The hustle and bustle of New York can be taxing – literally. The Empire State carries with it the highest gaming tax rate in the nation – the 68 percent tax on revenue has spurred complaints and calls for reform, leaving some New York state investors looking for alternate options.
According to Andrew Smith, director of research for the American Gaming Association, New York state racetrack casinos brought in $294.99 million in revenue for 2005. Of that, nearly $209.45 million went to the state.
That’s one of a few reasons Nevada Gold and Casinos Inc. (AMEX: UWN) is selling its 22.8 percent stake in American Racing and Entertainment (American Racing) in N.Y. The company will receive a total of $4.3 million from Southern Tier Acquisition II, LLC and Oneida Entertainment, LLC.
There may be talk of tax reform in N.Y., but Nevada Gold Chief Executive Officer Robert Sturges told MN1 he doesn’t think a tax reduction would be enough to re-ignite interest in future investments there.
“I would never say never – but I would be extremely skeptical about investing in New York state,” he said. “I wouldn’t anticipate that the tax rate would be reduced so greatly that it would be something we’d want to get back to right away.”
Talk to get rid of American Racing interests was also prompted when the company’s stake in American Racing began to quickly lose ground – and money.
Sturges said the company began deliberations to pull out of the investment after watching its original 40 percent interest in American Racing dwindle to 22.8 percent in a matter of months.
The dilution was spurred by secondary offerings by the Nevada Gold board of directors. While some of the other partners involved with American Racing took up the offering, Nevada Gold declined, diluting its interest.
The next move was to pull out. Sturges said if the interest would have dipped below 20 percent it would trigger a buyout right for partners to buy the company’s interest for 85 percent of its market value – terminating its management contract.
“We’re facing a situation where we would possibly be getting very little value for our interest,” he said “We felt now was the time to sell, before we reach that point in the road.”
Sturges noted that word of the agreement has been met with positive shareholder feedback, and the numbers speak for themselves. Nevada Gold shares have been on the rise since April 20, climbing from $2.13 last Friday to $3.23 this afternoon.
Selling its interest in American Racing also pertains to the company’s goal for progression. The company continues to explore other avenues to deploy its capitol which may present better returns for Nevada Gold and its shareholders. At the same time, it’s looking to get rid of assets that might pull at the company’s strength.
The company plans to monetize some of its non core assets that stray from the focus of the gaming business. Nevada Gold is in negotiations to sell the Pizza Huts in Brazil and has retained Sheldon Good & Co., a premier auctioneer and real estate company, to auction off 260 acres of its land in Blackhawk, Colo.
Sturges was quick to note the company is not liquidating, and remains optimistic about improvements over the previous six months and its future plans. The future of Nevada Gold lies within the concept of acting not only as investors or owners but as operators as well, and open communication with its investors.
“We have a strong executive team … we have a lot of talent to be utilized and we think we should be controlling our destiny more by operating the places we invest in,” said Sturges. “We’re aggressively looking for an acquisition opportunity.”
Sturges was appointed CEO in October of 2006, and since has been cleaning house. In the past six months, Nevada Gold has reported over $1 million in reductions related to corporate overhead, payroll and other expenses.
“There’s a new corporate culture at Nevada Gold … we are going to be as transparent as we possibly can be as a company, accessible to our investors and we are going to under promise and over deliver,” Sturges said. “The investors are going to see, and have seen up to this point, a more conservative kind of approach to the kind of information that’s provided to investors. They should not interpret that conservativeness as being negativity, it’s simply conservative.”
The hustle and bustle can be avoided by staying clear of the Empire State, but it is clear that there is no avoiding heavy gaming taxation; unless the N.Y. State Gaming Commission changes its policy, companies like Nevada Gold (AMEX: UWN) will take their business elsewhere.