Fester's Place

Of Coase, the winner pays

Just want to blog on something I saw earlier this week in the paper version of the Tribune Review

Pittsburgh should get at least $290 million from the casino applicant who wins the license for a slots parlor in the city, members of the Pittsburgh Gaming Task Force said Wednesday.
St. Louis-based Isle of Capri Casinos would pay that much for a new arena, so the other applicants should offer the same amount to the community, co-chair Anne Swager said in a meeting with the Pittsburgh Tribune-Review.

"The state has to make sure the value of the package is the same," Swager said. "We're not endorsing an arena as the giveback. We're endorsing the amount of money."

I am very impressed with this logic. The entire slots giveback competition has been an implicit auction for the rights towards a quasi-monopoly. Each of the three competitors is trying to offer a deal that will let them make at least market clearing rates of return, or better. It is in the public's interest that we get as much money as possible for this right that we are selling. The primary avenue of bidding has been the arena, and so far Isle of Capri has poneyed up the most money in public. If the other competitors want to have a legitimate straight face argument that their proposals are best for the city, county and region, they should throw the extra $160 million dollars on the table either as a straight arena pledge such as Isle of Capri has done, or preferentially as a cash offer to be split someway between the city, county and state.

Right now Isle of Capri's total bid for the slots license is roughly $350 million dollars, with $50 million in the required licensing fee, $290 million in arena payments and then a couple million in assorted other guaranteed givebacks. Harrah and PITG are in the game for $50 million licensing fees, and $120 million in NPV arena payments. Harrah has the largest public giveback component but it does not make up this deficit in NPV bids.

posted by fester @ 20:46