This article was first published on October 7, 2010 in BC Business Magazine. To read the original on the BC Business site instead, please click here. We wanted to reproduce the article here because it is an informative, thorough investigation into the salient details of the casino deal. Article is by Nick Rockel; image by Peter Holst. For related materials, please see Vancouver Observer series and Edgewater cannot compete with Singapore for China gamblers. Please note that what Paragon states may differ from actual casino plans, particularly on this question of the ‘destination casino.’ Please stay tuned for future article, and review the Vancouver Observer series (link above) to keep yourselves informed.
The new casino slotted for downtown Vancouver will triple the gambling capacity of the old Edgewater and help pay for a new roof for neighbouring BC Place. Whether the global gambling elite will come to play, as both the developer and province hope, is another matter .
In his black jacket and open- necked shirt, Scott Menke looks ready to play a little roulette, or maybe some Texas hold’em. One morning in late June, the president and co-founder of Las Vegas-based casino developer Paragon Gaming is sitting in the boardroom of his company’s downtown Vancouver office at Plaza of Nations. Menke has just flown in from Edmonton, where his company runs one of its three Canadian casinos. With the confidence of a croupier, he explains how Paragon plans to transform Vancouver into a global gambling destination.
Paragon owns the Edgewater Casino, an underwhelming 30,000-square-foot establishment at the far end of the plaza. But it recently won the right to build a Vegas-style hotel, casino and entertainment complex across the street from here, on a small plot of land next to provincially owned BC Place Stadium. The Edgewater – or rather, its precious gaming licence – will move to the new 780,000-square-foot development, which Paragon aims to finish by 2013.
With 150 tables and up to 1,500 slot machines, the casino portion of the still-unnamed, $450-million project will be more than three times bigger than the Edgewater. But Menke points out that it occupies just 14 per cent of the proposed complex, a branded property that will include two hotels with a combined 650 rooms, plus restaurants, shops, meeting spaces and spa and gym facilities. “Everybody says it’s a casino, but the casino is only 100,000 square feet out of 800,000,” notes the tall Arizona native.
Focus on destination tourism
Menke says the Paragon development is an opportunity to bring more visitors to Vancouver. Where 23 per cent of the Edgewater’s customers are from outside the Lower Mainland, Paragon projects that number will at least double at the new property, thanks to a mix of Canadian and international guests.
In other words, the joint won’t rely on Metro Vancouver residents to keep its baccarat tables and hotel rooms full. “We’ll continue to build our local base, but our focus is really on the destination tourism,” Menke says. “We absolutely believe that we’re going to be additive to the market, not competing with other hotels around here.”
Paragon’s Vancouver play is one more step in the expansion of the B.C. gambling industry, which may soon pour more money into provincial coffers than all corporate income taxes combined. Gambling – or gaming, to use the industry euphemism – is a lucrative business. But skeptics say the provincial government is hooked on the revenues it brings while overlooking the economic and social costs of problem gambling. To others, the idea that high rollers from Chicago and Shanghai will flock to a Vancouver casino is far-fetched. And if the province does view gambling as more than a money grab, it isn’t sharing its plan with the public.
Paragon is still in the process of seeking approval from the city to start construction. The company plans to apply for a development permit this fall after finishing a series of public hearings, and it hopes to break ground by next spring. So far Paragon appears to be in for a smoother ride than legendary U.S. casino builder Steve Wynn, who got run out of town in 1994 after proposing a similar development on the Vancouver waterfront. What’s changed since then? “Gaming is more mainstream,” Menke says. “And the facilities are much more approachable because people look at them as not only a casino.”
BIG DOWNTOWN CASINOS ARE NOT LIMITED to major international gambling destinations such as Las Vegas, Macau and Monaco. You can find them in Australia – where the rule is one for each major centre – Singapore and South Africa, and in U.S. cities such as Chicago, Detroit and New Orleans. In Canada Halifax and Montreal also have large casinos in or near downtown.
