Casino Payout

By Kitty McConnell
Photos by Ryan M.L. Young
From the January 2014 issue of Columbus CEO

Ohio’s gamble on Vegas-style casinos hasn’t delivered the dynamite cash payout that won voters over to the constitutional amendment in 2009. Despite the state’s sluggish casino gaming revenue, the West Side community that hosts Hollywood Columbus is still wagering on the casino’s long-term potential to anchor the area’s revitalization.

A coalition of West Side business leaders is leveraging the casino as a means to spur economic development along the West Broad Street corridor.

“When the initial talk or opportunity for the $400 million investment for the casino came about, this area had very limited other options,” says Chris Haydocy, president of Haydocy Automotive, a 59-year-old west-Columbus car dealership located adjacent to the Hollywood Casino on West Broad Street.

The auto dealer moved to its current space in 2000 in part, Haydocy says, because it was a prime retail, residential and employment destination.

“After we moved, the area became a downward spiral that really accelerated quickly. Delphi shut down. Westland Mall shutdown, resulting, in May 2009, with this area being deemed the loneliest neighborhood in the United States (by the Associated Press),” says Haydocy.

Like neighboring businesses, Haydocy was dealt a double-blow when the recession compounded the West Side’s decline. As a General Motors dealer, Haydocy Automotive also took a hit from the GM bankruptcy in 2009.

By the late 2000s, no business owner had more reason to walk away from the West Side than Haydocy. Even GM advised him to relocate, says Haydocy. Instead, he cut costs where he could, and emerged from the recession determined to make his neighborhood a better place to do business.

Haydocy and other West Side stakeholders organized the Weston Vision, a nonprofit economic development coalition, in 2009. By the time voters approved the Columbus casino’s relocation from the Arena District to the West Side in May of 2010, the Weston Vision board was already looking for opportunities to transform the West Side “from vacancy to vibrancy.” Members of Weston Vision include former Franklin County commissioner Dewey Stokes, Franklin Township Trustee Tim Guyton and many other west side business and nonprofit leaders.

As president of Weston Vision, Haydocy rallied businesses along the West Broad corridor to take advantage of the casino as a means of economic redevelopment. His influence was such that, when Penn National Gaming selected the West Side from among five potential Hollywood Casino Columbus locations, the announcement was held at Haydocy Automotive. Weston Vision members lobbied for the casino relocation.

“We were able to get 3,000 signatures in one weekend and really change a brownfield to a greenfield. The Delphi plant would have sat empty, I’m sure, for another 20 years,” says Haydocy. “As a result of that, we have a list of 30 different businesses that are out here that would not have been here had it not been for the Penn National investment.”

Ameet Patel, general manager of Hollywood Casino Columbus sits on the Weston Vision board. “I work very closely with the business community here to make sure that there’s development around the area,” says Patel.

Patel and the Weston Vision work together to attract the public and private investment needed to improve the business, residential and industrial areas in the casino’s immediate vicinity.

Projects like the county’s $5 million Georgesville Road makeover, and the Ohio Department of Transportation’s I-270 and West Broad Street reconstructions have made the area safer and prettier for the casino’s 10,000 daily visitors.

Haydocy Automotive has already seen benefits from West Side improvements. Haydocy hired 10 new employees and increased new car sales by 57.5 percent in 2013—the largest increase among the state’s top 20 Buick/GMC dealers. In addition to investing in facility improvements, Haydocy Airstream and RV opened in April. Haydocy says that expansion would have been unthinkable four years ago.

“Before the improvement, there was not a compelling reason, so to speak, to come to the Broad and Georgesville area. Now, the spotlight’s back on this area,” says Haydocy.

Weston Vision has rallied the West Side to capitalize on the casino spotlight, even if Hollywood’s shine is dimmer than expected.

Troy Walton and his wife, dentist Melissa Brown, opened Murray Hill Dental in February of 2011 off of West Broad about a mile from the casino. Walton, a member of the Westland Area Business Association, credits Haydocy and the Weston group with bringing not only the casino, but infrastructure investment and additional projects like the forthcoming bike hub and trail to the area.

