Documents show Gateway paid $79M for northern Ontario casinos

Documents filed this month with the U.S. Securities and Exchange Commission give people in northern Ontario a deeper look inside the company running three casinos in the region, with plans for two more.

Gateway Casinos filed for an initial public offering Nov. 20, wanting their shares to be traded on the New York Stock Exchange.

The documents they filed detail the company's business running casinos in western Canada, as well as its expansion plans in Ontario, including new casinos to be built in Sudbury and North Bay.

Gateway Casinos declined to provide any clarifying information or comment, saying it's forbidden by American law from doing so. 

Ontario Lottery and Gaming, which reached a 20-year agreement with Gateway to run the northern casinos last year, also declined to comment, but did confirm some of the details regarding its deal with the private company. 

You can read the whole report here. Here are some of the highlights:

1. How much Gateway paid for the northern Ontario casinos

The documents list a number that's never been made public before: $79,349,000. Ontario Lottery and Gaming signed an agreement with Gateway Casinos to run the northern Ontario bundle for 20 years in May 2017. The details were never made public. But these documents list the purchase price at $79 million, including about $55 million in "equipment and property." Those properties would include the buildings that housed the provincial casinos in Sault Ste. Marie and Thunder Bay, as well as the slot machines and other equipment from those two casinos, plus the leased space at Sudbury Downs.

2. Why taxpayers might have to pay if the casinos have a bad year

The documents also detail some of the other terms in the agreement between Gateway Casinos and Ontario Lottery and Gaming. That includes a pledge by OLG to cover annual losses at the northern Ontario casinos up to $24 million if the provincial agency fails to live up to its commitments in the agreement or if there are "claims and losses relating to any inaccuracy or misrepresentation" in the agreement. 

There is also mention of an annual revenue "threshold" that Gateway must reach or "pay to OLG the difference." That threshold is set for the first 10 years of the 20-year deal, but after that it will be calculated based on past revenues. Gateway is also required to make fixed payments every year to the province and if it makes more than its annual threshold, 30 per cent of that excess revenue goes to the OLG as well.

3. How much the casinos make from bank machines

The three northern Ontario casinos brought in $28 million in revenue in 2017 and after expenses were deducted, turned a profit of $3.9 million, which is much less than Gateway's other Ontario casinos. Gateway made $943,000 from the fees at automated teller machines at the casinos in Sudbury, Sault Ste. Marie and Thunder Bay, almost as much as the $969,000 the company made in 2017 from selling food and drink to visitors.

4. Why it was a bad summer for Gateway casinos

The documents Gateway Casinos filed with the U.S. Securities Exchange Commission mention how from June to August 2018, the company's new gaming management system went down eight times at "key properties in the North and Southwest Ontario regions." This caused the slot machines to not work properly and is estimated to have cost the company $5 million. 

5. What the northern casinos will include and what they'll be called

While the five casinos in northern Ontario will all be owned by Gateway, they will operate under different brands. The documents show that the company plans to rebrand the Sudbury operation as a Starlight Casino, the casino in Thunder Bay and the one planned for North Bay will be called Cascades, while the Sault Ste. Marie casino and the future site in Kenora will be known as Playtime casinos.

The new $55.5 million casino planned for Sudbury will have 21 table games and 600 slots (up from 427 currently) and feature four different restaurants and bars: the MATCH pub, Atlas steak and seafood, The Buffet and a casino bar. Some of those same brands will be featured at the North Bay casino, which will have 300 slot machines and 10 table games. 

6. Why Sault Ste. Marie could be waiting even longer for a 'permanent' casino

Sault Ste. Marie had one of the first casinos in Ontario when it opened in 1999. It was meant as a temporary facility and some of it is actually a tent. There were hopes in the Sault that the new private opener would come with plans for a new casino, but that doesn't appear to be the case. "There is very little investment planned for this location in the immediate future," Gateway's stock documents read, noting that new gaming software and some "minor renovations" are planned for the Sault.

7. What Gateway Casinos sees as risks to its business

Since this is a document for stockholders or potential stockholders, Gateway Casinos does stress that it sees "significant opportunities to increase revenue" at the Ontario properties, but it does list potential risks. This includes potential for labour strife (the unions at each location and the date their contract expires is provided) and the "reputational challenge of operating in the gaming industry.

It also makes specific mention of the controversy in Sudbury over the Kingsway Entertainment District and the appeals of city council's approval to the Local Planning Appeal Tribunal, noting that the planned expansion "may not be completed on a timely basis, on anticipated terms or at all" using similar language to describe the plans for a new casino in North Bay.