Menke, 45, is no amateur at mixing casinos with hotels. At Circus Circus Enterprises in the 1980s and ’90s, he led the development of properties including Las Vegas’s Excalibur and Luxor for the company’s president, William Bennett. Since launching Paragon in 2000, Menke and his business partner Diana Bennett have assembled a small collection of casinos in Western Canada. (Bennett is Paragon’s CEO and William Bennett’s daughter, while Menke is his nephew.) Besides the Edgewater, they include the Eagle River Casino & Travel Plaza in Whitecourt, Alberta, and the River Cree Hotel and Resort near Edmonton. Both properties are located on First Nations reserves.
After buying the Edgewater in 2006 – the first such Canadian purchase by an American casino operator – Paragon began working with the city and the province to find a new home for its licence. “When we first started to meet with provincial officials, they clearly a long time ago set out on the path to leave slot boxes and move into destination casinos,” Menke recalls.
Casinos have become the province’s main gambling profit centre
In B.C. the term “destination casino” is a creature of the previous NDP administration. The NDP adopted it in the late ’90s after soliciting proposals for new casinos with hotel rooms, golf courses, entertainment and other attractions to lure out-of-town visitors. In 1999, the year after the B.C. Lottery Corp. (BCLC) became responsible for all commercial gambling, it granted approval in principle for eight such properties. Today the most prominent B.C. destination casino is Richmond’s River Rock Casino Resort, which opened in 2004.
But no matter what they call themselves, B.C.’s 17 casinos keep generating more money for the province. In fact – belying the BCLC’s name – casinos, not lotteries, have become the province’s main gambling profit centre. In the 2009 fiscal year, they accounted for $784 million or 69 per cent of the whopping $1.13 billion in net gambling revenues collected by Victoria (after expenses, including prize payouts). Compare that with fiscal 1999 when the government’s haul was a mere $532 million with less than half, or $242 million, coming from casinos. Thanks for that growth goes in no small part to a massive increase in slot machines, the mainstay of most casinos’ business: while the number of casinos in B.C. held steady between 1999 and 2009, the number of one-armed bandits quadrupled, from 2,360 to 9,438.
The province has championed Paragon’s push for a destination casino in downtown Vancouver, although some observers question the government’s motives. In early 2009, BC Pavilion Corp. (PavCo), the provincial Crown agency that operates BC Place and the Vancouver Convention Centre, issued a public request for expressions of interest in redeveloping almost a hectare of land on the west side of the stadium. This past March, Premier Gordon Campbell and PavCo chair David Podmore announced that Paragon had beaten out several competitors.
Paragon will pay PavCo about $6 million annually (plus inflation after 10 years) for a 70-year lease of the site. PavCo will use this money, along with sponsorship and other revenues, to settle the $458-million bill for a new retractable roof on 27-year-old BC Place, part of a $563-million refurbishment effort. During construction, the province estimates, Paragon’s casino project will create more than 3,200 direct and 2,200 indirect jobs. When it opens, some 1,900 direct and 1,300 indirect jobs will follow, and in its first year the complex will funnel as much as $130 million in gambling cash to the province. (Then there’s the 63,000-seat stadium itself, whose do-over will yield roughly 3,000 person-years of employment and add 41 more event days at BC Place each year, according to the province. As a result of those extra events, it predicts, the annual economic impact of the stadium will swell from $60 million to $100 million.)
AS FAR AS HIS CASINO PROJECT IS concerned, Menke says having BC Place next door and Rogers Arena (formerly known as GM Place) a few blocks away will be a powerful draw for the customers he wants to attract, given that they share an appetite for sports and entertainment: “To be sitting next to soccer, football and hockey – and the places that have the two best concert venues – it really leverages the synergies of what our customers like to do in their lifestyle.”