“Personally, as a small business owner, I’m bullish about the West Side. With the casino as an economic catalyst and some other economic stimulus, I think the West Side is going to have a bit of a revitalization. When my wife and I purchased here, we saw that,” says Walton, a Clintonville resident. The couple saw potential in the underserved West Side, says Walton.

With 10 employees, Murray Hill Dental has enjoyed “tremendous growth” during their three years on the West Side, says Walton. Positive change is visible in redeveloped storefronts along the West Broad Street corridor. Still, Walton doesn’t expect Hollywood Casino alone to bring the neighborhood back from economic decline.

“You have to have supported economic builders like malls and hotels and other services,” says Walton. “Business owners like me understand that’s going to take time, too. It’s not going to happen overnight, and certainly not in a year.”

Rebuilding and Restructuring

Among the Weston Vision board’s notable accomplishments has been to speed the completion of ODOT’s $80 million I-270 Southwest-side project. The recently completed seven-mile reconstruction project was begun in 2011. Along with ODOT’s West Broad Street improvement project finished in November, the roadway improvements were a boon for local businesses and the Hollywood Casino.

Instead of potholes and pedestrians walking along the shoulder of busy West Broad Street, the streetscape has been widened and safely repaved with new traffic signals, medians, light poles and sidewalks. Because of the connecting ramps, the West Broad widening project was tied to the separate I-270 reconstruction. Businesses along the West Broad Street construction corridor played a role in speeding up both projects when the owners of 22 land parcels unanimously donated their land to ODOT.

“It was a pleasure with a capital ‘P’ to work with such incredible businesses that did understand and value the importance of that infrastructure improvement, and literally put their money where their mouth is,” says Nancy Burton, ODOT’s public communications manager. The land donations “cut off significant time” getting the project to construction, says Burton, who called the move “honorable.”

Burton credited Haydocy with creating consensus among land donors. “Those property owners had to all be in agreement to make this happen. I would call that amazing from ODOT’s perspective,” says Burton.

Hollywood Casino GM Patel says that the roadway improvements on West Broad, I-270 and Georgesville Road contribute to “the experience we’re creating on the West Side.

“This land development project, it’s enormous,” says Patel. He worked with ODOT and Weston Vision to speed the 270-West Broad Street exit ramp construction. “We together as leaders of the West Side sat down and talked to individual leaders of all the businesses on West Broad Street to say why this easement is important.”

Improved roadways serve the casino’s high visitor traffic, as well as incentivizing new commercial investment. The shabby state of West Broad Street was a “huge shortfall” in terms of attracting new business, says Haydocy. “We (now) have sidewalks, we have bike lanes, we’ve got medians and just a whole lot of good stuff happening. That’s going to invite additional investment out here.”

Haydocy applauds developers like Jeff Block and Hollywood Retail Ventures with refurbishing retail centers along West Broad Street, along with Bobby Lehman Chevrolet, which has invested millions in facility upgrades.

Among the additional developments West Side stakeholders expect to see completed in 2014 is the Camp Chase Bike Trial, a project managed by Columbus and Franklin County Metro Parks and the Rails-to-Trails Conservancy Midwest Office. The initial 11-mile trail will run from Battelle Darby Creek Metro Park to Sullivant Avenue between Georgesville Road and I-270.

“That’s another city investment that is a huge commitment from all entities. When you look at this bike trail and the bike hub, that’s going to be an entire 2014 event,” says Patel.

Bike routes are a “big missing link” on the West Side, says Haydocy. The Weston Vision would like to build the bike trail out even more than planned. “It just so happens there’s 47 acres behind the casino. We would like to essentially make that into a bike hub and an urban campground.”

On December 2, Columbus City Council allocated $319,117 for the bike trail’s completion.

