Politics as Usual by Jim Baron

I wish I had a quarter for every time someone has asked me this in the past few months: “What is the state going to do if Twin River goes bankrupt?” They usually add some variation of: “We’ll all be in trouble then, boy.”

The answer to the question is: just what it has been doing all along. The response to the statement is: No, we won’t be. We really won’t. Unless, that is, our elected officials cave in and renegotiate the state’s lucrative deal with Twin River, as the casino owners are asking them to do.
The problem that Twin River’s owners have is just that, their problem. It looks as though the owners of the facility may take a financial bath. But there is no reason why the state of Rhode Island should lose a single dollar, or any sleep, over it.
It is not the state’s problem — the state is going to get 61 cents of every dollar netted by the Twin River slots, no matter who the landlord is.
It is not really Twin River’s problem, either. Twin River is bringing in money hand over fist, thank you very much. Its revenues are plump, pink-cheeked and healthy.
So why is the place one step out of bankruptcy court?
Did you ever go into a casino and go a little nuts, losing a great deal more money than you intended to, or could afford to?
Well, that’s what Twin River’s owners did. After paying a premium price for the old, bedraggled Lincoln Park and promising to invest $125 million in renovations, they went a little nuts and instead sunk $225 million into the place.
They were, I am sure, well intentioned. And by all accounts they did a wonderful job. The place is glitzy, glamorous, and unless you look really, really hard for the roulette wheels and craps tables that aren’t there, it is indistinguishable from a big-time, real casino.
The problem is that, after assuming a whole heap of debt buying the place, spending another nearly quarter of a billion dollars to renovate is more than even Twin River’s impressive revenue stream can keep afloat. So the parent company, UGTR, is starting to circle the bowl.
By it’s own P.R. person’s assessment, the company’s situation is “dire” and it “stands on the precipice.”
Those are some profound words to hear from a public relations person. When even they start talking like that, you know that nail-biting, teeth-grinding panic became a reality some time ago, and now Twin River’s owners are beyond the point of worrying about letting people see them sweat. That translates to desperation, and in the business world desperation is never good. Customers wonder about it. Vendors get concerned about it. And it sends creditors right around the bend.
But this is precisely why UGTR was incorporated. In case something went horribly wrong at the slot parlor, UGTR would take the hit, and the owners’ other assets and income streams would not be affected.
So if bankruptcy is where all this is headed, UGTR will bite the dust and the investment in it will be largely lost. A bad financial hit, yes, but shed no tears for the investors. They are big boys who knew what they were doing and what the risks were, and they planned accordingly. You are not going to see Len Wolman selling apples on the sidewalk anytime soon.
Corporate welfare is not the thing to do here, especially in a year when we are lopping hundreds of kids off the RIte Care rolls and making scores of other cold-blooded budget cuts, goring every ox except those belonging to the most wealthy.
If you went nuts at Twin River and lost far more money than you could afford to, making it impossible to pay your mortgage this month, do you think Twin River would renegotiate your deal? That’s right, they wouldn’t. So the state shouldn’t re-negotiate Twin River’s deal either
If it is to bankruptcy court we go, then the judge will appoint a receiver who will keep operations running — although technically, we must hew to the myth that it is the state “operating” Twin River. The doors will continue to stay open, the customers will continue to stream in and drop staggering amounts of money into the video slot machines and unless you have a money stake in UGTR, you aren’t going to notice any difference.
The receiver will sell the business, perhaps for dimes on the dollar to a new owner — which might be a company already in the casino business (does anyone still have Harrah’s phone number?) and therefore ready when the time comes to convert Twin River to a full casino with table games and a big hotel on-site.
The new owners will rake in tens of millions of dollars, a tidy portion of it profit if they make a good enough deal, the state will continue to collect its hefty 61 percent and gamblers will be happy.
Which is why it is a good thing that Governor Carcieri and the General Assembly don’t seem anxious to “do something” about this.
It is a normal taxpayer reaction, upon hearing that Twin River wants to give the state $500 million up front in exchange for lowering the state’s take from 61 percent to 25 percent, to break into a sweat and say “Oh my God! They aren’t going to do it, are they?”
Because, let’s face it, you really couldn’t put it beyond them, could you? Not the General Assembly, for sure.
Five hundred million dollars sounds like a lot of money — it also sounds suspiciously close to the budget deficit the General Assembly is trying to close this year — but it is about two years worth of the revenue the state gets from the Twin River slot machines. If Twin River started collecting an extra 36 percent of the revenue — more than double the already overly generous cut of the take it gets now — it would make its $500 million back in about three-plus years and the state would have sold off one of its most lucrative assets for pennies. In the next fiscal year alone, the state is budgeting for more than $250 million in receipts from Twin River.
Just a couple of years ago, the owners of Twin River were using the state’s 61 percent share as a reason to keep out the Narragansett Indian casino. They scoffed that the Narragansetts and their “greedy” partner, Harrah’s, wanted to pay a measly 25 percent.
If the state reduced its share to 25 percent, Twin River — which as the RI Supreme Court can tell you, does not “operate” or “run” the gambling operation; it merely houses the slot machines — would be skimming off about 66 percent of the revenue, two out of every three dollars the machines earn.
Some Wall Street sharpies want us to sell the entire lottery operation — to them, of course. And even Bob Walsh of the state’s largest teacher unions wants us to piece off 5.5 percent of it to pay public employee pensions.
What analogy would you like to use for these bad ideas? Eating our seed corn? Killing (or at least selling) the goose that lays golden eggs? Even old folk wisdom will tell you this isn’t the way to go. 
Sorry you are taking a beating, BLB Investors, but that’s the gambling biz.