The Costly Retractable Roof and Paragon

Blunderdome: politics, positioning and a costly retractable roof

Sandy Garossino Anyone who wonders how government mega-projects manage to take the public to the cleaners time and time again can step right up for a front row seat at the dog and pony show put on by PavCo’s David Podmore and BC Lottery Corp’s CEO Michael Graydon over the Edgewater Casino expansion and the BC Place Stadium roof.

The good citizens of Vancouver might be forgiven for thinking that if this casino expansion goes ahead the provincial government and City of Vancouver will be awash in cash. We’ll pay for that $563 million roof in our sleep, and provide a lifetime stream of cash for the province and city. This deal, whatever its warts, will bring hundreds of millions to the province in new revenues, and $23 million to the city every year. The Deloitte report tells you so.

We’ll all be rich! Except we won’t, and PavCo and the BC Lottery Corporation are not telling you everything they know.

Over recent weeks Messrs. Podmore and Graydon made the rounds of radio talk shows , Board of Trade luncheons, editorial board meetings, and Vancouver City Council public hearings waving an October 2010 report from their Deloitte consultants which they said showed how profitable this venture would be. But there was just one catch, only spotted by those who read the fine print.

The Deloitte report didn’t project casino revenues at all. It took estimates of casino revenues supplied by Paragon Gaming, the casino developer, and projected economic impact to be expected from them. No one at Deloitte considered whether Paragon’s projections were reasonable--the report authors merely assumed them to be true for the purposes of making their own projections. When Podmore and BCLC waxed poetic about the river of cash that Deloitte says will flow into our coffers, they weren’t being straight with the public.

And they kept quiet as a mouse about one tiny detail. The Other Report

There’s another report. This is the one they don’t want you to see. It’s the real one, commissioned by BCLC in 2009. Conducted by hospitality and casino industry consultants, HLT Advisory Inc, this report arrived at its own independent assessment of the likely revenue outcomes of the casino expansion, and it makes mincemeat out of PavCo’s numbers.

This shouldn’t come as a surprise to anyone familiar with Paragon Gaming, the Las Vegas casino promoters who supplied Deloitte with its base data. Paragon has a history of making extravagant claims that don’t withstand scrutiny.

In their failed bid for a new casino license in Missouri, for instance, Paragon stated they would create revenue of $103.4 million. As internationally renowned Vancouver economist Richard Lipsey cautions, the key variable to look at is not the estimated gross figure, but the incremental, or new net revenue. This matters because a casino can take market share from other casinos, and also from the surrounding economy--a process colourfully referred to as ‘cannibalism’ in the usually grey argot of number-crunching.

For BC Lottery, any cannibalization by Edgewater of the Hastings Park and River Rock business has no impact on its bottom line, positive or negative. Since all cannibalized revenue is neutral, the only earnings that count are new dollars brought in from tourism or an expanded market. States and provinces typically order independent studies to determine a project’s genuine potential earning power.

Back in Missouri, the state was cognizant of cannibalization and commissioned an independent study to measure this new incremental number against Paragon’s projections.

They found that Paragon’s submission overstated new revenues by 476%.

When it came to reviewing Paragon Gaming’s proposal in Vancouver, the BC Lottery Corporation asked HLT Advisory Inc the same question that Missouri did. And their conclusions are close to right on the money with Missouri’s. Retired BC Supreme Court justice Ian Pitfield reviewed both the Deloitte/Paragon and HLT reports and compiled from them the net new revenue estimates of both.

According to the Deloitte/Paragon report, the annual net new revenue to BCLC will be $136 million. This number is notable for two reasons. In itself it’s a far cry from the $224 million that David Podmore and PavCo consistently cite as revenue to the province. But even worse,

it is 425% higher than the conclusions of the HLT report. According to the HLT data, the highest potential new annual revenue to BC Lottery Corporation from this massive casino expansion, after paying the City of Vancouver’s share, will be $32 million.

Thirty-two million dollars to the provincial treasury--against PavCo’s assurances of $224 million annually. This means new revenue to the City of only $3.5 million. About $6 per Vancouverite. A coffee and a sandwich, basically. That’s a startling variance.

That Roof

But wait, there’s more. This thing is not a stand-alone deal--there’s a retractable roof attached to it. The public will pay almost $600 million for the roof on BC Place, and according to David Podmore, the casino revenue was necessary to pay for it. But if HLT is correct, the casino revenue will barely cover the interest payments on the debt, assuming the cost of the roof stays constant at $563 million.

All decisions were made and construction started before City Council gave its approval to the casino. Making things worse, if PavCo had known the casino would not pass City Council, it’s doubtful a retractable roof would have been built at all.

Back in 2009 word came out of the provincial government that cabinet was losing enthusiasm for a retractable roof, and showing more interest in the much less expensive option of replacing the old air supported roof with a new one.

Enter Rick Turner, Paragon Gaming’s man for all seasons. Turner has quite the resume. He is a director and part owner of Paragon Gaming, a major BC Liberal Party donor, and the former chair of the BC Lottery Corporation. He purchased his interest in Paragon Gaming while he was Chair of the Lottery Corporation. He did resign his position with the Lottery Corporation prior to Paragon purchasing the then failed Edgewater Casino. When Turner got wind of cabinet’s waning enthusiasm for a retractable roof, he picked up the phone and called Kevin Krueger, the minister responsible. The bottom line of that conversation was that if PavCo didn’t put a retractable roof on the stadium, Paragon would walk.

It’s impossible to say whether this call made all the difference, but PavCo did opt for the more costly retractable roof. We don’t know the cost of opening and closing the roof--which cannot be done in the rain. It’s worth noting that the stadiums only sports team tenants, the BC Lions and Whitecaps, play a total of 14 home games during the summer season.

Inquiring Minds Want to Know

Questions must be asked, including the following: Why was construction on an expensive stadium roof option commenced before all necessary approvals for the casino were obtained from the City of Vancouver?

Why has the public, the media, and the City been kept in the dark about the existence of a report disclosing the frailty of the business case on which this entire enterprise relies?

Why was there no reference to the HLT findings in the Deloitte/Paragon report, which came out a year later? Why have David Podmore and Warren Buckley continued to cite the results of the Deloitte/Paragon report, when they know it is seriously compromised?

Why is the Vancouver Director of Planning citing figures from the Deloitte/Paragon report in his projections of revenues to the City, when BCLC does not support those numbers, even in its own presentation?

A handful of people make decisions that determine, to an extraordinary degree, massive outlays of public spending which not only places an onerous debt load on the public, but limits options for the future, and can change the course of the future for all of us.

Public attention focused on the casino expansion hearings have forced much of that decision making process into the open for all to see.

Public servants are not only responsible for what they say, but for what they do not say. What has PavCo and BC Lottery Corporation have not disclosed speaks volumes about just how government projects go wrong.