Blunderdome: politics, positioning and a costly retractable roof
Anyone who wonders how government mega-projects manage to take the public to the cleaners time and time again can step right up for a front row seat at the dog and pony show put on by PavCo’s David Podmore and BC Lottery Corp’s CEO Michael Graydon over the Edgewater Casino expansion and the BC Place Stadium roof.
The good citizens of Vancouver might be forgiven for thinking that if this casino expansion goes ahead the provincial government and City of Vancouver will be awash in cash. We’ll pay for that $563 million roof in our sleep, and provide a lifetime stream of cash for the province and city. This deal, whatever its warts, will bring hundreds of millions to the province in new revenues, and $23 million to the city every year. The Deloitte report tells you so.
We’ll all be rich!
Except we won’t, and PavCo and the BC Lottery Corporation are not telling you everything they know.
Over recent weeks Messrs. Podmore and Graydon made the rounds of radio talk shows , Board of Trade luncheons, editorial board meetings, and Vancouver City Council public hearings waving an October 2010 report from their Deloitte consultants which they said showed how profitable this venture would be. But there was just one catch, only spotted by those who read the fine print.
The Deloitte report didn’t project casino revenues at all. It took estimates of casino revenues supplied by Paragon Gaming, the casino developer, and projected economic impact to be expected from them. No one at Deloitte considered whether Paragon’s projections were reasonable--the report authors merely assumed them to be true for the purposes of making their own projections. When Podmore and BCLC waxed poetic about the river of cash that Deloitte says will flow into our coffers, they weren’t being straight with the public.
And they kept quiet as a mouse about one tiny detail.
The Other Report
There’s another report. This is the one they don’t want you to see. It’s the real one, commissioned by BCLC in 2009. Conducted by hospitality and casino industry consultants, HLT Advisory Inc, this report arrived at its own independent assessment of the likely revenue outcomes of the casino expansion, and it makes mincemeat out of PavCo’s numbers.
This shouldn’t come as a surprise to anyone familiar with Paragon Gaming, the Las Vegas casino promoters who supplied Deloitte with its base data. Paragon has a history of making extravagant claims that don’t withstand scrutiny.
In their failed bid for a new casino license in Missouri, for instance, Paragon stated they would create revenue of $103.4 million. As internationally renowned Vancouver economist Richard Lipsey cautions, the key variable to look at is not the estimated gross figure, but the incremental, or new net revenue. This matters because a casino can take market share from other casinos, and also from the surrounding economy--a process colourfully referred to as ‘cannibalism’ in the usually grey argot of number-crunching.
For BC Lottery, any cannibalization by Edgewater of the Hastings Park and River Rock business has no impact on its bottom line, positive or negative. Since all cannibalized revenue is neutral, the only earnings that count are new dollars brought in from tourism or an expanded market. States and provinces typically order independent studies to determine a project’s genuine potential earning power.
Back in Missouri, the state was cognizant of cannibalization and commissioned an independent study to measure this new incremental number against Paragon’s projections. They found that Paragon’s submission overstated new revenues by 476%.
When it came to reviewing Paragon Gaming’s proposal in Vancouver, the BC Lottery Corporation asked HLT Advisory Inc the same question that Missouri did. And their conclusions are close to right on the money with Missouri’s. Retired BC Supreme Court justice Ian Pitfield reviewed both the Deloitte/Paragon and HLT reports and compiled from them the net new revenue estimates of both.
According to the Deloitte/Paragon report, the annual net new revenue to BCLC will be $136 million. This number is notable for two reasons. In itself it’s a far cry from the $224 million that David Podmore and PavCo consistently cite as revenue to the province. But even worse, it is 425% higher than the conclusions of the HLT report.