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Casino Rama ownership structure presents 'heightened' risk

Gateway Casinos, new operator of Casino Rama, outlines risk in U.S. filing; Gateway paid $89.3 million for Central Bundle that includes Casino Rama

The new operator of Casino Rama says the ownership structure of the popular gaming facility east of Orillia “adds a heightened level of risk” to its operation.

According to documents filed by Gateway Casinos and Entertainment with the U.S. Securities and Exchange Commission, the complicated lease arrangement and recent policy changes at Rama First Nation muddy the waters for the massive company now operating the casino.

“Given the unique ownership structure and the number of interested parties with various rights, including approval rights and rights to consultation, we are likely to encounter more extensive reporting obligations than we do at our other properties and will be required to address the rights held by interested parties, which may result in delays or other issues when making major decisions regarding the operation or development of this property a heightened level of risk,” say the document.

The 239-page filing, with 172 additional pages of financial statements, identifies the ownership structure as one of many risks to its many properties throughout Canada.

“The main parcel of the Casino Rama Resort land is subject to a lease between Casino Rama Inc., an affiliate of Rama (First) Nation, and the Government of Canada pursuant to a commercial ground lease,” the documents explain. “On May 1, 2018, the Chippewas of Rama First Nation Land Code came into effect, which transferred land administration for these lands from the Government of Canada to Rama (First) Nation pursuant to the First Nations Land Management Act (Canada).

“The Casino Rama Resort property is subleased by Casino Rama Inc. to the Ontario Lottery and Gaming Corporation (OLG). The OLG, in turn, sub-subleases the Casino Rama Resort property to us. Certain adjacent lands are also owned by Rama and leased directly to OLG, and the OLG then subleases this land to us. Certain rights and obligations of Casino Rama Inc., Rama Nation and the OLG are documented in other ancillary agreements.”

Because of that complicated agreement, it’s more difficult and, potentially, time-consuming to make changes at Casino Rama, which, with more than 1,400 employees, is the largest of Gateway’s operations.

“Delays or impediments to effecting operational or development decisions with respect to the Casino Rama Resort property, or an inability to enforce our rights against one or more interested parties, would have an adverse effect on our business, financial condition and results of operations,” the document says.

The U.S. filing also reveals that Gateway paid $89.3 million for the “Central Bundle”, which includes Casino Rama, Georgian Downs (subsequently renamed Gateway Innisfil) and the opportunity to develop a new casino in Wasaga Beach.

On July 18, 2018, Gateway signed a 23-year agreement with the OLG to operate the Central Bundle and became the operator of Casino Rama and Georgian Downs.

According to its filing with the U.S. Securities Commission, Gateway is one of the largest companies of its kind in this country.

“We are one of the largest and most diversified gaming and entertainment companies in Canada, based on both number of properties and number of gaming positions,” say the document. “Our operations are currently comprised of 26 gaming properties in British Columbia, Ontario and Edmonton, Alberta, with 13,618 slot machines, 429 table games, including 48 poker tables, 561 hotel rooms, 80 food and beverage outlets and 8,500 employees. We have demonstrated a track record of successfully operating, developing and acquiring gaming properties and contributing to the communities in which we live and work.”

The documents also reveal Gateway plans to open a “Playtime” property (one of its brands) in Wasaga Beach. That facility is expected to feature a 10,500-square foot gaming floor with 273 slot machines and 10 table games.

The Wasaga Beach facility is expected to also include a buffet restaurant and a sports bar/pub.

“Management expects construction to begin in the first quarter of 2019 and the new property is expected to become operational in the third quarter of 2020,” say the documents. “Based on management’s estimates, the total capital expenditure for our proposed Wasaga Beach property is expected to be approximately $30 million.”

The Wasaga Beach strategy is in keeping with how the casino industry in Canada is being re-thought.

The industry has changed, the document says, and is moving away from destination casinos, which relies primarily on tourists, to ones that rely on the local market for customers.

“Locals-driven markets generally attract a more consistent flow of casino patrons over time, leading to greater stability as measured by total wagers net of prizes paid,” the document says.

These casinos offer a wider range of entertainment other than gambling – concerts and other events -- the document says, giving Gateway a wider revenue base.