Is 70% of $250 million correct?

[TheGeneral+]

The legislation raises the tax on casinos' adjusted gross receipts over $250 million to 70 percent, from the current 50 percent. The 50 percent tax rate will apply to receipts over $100 million, instead of the previous level of over $200 million. The new rates will take effect July 1.

Does this mean that the casino pays the state 70% of every $250 million taken?

Am i reading this correct?

Thanks

Story

 

no.

Its a 70% tax on any 'hold' over $250mil.

Currently they pay 50% of all hold over 250mil.

Although it looks like the governor is almost capping the casinos at 250mil in hold, really, the incremental operating expenses at that level are greatly reduced as structural costs are fairly fixed, therefore its not as bad as it looks.

Common practice among tax agencies.

 

[TheGeneral+]

Thanks megladon

 

you're welcome. np. You a buy/s/h here?

 

[WildBill]

Basically there is no incentive over $250 million, the analysts on Wall St did the math in many ways and proved that a casino would almost be better off shutting their doors once they reach $250 million!

The problem is not just this 70% rate, its that they once again raised every other rate. Its like any tax scale, you pay a different rate on each level you are at, but the average rate for casinos under the new scheme is likely to go up about 5% in total. Its highway robbery, these companies put hundreds of millions of dollars investing into these facilities and then the government keeps coming back for more. Chris Rock did a routine about how taxes are the government like a crackhead, "first I pay taxes with every paycheck, then April 15th and the IRS comes back to me like a broke crackhead saying give me more money. I already got you and you want more???" That is exactly what the casinos have to be saying, we create jobs and hundreds of millions in taxes and all you say is we aren't paying enough, give us more because we never realized that you would actually make decent money above the ridiculous level of taxes we charge you already. They might as well consider themselves part owners of the boat, except the state has no downside and the real downside is that a lot of people probably will lose their jobs from this and even worse for the citizens of Illinois that the state might make less net money even with the higher rates because the casinos will make changes that reduce revenues, driving that money to Indiana or even Wisconsin casinos.

 

"Basically there is no incentive over $250 million, the analysts on Wall St did the math in many ways and proved that a casino would almost be better off shutting their doors once they reach $250 million!"

I don't believe that to be the case, as I stated, incremental costs are greatly reduced, dependent on cost increases to infrastructure.

Wall Street has spoken all right, and if you look at the tape, they are saying the impact of this tax increase is overblown.

Of the 5 companies with casinos in Ill., 3 of them had no effect on their stock, Harrahs, Mandalay bay , and boyd. Of the 2 who were effected, Penn, which derives 29% of its income from ILL., had its stock take a tumble from 21 to 16, but has now recovered to 19.50. Argosy, which derives 35% of its income from ILL., had its stock drop from 22 to 18 and now back to 20. Agrosy has stated they suffer a drop in earnings of about 13% as a result, somewhat overstated im my opinion.

The only real effect of this tax increase will be for any company which is approaching the $250mil cutoff. They will calculate if its better tax wise to stay under the $250, but that would only be in very exceptional circumstances.

Secondly, any company wishing to make major infrastructure improvements will have to factor in the effect on hold.

Bottom line, taxes suck, but the Ill casinos happen to be some of the most profitable in the country, and their owners have little to complain about.

Further, the actual impact of the tax is about 10%, although many consider it to be more like 5%. But the original casino legislation called for 10 licencees. Due to one being held up in court, there is only 9 active, which has been a 10% unforseen benefit to the current casino operators.

