New York has officially solicited proposals for three casinos in the New York City area. The state’s Gaming Facility Location Board voted on January 3 to begin accepting applications. Three licenses are available; insiders and observers believe that the two racinos in the region, Genting Resorts World in Queens and MGM’s Empire City in Yonkers, will each get one, leaving one unaccounted for. The application fee is $1 million. According to the Board, proposals will be judged on the number of jobs created, the revenue generated, and the impact on the surrounding area.
The Board has also set a minimum license fee of $500 million. Some reports say the $500 million is both the license fee and the investment. Others report that it’s a $500 million license fee and a minimum $500 million in capital investment. No deadline for applications has been set, but February 3 is the due date for interested parties to answer a first round of questions. Besides the Location Board, each applicant must face and be approved by a Community Advisory Committee. If Chicago is used as a model, the community committee will be the biggest hurdle — next to the money, that is.
The $500 million license will be extremely important over time; only major companies and very wealthy individuals need apply. So far, that is what has happened. Caesars, Wynn Resorts, Las Vegas Sands, and the owner of the Mets have expressed interest. There has not been enough time for any company to develop a proposal, particularly one that includes the details of its investment plan, the jobs to be created, revenue generated, and impact on the local environment. Those types of proposals take months to develop, not days or weeks. That has not stopped conceptual and locational proposals, such as the much-discussed Times Square and Coney Island proposals.
Sands announced an agreement to purchase a lease of the Nassau Coliseum site and the Long Island Marriott. Its proposal would include hotels, performance venues, outdoor community space, and of course restaurant, convention, and meeting spaces. Without a number, it is a “multi-billion-dollar” project. The Times Square and Coney Island proposals will have much less land to use for expanded amenities, making it harder to reach the level of investment the Sands’ announcement suggests.
But the best of the limited-space proposals came in on Friday January 13th. Saks Fifth Avenue stands ready, willing, and able to put a casino on three floors of its flagship Fifth Avenue store.
The New York Post reports that as many as five billionaires have stepped up to offer to finance the venture. As a bizarre and uniquely New York City idea, this tops even the Times Square concept and it has an even more limited potential for development. The announcement simply suggests remodeling three floors in a store that first opened in 1924. According to the Saks press statement, “It will be comparable to the aesthetics and luxury detailing of the Saks Fifth Avenue store.” Saks is convinced it will be elegant, like a James Bond casino in Monaco. The gamblers will be dressed in formal wear, drinking champagne while flirting and watching roulette balls drop. The Saks department store tagline is, “Saks connects you to the best fashion the world has to offer.” That is certain to fill the casino with the world’s richest gamblers, right?
The Saks proposal should be easy to get the community committee’s approval, as it won’t change anything. It will be challenging, however, to demonstrate that it will create more jobs than, say, the Sands resort or generate more revenue than Sands or a Caesars in Times Square. In fact, the proposal highlights one major obstacle in New York’s plan: the license fee. Regardless of the proposal or location chosen, it will have to justify the investment.
A friend of mine asked if I thought any casino in New York could get a fair return on investment with a half-billion-dollar fee upfront. It is the question of the hour. A few companies can afford the investment, but that does not guarantee that the resulting casino-resort can make a profit, given the license fee. For Saks Fifth Avenue, that would seem to be a very high bar.
It is still very early in the process. There are bound to be other proposals. It is, after all, the Big Apple, the biggest prize the country has to offer. James Bond may love it, but he gets in for free. Profit will be an afterthought for the politicians, lawmakers, and regulators, but not for the investors.