Not everyone thinks the B.C. government is making a strong enough argument for building a big casino downtown. Shane Simpson, the NDP critic for housing and social development, says the province has found a way to pay for the BC Place roof while further boosting its gambling revenues: “But what we certainly don’t have is any business case that says, ‘This is the best way to use this property; this is the best return on this property.’”
Simpson says he’s had no luck extracting such details from Housing and Social Development Minister Rich Coleman, who is responsible for gambling. And besides the BCLC’s annual service plan, he doesn’t think the province has any formal and publicly accessible blueprint for gambling as economic development. Still, the Vancouver-Hastings MLA says his party supports gambling because it’s a crucial source of government revenue: “That’s not money that we could see disappear; we don’t have that luxury.”
“It’s a very fickle business”
Vancouver city councillor David Cadman is also unhappy with how the province handled the Paragon deal. Cadman has no doubt that the combination of two sports and concert venues and a new hotel and casino complex will create more economic activity downtown. But he dislikes the fact that in January 2008 Podmore convinced the previous city council to let PavCo develop the lands around BC Place in exchange for the new stadium roof. “It felt a little bit like a shotgun marriage,” recalls Cadman of the proposal, which he and his then fellow councillors unanimously supported. He says he voted Yes reluctantly, after hearing that the province needed a quick answer so it could finish some stadium upgrades in time for the 2010 Winter Olympics and the 2011 BC Lions and Vancouver Whitecaps seasons.
The problem, Cadman says, is that council agreed to forgo the development cost levies and community amenity contributions it usually gets from developers. On top of that, he adds, all taxes from restaurants and hotel rooms go to senior levels of government, while the city is left to cover the increased policing and other costs associated with what is effectively a new downtown entertainment zone. And although the city can veto the Paragon project, Cadman wonders how much power it has after bowing to the province on zoning, development levies and amenity contributions: “I suspect that because it is provincial property and because we are constitutionally a creation of the province, they would simply overrule us.”
Cadman also expresses concern about what he calls the province’s addiction to gambling, which he believes is not the most reliable way to fund a government. Even if gambling revenues keep growing, destination casinos are in theory more dependent on tourism, which has been in a slump. “It’s a very fickle business because somebody tomorrow puts up a destination casino somewhere else, and people who are going to drop their revenue one place move to that next place because that’s the flavour of the day,” Cadman says.
AND AS GOVERNMENT BECOMES MORE reliant on gambling, the risks increase. As prominent anti-gambling activist Bill Chu observes, provincial budget estimates for 2010-11 show gambling revenues outstripping corporate income tax for the first time in B.C. history: $1.1 billion versus $847 million. “If you are the government, why do you even need to work?” asks Chu, who accuses casinos of sucking money out of the local economy and causing great suffering for compulsive gamblers and their families. “It’s a steady transfer of tax from the very rich to the vulnerable.”
Compulsive gambling is a growing trend in B.C. – and one the provincial government is quite familiar with. In 2008 the Ministry of Public Safety and Solicitor General commissioned a study on problem gambling in the province; it found that between 2002 and 2007 the percentage of B.C. residents with a severe gambling problem almost doubled, from 0.4 per cent to 0.9 per cent of the population. Another study, published in 2009 by the B.C. Medical Association, noted that 31,000 British Columbians have a severe gambling problem, while another 128,000 are moderately afflicted.
The BCLC’s mission statement describes it as a provider of “socially responsible gaming entertainment,” and this year the province and the BCLC budgeted about $6.4 million for problem and responsible gambling programs. But according to Vancouver General Hospital psychiatrist Shao Hua Lu, who co-wrote the medical association’s paper, the money put aside for gambling addiction treatment is always inadequate: “The gambling winning percentage that goes into support and health is vastly inadequate for the scope of problems that we face.”
Despite several requests, neither Minister Coleman nor BCLC officials made themselves available for an interview. (This summer the BCLC was scrambling to contain the damage after a security breach forced it to shut down PlayNow.com, its online gambling site.)