As Jerry seinfeld says "It all evens out"

 

[WildBill]

Come on, do you really know whats going on there? They are far from the most profitable because the state refuses to allow the market to operate freely. They have outrageous tax levels and on top of it a business hindering limit of 1200 positions. The fact is they make a lot of money PER MACHINE only because the demand is strong, but boats in Indiana where there are reasonable taxes and no limits on size are on the verge of just laying the IL boats out to pasture. By many calculations, once the ramifications of the tax increase are settled and the fees and operating changes are implemented, the Jack Binions boat will have income close to THREE times what his nearby competitors make, despite the IL boats having higher per machine numbers. That number is the one that all the lawmakers have foolishly focused in on, not the bottom line. The reason why the stocks haven't changed value much is that all these companies have positive outlooks in other areas, namely PENN and their hope for slots in PA. HET didn't take a big hit because they are expected to just shift a lot of their business to their IN boat, MBG didn't take a huge hit because their main LV property is picking up steam and they declared a dividend which got the market excited. Fact is that IL just sealed their fate, they have chased away all future investment and the jobs it could have provided and you watch in the next 2 or 3 years their tax revenues are going to steadily decrease because the boats will get quite good at having no service levels at the casinos and chasing off business that way.

The 30% marginal revenue they keep is further eroded by income taxes to the point where an extra dollar makes them about 16 cents. Now in what business in this country do you make a net dollar in revenue and only get to keep 16 cents of it???? That is insanity and all the talk of "they can afford it" is ridiculous. The analysts proved it would make them no money because with position limits there are only so many people you can serve at once. What a market like Chicago has is a lot of people that don't gamble much, they just go out for a night with a small amount of money in their pocket. A casino can't cover these people's admission tax, so they have to chase them out from taking a spot of someone they can actually recover their costs from. If a casino goes over $250 million then chances are quite good they haven't chased off these customers who lose money for them, so in effect the analysts didn't say close the doors at $250, they just said do whatever it takes to make sure you don't get to $250 and you do that by charging most people to get in the building and you charge them a lot of money for any food or drinks, which aren't taxed heavily.

 

"Come on, do you really know whats going on there? They are far from the most profitable because the state refuses to allow the market to operate freely. They have outrageous tax levels and on top of it a business hindering limit of 1200 positions. The fact is they make a lot of money PER MACHINE.."

You answered your own question.

Your arguement is based n your political slant and has little to do with the facts. How can you possibly claim Penn stock not effected due to prospects elsewhere, they derive 29% of their income in ILL. You don't even mention Argosy stocks lack of movement, deriving 35% of income.

Clearly they don't fit your politics.

As I stated, the casinos are highly profitable, but you have chosen to prefer size as a measurement instead of return on investment, which is the guage anyone who knows about business uses.

Regarding your .16 cent number, highly suspect, have you a qualified source? or perhaps yours comes from an industry advocate.

But lets take the .16 cent number, that in fact is a pretty sweet return. Once again I return to the rapidly diminishing incremental costs of deriving that income over $250mil, therefore most of that .16 moves to the bottom line.

There isn't a business out there who wouldn't want a 16% return.

Illinois has chosen to limit this highly profitable casino business, that is really your beef isn't it? And you are shaping your arguement around it.

 

[WildBill]

