Atlantic casinos, gaming, hammered by ongoing restrictions

Posted on January 07, 2021 | Ashley Fitzpatrick | 0 Comments

Gaming – specifically use of entertainment centres, casinos and separate video lottery terminals – slowed to a crawl as a result of required COVID-19 restrictions. Both private companies and provincial governments are scrambling to manage the losses.

In a particularly difficult case, staff at the Grey Rock Entertainment Centre in New Brunswick were notified this week of more changes – to hours and take-home pay – for the 75 people still employed there.

The way casino owner John Bernard described the latest changes sounded like a Hail Mary pass with a clock winding down, with Bernard doing anything he can to get the business through the COVID-19 pandemic.

“Internally, we announced to all of our staff that we’re clawing back and we’re only going to have the office people work four days a week,” he told Atlantic Business Magazine Wednesday. He said the response from staff has been generally supportive, given people want to avoid more layoffs, or a closure.

Shortly before Christmas, as reported by CBC New Brunswick reporter Alexandre Silberman, Bernard was already at the point of considering shutting the doors, based on the overwhelming financial hit of COVID-19 and its related restrictions.

“I don’t know what to do other than (…) we’re going to wait a week or two out, to see what the numbers are like,” he said this week, as restrictions in New Brunswick had to be tightened again.

“If they’re anything like they were before Christmas when we were in the orange phase, I’m going to have no choice,” he said.

He supports measures to protect public health.

At the same time, he is open about struggling with the reality on the other end for his gaming business.

By the province’s colour coded COVID-19 response measures, at the orange level the casino slides back to a limit of 50 people at any given time. Bernard said if he was getting 50 people through the doors, it could work, but the colour change – while necessary – naturally makes locals even less inclined to visit as they consider entertainment options. And the business relied on cross-border traffic from Quebec and the United States pre-pandemic (Bernard suggests 65 per cent of all revenue was coming from outside of New Brunswick). Those customers feel further and further away, as the COVID-19 colour changes from yellow to orange, and will go to red if needed.

In yellow, Bernard said he was managing to do up to 25 per cent of pre-pandemic business, but in orange it’s closer to 15 per cent.

He said the changes announced to staff did follow appeals to outside parties including the province for relief, particularly in deferring some required monthly payments.

The Grey Rock Entertainment Centre sits on the lands of the Madawaska Maliseet First Nation. Under establishing agreements, 20 per cent of all revenue (accounted before profit) goes to the First Nation and 20 per cent to the province, in addition to taxes on profit. Bernard acknowledges, as the casino first opened, it took some time to gain traction and the company lagged on the revenue share payments to the province. The company agreed to a system of monthly payments of $44,000 to catch up.

In the pandemic, Bernard said the First Nation has offered accommodations on revenue sharing, as has the province, but the province has not waived the additional, catch-up payments, or allowed them to be deferred.

“I told them. As long as the borders are shut, we’re going to be crippled here,” he said, frustrated after a fresh appeal.

A spokesperson for New Brunswick Finance and Treasury Board confirmed the New Brunswick Lotteries and Gaming Corporation (the responsible Crown corporation) did not allow deferral of the arrears due. Other payments can be deferred by the casino to the end of the fiscal year, in March.

“While the revenue allocation formula in the Grey Rock Casino’s contract will not be amended at this time, the situation will be reassessed at the end of the fiscal year in the hope that agreement may be reached on a revised payment schedule that would enable the casino to stay open,” stated Finance communications director Jennifer Vienneau.

Bernard said regardless he’s doing all that he can right now to keep things going.

Adding to the challenge, the employees of the casino – over 100 people when fully staffed – fill highly regulated positions in some cases. Specific certifications are required, certain numbers of staff, hours of work and training for safety and security purposes. Unlike in general hospitality, a reduction in staff numbers in gaming operations can be quite complicated, and throughout the operation there are limits to how low you can go.

No luck for casinos

Grey Rock is particularly strained, but it is not alone in the gaming sector in taking a financial hit.

Casino New Brunswick, Casino Nova Scotia (Halifax) and Casino Nova Scotia (Sydney) are all owned by Great Canadian Gaming. A spokesman for the company declined an interview, but the company’s challenges and its financial results for much of 2020 are outlined in public financial reports and news releases.