The majority of a casino’s revenues will come from locals
PavCo’s Podmore contends that Vancouver will win big from the Paragon deal. Not only does the city reap most of the economic rewards of the stadium, he says, but it’s also getting the new roof for free: “An investment of $563 million into the community – not asking for any money from the municipality and protecting its operations for the next 40 or 50 years with the economic benefits that it brings – I mean, that’s a giant community amenity to Vancouver.”
Podmore, who is also chair and CEO of Vancouver-based real estate developer Concert Properties, says the province created an exhaustive business plan for the BC Place redevelopment. However, the public can’t see it because cabinet and Treasury Board documents are privileged. Nor has the government revealed the names of Paragon’s fellow bidders. “The initial expressions of interest, there were several, and we shortlisted it down to two and negotiated the best deal that we could,” Podmore says.
In the end, PavCo chose the Paragon proposal for its commercial terms and the economic benefits such a project could bring to Vancouver. But the bullish forecasts of out-of-town clientele leave some experts unconvinced.
Peter Collins, professor of public policy studies and director of the Centre for the Study of Gambling at the Salford Business School in Manchester, England, has advised governments in Singapore, South Africa and the U.K. on gambling policy. He says the estimate of $130 million in gambling revenues for the province is realistic and that the new casino complex could attract tourists from as far away as Asia.
“BUT ON THE BASIS OF WHAT’S HAPPENED almost everywhere else in the world, the reality is that pretty much 90 per cent of your revenues will come from people living within half an hour’s drive time, or maybe 45 minutes,” Collins adds. “Although it’s nice as a kind of selling point to say that there are opportunities to earn foreign currency and essentially export gambling services, it’s a very small part of the business.”
As Collins explains, Las Vegas, Monaco and their fellow international casino destinations rose to prominence by drawing on a vast customer base from surrounding areas where gambling used to be illegal. In Vegas’s case, it was the whole of the United States. “Such markets are usually undermined sooner or later because casinos are established in the visitors’ home jurisdictions,” Collins says.
Tsur Somerville, an associate professor of strategy and business economics at UBC’s Sauder School of Business, thinks the new casino can make the BC Place redevelopment work because it complements the hotels and the stadium. And the city itself will benefit, he says, because a commercial development such as the one Paragon is proposing brings in almost five times as much property tax as a residential development (never mind the casino revenues redirected from the province to the city: a transfer of some $54 million over the past decade).
But Somerville warns that casinos work best by keeping gamblers inside them for as long as possible, which tends to reduce economic spinoffs. The Paragon project is also likely to take business from other Metro Vancouver casinos, he says: “Once you already have gambling in the area, which we do, then to a great extent it’s just distributing the gambling dollars from one community to another.”
Casinos are inconsistent with how tourists perceive Vancouver
Along those lines, Somerville doesn’t believe the casino complex will make much difference to tourism numbers. “The gamblers you want are the people who fly in from the outside, gamble here and leave and take their social problems elsewhere,” he says. “And I think it’s very hard to make the argument that this is going to be an international destination casino.”
Why? Because casinos are inconsistent with how Vancouver is perceived as a tourist destination, Somerville says: “People come here for the beautiful environment and the beautiful city – not to stay inside a dark, windowless gambling institution.”
Whether a Vegas-style casino fits with Vancouver’s image is a question that people are right to ask, says Peter Collins. In the middle of the last decade, he notes, Singapore decided to change its laws to allow casinos. But first the government deftly managed public opinion. It encouraged a debate – and then made developers from Las Vegas and elsewhere compete to fashion the two casino designs that were most popular with Singaporeans.
For Collins the advantage of an open tendering process is that it harnesses the creativity of the private sector: “What that means is you’ve got all these top minds in the tourism business and the entertainment business sitting around in their boardrooms thinking, ‘What on Earth can we do which will really wow the people of Vancouver?’ And that doesn’t seem to have happened here.”