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Okay, on to this week's trend breakdown.

Today’s Snapshot:

The race for a casino gaming license in NY is heating up! More than 10 groups have submitted bids for one of three gaming licenses in downstate NY, and several prominent billionaires and casino developers are in the running. The cost for one of these licenses is $500M! Today, we are breaking down the deal to explore why major developers are willing to pay up for a piece of the action.

Billionaire investors seem to have a thing for casinos.

Even Warren Buffet, who does not gamble, and does not own a casino, recognizes the profit potential. He tells this story about teaching a lesson to his kids:

The list of billionaire casino owners (present and former) is extensive:

• Tilman Fertitta - Restauranteur and owner of Golden Nugget Casino

• Donald Trump - Former owner of Trump Hotel and Casinos

• Steve Wynn - Real estate developer and founder of Wynn Resorts

• Phil Ruffin - Convenience store mogul and owner of Treasure Island and Circus Circus

• Sheldon Adelson - Businessman and founder of Las Vegas Sands

• and many more!

When NY decided to open up three licenses in downstate NY, including NYC, the floodgates opened up for potential casino developers and operators.

Major casino groups and prominent billionaires have entered the race, including the following:

• Steve Cohen - Hedge fund billionaire and owner of the Mets

• Jay Z - Rapper, producer, and entrepreneur

• Stephen Ross - Real estate developer; Chairman of Related

• Larry Silverstein - Real estate developer and investor; CEO of Silverstein Properties

• Stefan Soloviev - Son of billionaire real estate developer Sheldon Solow; Chairman of The Soloviev Group

In total, more than 10 groups have entered the race for the coveted Class III gaming license for table games and poker.

Two casinos, Resorts World and Empire City, are already operating casinos in the city with a Class II license for slot machines, but no table games. Many expect these two casinos to receive Class III licenses, which means there may only be one remaining license up for grabs.

A study was conducted by Spectrum Gaming Group for the NY State Gaming Commission to examine the costs, benefits, and impacts of gaming in NY. Thanks to this study, we do have some insight as to what a new development could cost and the expected returns.

Let’s explore the financials behind one of these deals to find out what makes it so appealing.

NYC Casino Financial Breakdown

The license comes with a hefty price tag of a $1M application fee and $500M license. The license will run from 10 - 30 years, depending on the investment size from the bidder.

They estimated that construction of a new casino in Manhattan may cost between $1.6 and $2.2B.

The casino developer is required to spend $1B, however, we are assuming the total development cost at $2B. This cost will vary significantly between the bidders but is a good ballpark to begin examining potential returns.

The estimated revenue for a Manhattan casino, assuming Resorts World and Empire City are granted licenses, is about $1.8B.

For simplicity, we are assuming 30% equity and 70% debt, 8% interest for 15 years, 40% operating expenses, and we are excluding additional taxes.

Spectrum’s study, from 2021, used a 5% interest rate on debt. That rate has gone up since the study was done, so we’re adjusting to 8%

The Return on Equity is estimated at 20.74%. Not a bad return!

While the estimated returns are a factor in the appeal, there are other elements at play that smart investors love.

This is a market with a high barrier to entry and government regulation. This means there will be limited competition with a high upside. There is also a prestige and brand reputation factor to having a casino in the middle of NYC.

Great investors look for investments where they have an unfair advantage. Owning one of three gaming licenses in downstate NY limits the competition and grants the investors an unfair advantage.

The upside potential and the rights to a casino in one of the world’s greatest cities make this a bet worth taking!

That’s all for today.

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