$1.3M loss for Sand Hills Casino

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This article was published 12/12/2015 (3815 days ago), so information in it may no longer be current.

There’s a saying in gambling that the house always wins. But, that’s not the case for Sand Hills Casino in the first nine months of its operation, according to its audited financial statements.

Despite taking in $8.9 million in gaming and other revenue, once expenses were deducted the casino lost $1.3 million.

While it’s too early to tell yet whether the casino will be viable in the long term, an expert describes the deficit as a red flag.

“This is a significant hit, and it doesn’t really bode well, in my opinion, for future operations,” said Yale Belanger, author of “Gambling with the Future” and “First Nations Gaming.”

“I think the casino has a number of barriers that are going to be very tough to overcome.”

Sand Hills Casino spokeswoman Barbara Czech, said the casino hasn’t been as busy as expected.

“The customer base has been slower to build than what we had hoped,” Czech said. “But, certainly we’re working really hard to bring more patrons to the casino, and in particular more people from Brandon.”

Profit from the casino was to be split among 63 Manitoba First Nations. That fact was celebrated when the casino — built on Swan Lake First Nation land on Highway 5 near Carberry — opened on June 23, 2014.

“This is a significant day for First Nations,” Assembly of Manitoba Chiefs Grand Chief Derek Nepinak said at the time. “After many years of working towards a casino in western Manitoba, we’re very proud to open a business that will benefit all First Nations in the province.”

But according to financial statements provided by the Liquor and Gaming Authority of Manitoba, First Nations haven’t made money yet.

AMC director of gaming developments Marcel Balfour said casino management is doing the best it can with the hand it was dealt, in terms of location.

Sand Hills was built near Carberry after Brandon residents voted against a casino in plebiscites.

“Obviously, from a financial perspective we wish things were different,” Balfour said. “We remain committed to Sand Hills so that we can eventually distribute funds to all Manitoba First Nations.”

Czech said the Manitoba bands won’t lose money, although they haven’t made money, either.

“All of the profits would have been shared amongst the First Nations owners,” Czech said. “There hasn’t been sufficient earnings yet to allow that to happen, but it certainly remains a long-term goal.”

The financial statements for the year ending March 31, 2015, cover the first nine months of the casino’s operation.

They show about $7.28 million in gaming revenue, and another $1.38 million through food and beverage sales.

The casino’s $8.47 million in expenses includes $5.94 million in operating costs. Once expenses were deducted, the casino registered $436,634 in earnings.

However, when $1.33 million in interest and $413,700 in depreciation and amortization were factored in, the net loss for 2015 was $1.3 million.

For 2015, its current assets were $2.29 million compared with a current liability of $7.08 million.

Despite the loss, the financial statements indicate that Hemisphere Gaming MB is still owed millions of dollars for its services, even though it won’t get paid without a profit.

Hemisphere manages and runs the casino on behalf of the Sand Hills partnership and it charges management and incentive fees of 22.5 per cent and 7.5 per cent, respectively, of earnings before interest and amortization.

It’s also paid an intellectual property licensing fee of two per cent of gross revenues.

In addition, Hemisphere loaned the Sand Hills partnership $7.5 million, for which it charges interest of 13.5 per cent.

As of March 31, according to the financial statements, the partnership owes Hemisphere fees and interest totalling $3.66 million, although, the documents state that figure doesn’t gain interest and there are no set terms of repayment.

Czech said that no payments have been made yet to Hemisphere and those funds are accruing.

The Royal Bank of Canada, the major lender, is being paid back on schedule.

Yale Belanger is an associate professor of political science at the University of Lethbridge and an expert in First Nations gaming.

He said it’s tough to tell at this point what’s hurting Sand Hills, as startup brings a large cost, plus there’s marketing and perfecting the operation.

Based on his research, barriers to its success may include its remote location. First Nation casinos near cities do better than those that aren’t, and Sand Hills has less people within 50 kilometres than most.

Traffic counts along a highway that runs past a casino are not a good indicator of success, Belanger said.

While she didn’t have a figure for the number of visitors who had been expected, Czech said a feasibility study had suggested there would be more from Brandon.

On the other hand, she said, there were more Winnipeg patrons than expected, although not enough to offset the lower than expected number of visitors.

As it stands, it’s estimated that, depending on the season, there are 10,000 to 20,000 visitors per month, with fewer in the colder months and more in the warmer ones.

Czech said the casino is confident in the entertainment it offers, and that those who come will usually return. The challenge is getting people to come in the first place.

“When we talk to customers, they really enjoy the experience, it’s getting people to come and give it a try,” Czech said, adding the casino is aware that the location off of the Trans-Canada Highway is an issue.

There was a rumour that the casino was having trouble paying staff, but Czech said that isn’t true.

And, she said, there have been no layoffs due to Sand Hills being in the red.

The number of employees has dropped to 100 (including 10 managers) from about 150 when the casino opened. But Czech said it’s normal to drop the number of staff during the slower winter, and that was done through attrition and not layoffs. She expects the number of staff to rise again once things warm up.

Belanger said that all the First Nations casinos that he’s studied in Canada struggled a bit after opening. But the only one he can think of that entered a deficit early on, in its second year, was the Aseneskak Casino in The Pas.

That casino later turned around and has made a modest profit every year since 2002, he said.

While the $1.3-million loss is troubling, Belanger said, he’s not ready to “write the requiem” for Sand Hills. He’s seen other casinos bounce back, and it may too.

“Let’s revisit this in 18 or 24 months and see what’s going on, then we can perhaps point to something more concrete,” Belanger said.

As for Hemisphere, Belanger pointed out that the manager will want to make back its money, plus as much money as possible, during the term of its agreement. So, it has an interest in the casino’s success.

A message left for Hemisphere on Wednesday asking for comment didn’t receive a response by Friday.

ihitchen@brandonsun.com

Twitter: @IanHitchen