Just admit it, you don't know what you are talking about. Fine I have the casino point of view, I used to work for a company that had a boat in Illinois so I am quite clear on the finances to a detail even Wall Street is not aware of. If you can prove to me that Penn National generated 29% of their income from Illinois I will shut up, but I damn well know you are lying about that, either that or you are regurgitating someone else's lie. Go to their most recent 10-Q, notice how they have an EBITDA calculation, about as close to income as you are going to get because no boat in Illinois or just about anywhere is going to break out their net income by location. Notice how their total EBITDA is $53.1 million and from Aurora they get $7.4 million. Any one with fourth grade math skills could tell you that you are lying when you say 29%. Further you have no clue how much money they stand to make if they get slots at their Pennsylvania tracks now do you, and you probably didn't hear how the detailed they were going to cut their costs and likely their revenues to deal as best as they can with the situation in the state. You see I don't need industry advocates, I am in the industry and I can tell you the effect of something like this without any biased help. Can you say the same thing??? I have a qualified source for 16 cents, its called simple math. If the state takes 70 cents, that leaves 30 cents. Then income tax combined for state and federal is 40% so that leaves 16 cents. That is assuming it doesn't cost a penny to service those dollars, but only a moron like you would think that its not costing a casino anything to get revenues. Now where is your math? And for you to say you think you know the costs are all fixed, where are your credentials for saying that? Did you know that if you close the doors of a casino that you don't have to pay about 90% of your staff? Why gee, didn't you think about the fact that just about everyone you run into in a casino is an hourly worker that clocks in? Did you realize that health insurance costs are so bad in Illinois that cutting a worker is a huge savings because that $5.25 you might pay the dealer in wages comes out to about $13/hour when you consider the benefits that are paid? How about the fact that pit bosses can often make more than half their salary based on the win in the pit? I bet you didn't know any of that did you? Why gee once you have a boat built and machines on it I bet you figure there are no costs left right? The lights and utilities just pay for themselves, the parking guys and the security guards work for free just so they can be around the ambience of a casino, and of course those $5 fees that a casino has to pay for everyone to get in aren't a problem because they can just make up in New Jersey or Indiana or something...right?

If you want to say they shouldn't have casinos or they should limit gaming in Illinois fine just come out and say it. But to repeat the lies and stupidity of the governor and his minions and insist its because I have a "casino viewpoint" is an insult . Look at Argosy, they spent almost $70 million in the state improving their facility with what they thought was a steady situation where everyone wins, more revenues for them, more tax dollars for the state, more jobs for local people, and more happy state residents because they have a place they like to go. Since then two massive tax hikes have come through that have basically screwed them and given them a big whopping fat negative return on investment and is about to cut off the job machine as well, so much for everyone wins. And all because Blajo-shit thinks the casinos are his personal piggy bank and the anti-gamers are his best friends. He and his foolish followers will get exactly what they deserve, less taxes and a worthless 10th license. He and his people will get desperate saying "oh crap, where did all this money we thought we had go? Well damn we better get the money, lets give Daley his Chicago casino because no one else will pay a dime for this quarter billion dollar license I was told we have. Gee what happened, I thought we were getting 600 million dollars out of all this, now they tell me it all went to Jack Binion and the Indiana government???? What the hell happened???" And all of us that don't work for a company that is directly affected by the state will laugh at that sorry guy, my favored candidate for the Gray Davis school for moronic governors. Because you see most of us don't really care about this whole "keeping gaming in check" theory. We don't care who legalizes it, we just realize people want to gamble, a lot. We know there will be places that allow their citizens to do what they want to do with the money. What we in the industry don't like is being treated by soul-less heathens that are out to corrupt the world when all we do is provide an entertainment that people desire and will go to quite great lengths to get. To be tossed into a group that is treated with an attitude like "you guys are lower than crack dealers, we are going to take all your money away from you" is insulting. Illinois doesn't change the rules on any other industry, just casinos. If Blajo-shit didn't want us there, why doesn't he just outlaw our industry? Oh wait, he would get his sorry ass kicked out of office so fast if he did that, oops forgot about that. Oh well, guess for now we will just go make our money somewhere else and hope all those new unemployment cases you get from out of work casino people doesn't get you down too much.

 

It is not worth my time to try and carry on an intelligent discussion with someone who is so personally insulting. It indicates a lack of class and brains to attack those who disagree, instead of disarming their position.

I spotted you for an industry shill, at least you've admitted it.

Here's my reference for the % of business which penn and argosy do in illinois, this should settle any claims about lying:

"Fulcrum Global Partners downgraded Penn and Argosy on Thursday. Analyst Joe Greff calculated that Argosy generated 35 percent of its earnings before interest, tax, depreciation and amortization from Illinois and Penn made 29 percent." -Reuters May 30th



Bottom line, you can't fight the tape. For all your huffing and puffing about the deliterious effects, the stock market has spoken, neither Penn nor argosy, nor any of the others have suffered.

You are welcome to sell short to back up your position.

