Published: Friday, December 17, 1993
Byline: By BRUCE EGGLER Staff writer
The owners of the city's only land casino can expect an 18 percent pretax profit on annual gross revenue of about $677 million, or $121 million a year, a state Senate committee was told Thursday.
John Mayewski, chief financial officer for Harrah's Casino New Orleans, forecast that in 1996, expected to be the first full year the permanent casino at the Rivergate site is in operation, it will have gambling revenue of $618 million and non-gambling revenue of $59 million.
He said operating expenses will total about $353 million and payments to the city and state will come to $147 million, leaving operating income of $177 million, or 26 percent of the casino's revenue.
Of the $177 million, $56 million will be needed to help pay off the $600 million in debt the casino developers plan to incur.
That will leave $121 million in profit to be distributed among the three owners of Harrah's Jazz Co.: Harrah's Casino Hotels, developer Christopher Hemmeter's Grand Palais Casino Inc. and a 10-member group of local investors led by Wendell Gauthier.
As a partnership, Harrah's Jazz Co. will not owe income taxes. Each of the partners will have to pay taxes on its share of the profits.
Mayewski said the temporary casino expected to operate about one year at the Municipal Auditorium will generate annual revenue of about $385 million. After paying $218 million in operating expenses and $110 million to the state and city, it will produce operating income of $57 million, or 15 percent of revenue, he said.
Mayewski also presented figures for how much the city and state should get from the casino during its first 30 years. Thanks to an up-front gift of $125 million and annual tax revenue starting at $120 million, he said, the state should realize $5.1 billion during the 30 years.
He said the city stands to get $1.5 billion during the same 30 years, based on almost $43 million in advance payments and annual lease payments starting at an estimated $29 million. The city's lease payments include a sliding percentage of the casino's revenue, with an annual minimum starting at $12.5 million, plus payments equivalent to a 4.99 percent ownership of Harrah's Jazz Co.
The $43 million in advance payments includes $15 million that Hemmeter paid the city in April before he joined forces with Harrah's and the Gauthier group.
Mayewski said the long-range income projections for the city and state include a small inflation factor and assume that business at the casino will level off after about three years.
The projections do not include the additional revenue the casino could realize if Harrah's officials add 50,000 square feet of gambling space on the second floor to the planned 200,000-square-feet main floor. They plan to leave the 50,000 square feet undeveloped until they see how successful the casino is.
Mayewski also provided this breakdown of the project's $675 million budget:
"Hard" construction costs: $140 million to build the permanent casino, $33 million to convert the Municipal Auditorium for gambling and $31 million to build parking garages.
"Soft" costs: $54.9 million for gambling equipment and supplies, $17.7 million for computers and other electronic systems, $21.1 million for pre-opening costs such as salaries and marketing, and $10.8 million for the casino's initial bankroll.
Other expenses: $125 million for the advance payment to the state, $42.7 million for advance payments to the city, $49.7 million to buy land for the garages and other purposes, $55 million in interest, $7 million for title insurance, $23.3 million for a contingency fund, $2.8 million for legal and accounting expenses, $17 million to cover the costs of raising the $600 million in debt and $44 million in miscellaneous costs.
The temporary casino is expected to open in April or May 1994, with the permanent casino following about a year later.
The temporary casino will have about 2,500 employees, earning $54 million a year in wages and salaries and $16 million a year in benefits, officials said. The permanent casino will have about 5,000 employees earning $106 million a year plus $31 million in benefits.
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