The Providence-based gaming company Bally’s issued a warning in the financial documents it filed with financial regulators at the end of its second quarter on Aug. 14.
The company filed a "going concern warning" in its SEC filings, stating that it doesn't have sufficient cash on hand to satisfy its lenders. The warning can sometimes signal an imminent bankruptcy filing.
That set off alarm bells in Rhode Island, where the company has its headquarters, and where Bally’s operates the two state-run casinos in Lincoln and Tiverton.
But Liam Rice, lecturer in economics at Bryant University who studies gambling and the New England economy, says the company’s warnings may not be a warning to the Rhode Island economy.
Ocean State Media’s Luis Hernandez spoke with Rice about what Bally’s apparent financial troubles mean for Rhode Island.
Interview Highlights
On the fear of Bally’s declaring bankruptcy
Liam Rice: Their accountants have to certify every quarter that they can cover their bills for the next 12 months. Bally's can't do that right now, but that's primarily because of a loan agreement that they have that they might fail that test in the future.
So (the recent declaration) is not a bankruptcy filing. It has nothing to say about the strength of their gambling streams here in Rhode Island. It sounds a lot worse than it actually is, but it is still a concern.
I don't think there's much of a risk to the Rhode Island economy directly, especially in the short term. The casinos themselves and the sports gambling in Rhode Island have been incredibly strong. They're still the third-largest revenue stream for the state, and that's been pretty consistent over the last several years. If Bally's were to have really substantial degradation in their operations and they did have to file for bankruptcy over the next couple of years, I think you would see that other folks would come in very, very quickly to fill that space. So I don't think it is an immediate term risk to the Rhode Island economy.
On how the state receives gambling revenue before money flows to Bally’s
Rice: The state takes its cut of that casino revenue before it reaches the actual Bally's stakeholders, and that's why I'm not as concerned about Bally's “going financial concerns” for the state revenue specifically.
If Bally's does have to do some sort of restructuring of their finances or raise capital in different ways, that would eat away at their bottom line at their earnings for their shareholders, that would not directly affect the actual revenue share from the gambling operations for the state. So that is one real benefit of the way that contract with Bally's has been negotiated is the state is kind of protected from that stuff. If it did affect the actual operations of the casino, if for some reason the restructuring caused them to downsize what they were doing, then you would see that feed through really directly into the state revenue.
On Rhode Island’s dependence on gambling revenue
Rice: Gambling has some real trade-offs when it's a cornerstone of your state's economy.
Every dollar that is spent on something is not spent somewhere else, and those ripple effects have different sizes when you're talking about gambling. So if you are going to spend money going to the movies or going out to dinner, you're doing that locally and that money really does stay here and then gets reinvested in a lot of other places as those companies, those places, are actually spending the money that you've paid them. That is still true for gambling when you are going to the casino and paying money there, or if you're doing it online and paying money there; that does still feed into the local economy, but at a much smaller rate.
There's a lot of great research on how gambling really negatively affects the amount that we have to spend in states in general on actual domestic violence intervention, just general gambling intervention (too). Bankruptcies tend to go up when states legalize sports gambling online. So there's a real worry with those negative externalities.