Bike trails have the potential to boost West Side residential property values, which trail the Columbus average. In 2011, the Central Ohio Community Improvement Corporation (a board comprised of members appointed by Franklin County commissioners, Franklin County treasurer, Franklin County Township Association and the City of Columbus) commissioned a study on the economic development in the West Side commercial and residential district surrounding the casino. According to the West Side Economic Development Strategy report, the median 2010 home value in the 2.4-mile study area surrounding the Hollywood Casino was $92,300 as compared to $153,700 in Franklin County.

Casino development paired with continued private-public investment could lead to more demand for upscale housing, according to the report. New single-family and multifamily housing development would increase the already unmet retail and hospitality demand from current residents and casino visitors.

The report concluded that households within three miles of the study area had combined purchasing power of $395 million in 2010. Using business data collected from the neighborhoods surrounding six PNG casinos across the country, the study calculated development ratios between casino capacity and commercial demand. Based on those patterns, the study concluded that the Hollywood Casino “should support 9 restaurants, 300 hotel rooms, and a total of 59,000 square-feet of retail” development in the surrounding neighborhood; only a fraction of that demand would be met by the 18-month, phase-one stage of PNG’s master plan for the Columbus casino.

PNG is poised to begin phase-two development of the 123-acre Hollywood Casino site in 2014. Despite lower-than-expected slot volume and gross revenue, the Hollywood Casino has delivered a 20 percent cash-on-cash return during its first year. “Any shareholder, any investor, private or public, would say ‘let’s give this entity more money and they will continue to provide handsome returns.’ That’s how we make our decisions,” says Patel. “You will see that, in the very short run; we will be committing to additional investments to the area and within our site.”

The casino site is about 40 percent developed, and a hotel is the most viable and practical development opportunity in the short term, says John Finamore, senior vice president of regional operations for PNG. Finamore oversees PNG’s Midwest operations, which in Ohio includes the Hollywood Casinos in Columbus and Toledo, and two racetracks located in Dayton and Mahoning Valley. “

As of September 2013, there was no commitment from PNG to move forward with hotel development at the Hollywood Columbus site. However, Finamore says that PNG believes the “market could support a hotel and the property could certainly support an event center.”

PNG Restructuring

PNG recently completed the corporate separation into two public companies proposed by the PNG board in November 2012. In September, the Ohio Casino Control Commission approved PNG’s spin-off into a real estate investment trust. The newly formed Gaming and Leisure Properties, Inc. owns substantially all of PNG’s real estate assets, including the Ohio casinos and racetracks. GLPI leases the gaming facilities back to PNG, the casino operating company, under a triple-net 15-year master lease agreement.

The REIT separation is the first of its kind for the gaming industry. PNG pursued the separation in order to unlock the equity of its property assets. The REIT also facilitates the expansion of GLPI’s real estate holdings.

As a REIT, GLPI can own hotels, entertainment and leisure properties, including gaming facilities leased to other casino operators besides PNG. With increased competition and lower consumer spending on gambling hurting casino revenue, PNG pursued the REIT separation as a means of increasing shareholder value in the competitive gaming markets in which it operates, says Finamore. He says that REIT separation “give(s) the company the ability to grow, whether through acquisition or through development of existing properties.

“It allows us to perhaps…accelerate some of the master plan aspects that we talked about,” says Finamore.

PNG’s spin-off into GLPI won’t change operations at Hollywood Columbus, say Patel and Finamore. Nor will PNG’s corporate separation have any impact on the statutory framework under which Ohio casinos operate says Matt Schuler, executive director of the Ohio Casino Control Commission.

The restructuring challenged the OCCC, which licensed its first casinos in May, 2012. Schuler says the commission conducted an internal investigation and employed Spectrum Gaming Group for an independent analysis of the implications and financial suitability of the proposed transaction before granting approval. The OCCC licensed GLPI as a gaming-related vendor September 18.

“Whether it’s gaming revenue and taxes, property management, issues affecting their employees, their obligations on capital expenditures, responsible gambling policies, none of that would be impacted by the property spin,” says Schuler.