Great Canadian Gaming has 26 gaming, entertainment and hospitality centres across British Columbia, Ontario, New Brunswick and Nova Scotia, but as of Dec. 21, 2020, only the casinos in New Brunswick and Nova Scotia were open for business, and even they had starts and stops.

Casino New Brunswick followed the waves through 2020, opening Sept. 28, closing Oct. 9, re-opening Oct. 23. Guest capacity through the holidays was knocked down to about 25 per cent of the capacity pre-COVID-19, with limited table games. 

The Casino Nova Scotia location in Sydney was closed but re-opened Oct. 5 at about 20 per cent of pre-closure capacity, with no table games.

Casino Nova Scotia in Halifax, on the other hand, also re-opened Oct. 5, before shutting down per government direction on Nov. 26. It remains closed, leaving just the location in Sydney and the company’s casino in New Brunswick open as of last update.

For the third quarter of 2020 (ended Sept. 30), the latest financials available, Great Canadian Gaming reported a $49-million loss overall in earnings. Hospitality revenues were nil, versus nearly $30 million for the same quarter in 2019. Gaming revenue across all offerings and locations amounted to just $38.9 million on the quarter, versus $295.5 million for the same quarter the year prior.

The company made a move to increase liquidity early on as the pandemic hit, tapped federal assistance and obtained a variety of financial waivers, but still had long-term debt move up.

Looking at only operations in Atlantic Canada, revenue was down to just $100,000 for the quarter, from $25.7 million for the same quarter in 2019.

The company recorded $18.2 million on the year-to-date for Atlantic operations, versus $71.5 million for the same period the year before.

Video lottery terminals

Apart from the pain felt by the private corporation, the drop off in gaming revenue and employment ultimately affects government revenue share, income taxes and other sources of cash.

When it comes to government revenue from gaming in Atlantic Canada, revenue that can support government programs aiding business more broadly, it’s essential to look at the Atlantic Lottery Corporation (ALC).

The ALC employs over 650 people in the region. It also paid the federal and provincial governments $51.4 million in taxes and federal contributions in 2019-2020. The company returned another $395.4 million in profit to the Atlantic provinces in the last fiscal year, “although this fell short of our original target as the COVID-19 pandemic flattened revenues during the last two weeks of the fiscal year,” stated president and CEO Chris Keevill, in the annual report for 2019-20.

The target for ALC revenues last year was $419.4 million, with the corporation coming up $24 million short.

That was with just a touch of the COVID-19 effect, the ALC stated, in a year with record sales online.

Sudden losses from inactive video lottery terminals (VLTs) as COVID-19 restrictions arrived were at the root of the loss.

“Up to March, the video lottery network had achieved $1.6 million growth compared to 2018-19. The approximately $20-million impact of COVID-19 erased all year-over-year gains achieved prior to March 2020,” the ALC’s report stated.

(Source: Atlantic Lottery Corporation annual report 2019-20.)

Without a casino, Newfoundland and Labrador is at the top of the list of Atlantic provinces where there is financial interest in and reliance on VLTs. The machines are commonplace in halls, bars, restaurants and other small businesses, directly contributing to their bottom lines in addition to government.

During 2020, the VLTs were shut down entirely while bars and restaurants were closed during “Alert Level 5,” beginning March 18. Bars and restaurants were still closed as the province moved to “Alert Level 4.” At “Alert Level 3,” restaurants could re-open for in-person dining, but the VLTs were not permitted to re-start until “Alert Level 2,” beginning June 25.

While VLTs can be played now, they must be physically spaced. More commonly, in a standard row of machines, you can opt to have every other machine shut down, with chairs removed, to ensure proper physical distancing. Machines must be cleaned after each use. Posters must be visible around the machines directing customers to maintain proper distance, clean and sanitize.

It’s unclear to what extent customers have been deterred, staying away from VLTs even when they’re available, just to be safe.

Once COVID-19 restrictions are dropped, in the same way as there is uncertainty throughout the hospitality sector, it is unclear how quickly gaming and entertainment centre revenue might recover.

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