The government has the right, and a considerable body of evidence to support themselves, casino gambling should be limited.

 

[WildBill]

Fine, they should go about doing it fairly, that is all the industry asks. I love how I get called a shill, I am the first to point out the problems within the industry. What the problem here is that there is no other industry that gets screwed like this, none. Tax increases are a part of life and all businesses accept that, however, no industry should have to get screwed into paying these kinds of rates while listening to Blajo-shit say "time for them to pay their fair share". Now that is an insult! Tell us Rod, who else is told once you make an amount we think is fair you pay the rest to us. In most instances any changes in laws and regulation take into account how much is invested in the business and a fair period is made to recover costs. At these rates and with this attitude anyone that has spent money in the last 3 years will have a hard time ever recovering their costs because I can smell another tax increase coming soon, if Blajo-shit doesn't just decide to take over the business himself as he hinted to before. One industry can't provide all the money to run a state. Don't confuse this issue of "limiting" gambling, this has little to do with that. Its a money grab, pure and simple. The governor even said it himself, they have to pay their "fair share".

As for Joe Greff, I talk to him and his minions and I have to say he is probably the second most clueless of all the analysts, but fine you got it from someone else than the governor, good for you. And if you want to think that Wall St made a statement by only dropping company shares by 20% then fine, believe that if you want. Wall St just figured out that it really won't cost the companies that much because they will get their cost cuts through layoffs and charging people to get in the door. So while Blajo-shit thinks he is really making the casinos pay, he is sadly mistaken as usual. Its the people who he represents, the citizens of Illinois, that are really going to pay through entrance fees, unemployment benefits, and reduced tax revenue not to mention a worthless gaming license he somehow thought could fetch $300 million. The state will get what they deserve and the people of the state will get screwed as a result.

 

Well Bill,

The stocks haven't retreated 20% as you say, recalculate, that's the big point. the initial overreaction has been corrected.

the market sees this:

Per square foot, per investment dollar, these are some of the most profitable casinos in the usa. Ill is putting caps on their size but that doesn't sway the fact they are cash cows. INvestors knew going in Ill would be capping these so now crying foul is not sporting.

Btw, Indiana is the 3rd most profitable in the usa, next to vegas and AC, so using them as a typical example would be unfair to the myriad other states who've not done so well.

For all the insults you have actually put up a few information facts, not bad. Of course insulting your adversary, and relying on skewed arguements will not get you far in a square debate.

But it is much more than we get otherwise at this forum, currently the raging debate is over who is going to fight at the vegas rx bash.

Btw, where's the general, he never even had the balls to say if he was long/short/hold.

Oh well, clearly the age of intelectualism is dead at the rx.

good luck to your ideals of unfettered gambling.

 

[WildBill]

Unfettered gaming...now that would be boring

Sorry to offend you and insult you, maybe you know a little what its like to be working in this industry. The daily garbage we read about how low-life we supposedly are, both for our companies and for living in Nevada. Most of the time its just insults, but when a governor goes out and makes outlandish claims that just aren't true and then uses them to cripple workers and the operators well I have to stand up against that. Yes per square foot they make lots of money. If that was the idea then these casinos would open up a tugboat with about 30 machines and then watch the endless line of people waiting to get on one. But obviously that isn't the goal of any business. Oh well, whats the point of arguing, I will just go back to my scummy job where we deal crack on the side and count up all those rent money checks we won from our unsuspecting customers...

 

[ballsofblue]

if someone tried to take 70 percent of my money i'd find a way around it, and i have nowhere near 250 mil. i sure the cpa's are loving the extra hours finding loopholes and ways to avoid. f uck taxes

 

[TheGeneral+]

Megladon,

<BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR> You a buy/s/h here? <HR></BLOCKQUOTE>

<BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR> Btw, where's the general, he never even had the balls to say if he was long/short/hold.
<HR></BLOCKQUOTE>

Not sure what your asking.