As the casino operator, PNG will still pay a 33-percent tax on Ohio gaming revenue. Though licensed as a gaming-related vendor, GLPI won’t receive any gaming revenue from PNG casinos. Schuler says GLPI will be treated as any other property holder under Ohio law.

The OCCC keeps GLPI’s $15,000 operation fee and $10,000 gaming-related vendor licensing fee. While Penn is the first gaming operator to form a REIT, Schuler says the entire industry is looking at that model as a way to “expand (their) corporate revenue pies in markets that are saturated with gaming.”

Gaming revenues are attractive options for cash-strapped state and local governments. Once limited to Nevada and New Jersey, most Americans are now no further than an hour drive from the nearest gaming facility, says Schuler.

“Even now in Ohio, we have four Las Vegas-style casinos, we have two racetracks that have video lottery terminals and five more on the way. I think it’s going to be a very competitive environment just within the state,” says Schuler, noting that casinos in Pennsylvania, Michigan and Indiana add to that competition.

PNG owns 28 facilities in 18 jurisdictions in the U.S. and Canada. PNG’s November 2013 quarterly SEC report anticipates negative impact on Hollywood Casino Columbus revenue due to competition from the Scioto Downs racino in south Columbus, the Lebanon Raceway and as a result of the opening of PNG’s own Dayton racino.

Ohio’s Office of Budget and Management estimates tax revenue from Hollywood Casino Columbus will total $82.04 million in 2014 and $87.7 million in 2015. OBM’s original 2009 estimates projected annual Columbus casino tax revenues of $188.61 million without video gaming terminals added in the state’s racetracks, $131.22 million with VLT gaming in Ohio. The state’s total casino tax deposits during the third quarter of 2013 totaled $225.44 million. The Columbus casino generated adjusted gross revenue of $176.78 million between January and October, 2013, second only to Horseshoe Cleveland’s reported $204.1 million in revenue for the same period.

Hollywood Columbus has averaged $17, 925,528 in revenue in each of the 13 months since the casino’s opening. While the OCCC tracks casino-related crime stats, there’s no obligation for the state to track the economic impact of the casinos as there is in other states where the legislature pushed for legalized gambling.

“I’m not sure of any other state where the operators secured their own constitutional amendment. I would say in nearly every state, the general assembly would put forward a proposal to voters,” says Schuler. “What comes with that is the obligation to report back on ‘did it meet its (economic) goals and objectives’….The way Ohio got into this, that obligation has not manifested itself.”

Without clear measure of the economic impact of the four casinos, it remains up to the casino’s host communities to construct and measure their own economic success around the young casinos. Ohio is still an evolving market say Schuler, Haydocy and PNG executives. Growth is a matter of “when and not if,” says Patel.

Patel brings extensive casino management experience to the GM job in Columbus. In his previous position, Patel managed Penn National’s 16-year-old Argosy Casino Hotel & Spa near Kansas City, Missouri. The Kansas City market is identical to the Central Ohio market, and is roughly two-and-a-half-times the size of Hollywood Columbus in terms of gaming spending. “It takes time, but in the first year if we area already at 40 percent of that size. This thing is going to come back much faster than Kansas City,” says Patel.

With that will come the casino’s continued collaboration with West Side business owners and local government to continue the area’s economic development. “Where we were 18 and 24 months ago in this area and around, you’d say (it’s) night and day. I think the same is going to hold true from today to 18 to 24 months out,” says Patel.

Over the next few years, the Weston Vision board would like to see the West Side enjoy the comeback that Downtown Columbus enjoys as a result of strong public-private investments.

“It’s a very quiet neighborhood in terms of what it asks for. There’s a rich history here,” says Haydocy. “The Broad and Georgesville corridor where we’re at, it’s just the tip of the iceberg of the renewal out here. We have Franklinton redevelopment; working from the east side coming out. This area’s just absolutely poised for a complete revitalization.”