years.

It would also bring Green’s runway up to par with the runway expansion at Manchester NH’s airport which is already in operation, and help Green compete with Manchester against Boston’s Logan Airport.

But even with a longer runway in place for several years now, Manchester’s passenger numbers have been declining just like Green’s, so the question is why? The fly in the ointment affecting both airports is the increasing consolidation that’s taking place in the airline industry, especially with the merger of US Airways and American, now under way. (Though the Feds are opposing this merger, a modified merger agreement will probably be worked out and approved.) With consolidation comes a greater reliance on regional hubs and less flights offered from smaller “spoke” airports that feed the hubs, like Green and Manchester.

It might seem counter-intuitive to force more travelers to endure the hassles of using Logan, but it does make better economic sense to do so from the airlines’ standpoint, and that’s the bottom line: more flights on bigger jets from the hub airports and less flights on smaller planes from the spoke airports.

So while we are late to the game in terms of having a longer runway – and the runway expansion is not expected to be completed until 2017 – it may not matter much in the way state and aviation officials hoped it would because merged, mega-airlines have changed their strategy in how they employ their flights and which airports they now rely more on. We can therefore expect less options from Green, on smaller planes full to the cabin ceiling.
If Rhode Island wants to think big and provide another future for our airport, why not explore an international connection? There are many regional airports in the U.S. that are “international” because they connect to Canada, the Caribbean or Mexico. What is our claim to such a connection?

It’s the “Pond.”  And that’s a big connection. 

The “European Connection” to Green would involve attracting Easyjet or Ryanair to fly from points in Great Britain or Ireland direct to Green. Ryanair’s CEO has been quoted as saying the airline has an interest in flying to the East Coast. With too much competition and high landing fees at Logan, these airlines are looking for  landing spot. TF Green is the right choice. We offer regular service to many U.S. cities; we are well positioned to continuing travel up and down the East Coast, and we have a great capital city and a beautiful, bountiful state to present to our overseas visitors.

That is why Governor Chaffee, RIEDC and RIAC officials should consider “moving the needle” on TF Green. If we could land transatlantic service at Green as an alternative to Logan it would be a game changer for the airport and its future.

It was Governor Sundlun after all, an aviator and Rhode Island big thinker, who sold his vision for a revitalized Green Airport and made it happen. We could use some of that kind of thinking these days.


7/22/13

38 Studios Deal Looks Even Worse in Light of Amgen Success


There was a recent article in the New York Times, “Rare Mutation Ignites Race for Cholesterol Drug,” about a potentially super drug to lower LDL in patients with stubbornly high cholesterol that the major pharmaceutical companies are racing against each other to develop. The scramble is based on successfully synthesizing a rare gene mutation from people with remarkably low LDL levels  – lower than 20. With so many people taking statins each day to control cholesterol, the worldwide market potential of a super LDL lowering drug is enormous, and so are the stakes for pharmaceutical manufacturers in getting their version of the drug to the FDA for approval and the green light to take to market.

Amgen is one of the companies engaged in this pursuit, and its Rhode Island facility in West Greenwich is one of three Amgen facilities that have been designated to manufacture the drug, which has already been produced and is currently
under-going patient trials. The West Greenwich facility is being readied to produce the drug in enormous quantities. To illustrate the production scale planned, the article mentioned that with other drugs under development antibody cells would be housed in a glass flask in a research laboratory whereas with this super LDL lowering drug the antibody cells are grown in a “stainless steel tank nearly the size of a fuel tank on a semi truck.”

I bring this up because as our state struggles with the fallout from the 38 Studios disaster and we bite our lip in making a first $2 million payment on the $100 million+ we will have to pay back over the next decade, Amgen represents an earlier gamble on economic development that has paid off handsomely. Or rather, Amgen represents a sane and prudent investment that the state made in attracting an established biotechnology manufacturer to locate here as opposed to a start-up video gaming company run by an ex-baseball player with star power. 

Amgen built a $70 million facility with 500,000 square feet of manufacturing, administrative and laboratory space that today employs almost 1,000 people, many of them native Rhode Islanders or skilled individuals from elsewhere who are now living in the Ocean State because of their employment at Amgen RI. In contrast, 38 Studios was tasked by the state, in return for the $75 million given to the company, to ramp up employment at a crazy rate that had nothing to do with their staffing needs or their ability to absorb them. Plus, the company only leased the offices in the former Blue Cross building it operated in so briefly.

The very same EDC that threw caution to the winds with 38 Studios negotiated a deal with Amgen that provided tax credits and other incentives to come here, as every state has to do to capture new capital investment. Rhode Island did the same thing with Fidelity to bring the financial services giant to Smithfield, another solid success. It’s so obvious now how big the divide is between bringing an Amgen or Fidelity to Rhode Island than it is to throw $75 million at a fledgling video gaming company whose products – not that 38 Studios even had a single product when we inked the deal with them – target teenage boys.  

What’s even more bewildering is the fact that securing Amgen and Fidelity was accomplished during the first administration of Governor Don Carcieri, a former banker and Cookson America executive, while 38 Studios came about in the waning days of his second administration.  How could much the same folks – to include the EDC board and the legislative leadership – abandon the thoughtful approach that landed Amgen and Fidelity to jump after 38 Studios and an industry – video game software development – that is well understood to be high risk? And especially after our Bay State neighbor, offered the same carrot, passed on it. 

This kind of erratic behavior by Rhode Island leaders has been noted by credit rating agencies and gets factored into the state’s dismal business scores. 38 Studios proves the wisdom of a more rational, realistic economic development approach based on fundamentals and risk measurement – the kind of process we engaged in with Amgen and Fidelity - as opposed to a wink-wink crapshoot.

Rhode Islanders should wish Amgen the very best in winning the LDL super drug race. It will be good for Rhode Island, good for Amgen, and good for all individuals who have cholesterol issues. Plus, if you own Fidelity or other mutual fund stocks that are invested in Amgen, you’ll make some money!