Assessment of Second City Casino Ownership Structure


Audit Date: February 7, 2013
Audit Categories
  • Other
Controller: Alan Butkovitz
Audit Tags
  • Economic Development,
  • Permits and Fees,
  • Philadelphia Pension Fund,
  • School District,
  • Taxes

Executive Summary


For Immediate Release:
February 7, 2013

Contact: Harvey Rice
215-686-6696

Controller Butkovitz Releases Independent Analysis
of Second City Casino
City Controller testified before City Council to provide assessment of gaming proposal that indicates $115 million over 15 years for School District
& City Pension Fund

Assessment of Second City Casino Ownership Structure
– Financial Impact on the City of Philadelphia

PHILADELPHIA – City Controller Alan Butkovitz today testified before City Council’s Committee of the Whole to provide his independent assessment of a gaming proposal that indicates $115 million could be generated over 15 years for the School District and the City’s Pension Fund.

The Controller’s assessment reviewed the proposal submitted by Penn National Gaming, Inc., which was one of six proposals submitted to the Pennsylvania Gaming Control Board. The proposal includes a gaming structure where a non-profit, Philadelphia Casino Benefit Corporation (PCBC) would receive two-thirds of the distribution funds and the remaining one-third going to Penn National Gaming.

While Penn National Gaming’s proposal indicates that $115 million could be generated over a 15-year period, the first eight years of distribution is projected to be $2 million, which is due to the proposed financing and repayment plan.

“I believe that Penn National Gaming’s proposal is worth looking into further as it does represent an opportunity for the city to share in casino profits above and beyond the potential collection from local gaming revenues,” said Butkovitz, at today’s City Council hearing. “Although, the extent of the amount of profit the city can expect to make and when this profit will transpire is currently not established.”

“There are critical issues that need to be addressed, if Penn National Gaming’s proposal should be awarded by the Gaming Control Board and the non-profit is created for distribution of funds,” said Butkovitz.

Some of the critical issues presented by Controller Butkovitz include the following:
▪ There needs to be greater clarity with regard to how Penn National Gaming intends to transfer the facility, to itself, as the licensee and the landowner including the terms of that transfer or transaction,
▪ The rent agreement needs to be reviewed by legal parties and is consistent with the proposed transaction and conditions of payment, and
▪ A clear understanding of the prioritization of the surplus cash distribution, order of payments

Regardless of who is awarded the license, adding a second city casino along with the current SugarHouse Casino would also increase the city’s local gaming shares from $9 million to between $17 and $19 million a year. The local gaming shares are generated by a four percent collection from slot machines and two percent of table games.

According to Butkovitz, Penn National Gaming’s proposal represents an opportunity for the city to indirectly benefit from casino profits without any injection of capital by PCBC. The benefits from this arrangement are largely dependent on:
▪ The performance of the casino relative to all other casinos in the local market;
▪ The financial profitability of the casino;
▪ The terms of the various rent, management, license and financing agreements; and
▪ Whether PCBC can negotiate a prioritization in surplus cash distributions.

###