Casino goes for broke downplaying its value

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A funny thing happens at assessment hearings.

"That's when these savvy investors become the stupidest people in the world,'' Pittsburgh attorney Ira Weiss said.

Those smart deals they once bragged about are transformed, by the magic of the appeal process, into the dumbest moves they've ever made. And that brings us to the Rivers Casino. Mr. Weiss, solicitor for the Pittsburgh School District, thinks the casino is worth a lot more than its owners now contend.

Given that assessment appeals have become a more popular participatory sport in Allegheny County than golf, I thought the testimony of Ira Schulman, representing one of the casino's principal owners, might be inspiring to those planning the most unlikely Hail Mary arguments. Here's a guy who thinks he can get Allegheny County Common Pleas Senior Judge R. Stanton Wettick -- the very man who ordered new countywide assessments -- to knock his assessed value down $100 million or so.

Mr. Schulman went to court last month insisting he'd made a "bad investment" and that the North Side slots palace is worth maybe half what the assessors say it is.

On the chutzpah scale, Mr. Weiss said, "this guy has really set the bar pretty high.''

We can all recall what this magic casino was supposed to accomplish for us. It was to create jobs, lower property taxes, fund volunteer fire companies, support sewer projects and education (slots for tots!), save the racetrack industry, kick in for a new hockey palace and get the Pirates a winning season. (OK, I'm kidding about the last one. Not even the casino industry would stretch the truth that far.)

A Pittsburgh gambling monopoly was such a sure thing, a group of casino lusters paid $27 million for North Side land 18 years ago -- before the state even allowed casinos. Mr. Schulman's group, led by Chicago billionaire Neil Bluhm, rescued the partially built North Shore casino from potential bankruptcy four years ago by putting in $200 million in new money and arranging financing for $558 million more.

Investors put another $108 million into it two years ago, and casino officials were talking then like they'd been dealt a royal flush.

"We've got much lower debt payments, we've got more equity and our business is growing," Rivers CEO Greg Carlin crowed. "We wouldn't make the investment if we didn't think it was a good investment."

Sure enough, last year the casino generated $343.1 million in slots and table game revenue, up 28.2 percent from 2010. And that was before a government-financed, $500 million light-rail extension opened practically at the casino's front door. It's crystal clear these guys know what they're doing, right?

Not on your autographed picture of Donald Trump, according to Mr. Schulman. He went into court with a sob story so at odds with his group's investments you'd have thought it had the business savvy of Ralph Kramden.

"It has been a terrible investment,'' Mr. Schulman said.

He figures the assessment ought to be lowered from $199.5 million to $59.7 million for the 2009 tax year and $117 million for this one.

How inspiring is that? Let's say you've just added a two-car garage, a wraparound porch and a swimming pool to your home. You've sunk a good 100 grand into your place, and you're having parties every night.

You march into your assessment appeal hearing and say your property is worth only 25 grand. Then you repeat the stirring words of Mr. Schulman, managing principal and co-founder of Walton Street Capital, majority owner of Rivers Casino:

"With 20/20 hindsight, we would never have made this investment.'' It's "extremely extravagant and oversized.''

This might be the simplest financial strategy since Steve Martin suggested "I forgot'' as the airtight defense for not paying income taxes.

Mr. Weiss notes that the state gaming board referenced the casino's impressive design when it awarded it the coveted Pittsburgh license. That's one of the reasons it was worth at least $250 million in 2009 and $278 million today, he says.

Joe Scolnik, a research analyst for Unite Here, a union that follows the gambling industry and organizes workers, points to a Walton Street Capital document that says its majority stake in Rivers Casino has an equity value of nearly $596 million.

"It's certainly confusing when they tell the judge that they're losing money but at the same time they're telling investors that it's increased in value,'' Mr. Scolnik said.

Yes, it is confusing. But it's also inspiring. I mean, my wife and I love our home but, at least for the duration of appeal season, it's a dump and a half. I'll wait for Judge Wettick's ruling, but if Rivers Casino gets its assessment cut like a deck of cards, I want some of that action.


Brian O'Neill: or 412-263-1947.


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