The Slippage Formula

One reason that the RIPEC casino study and the Rhode Island Building Trades casino study (links via Dan Yorke) come to different conclusions about the financial impact of building a West Warwick casino is that the Building Trades study assumes there slippage payments will only be made for two years after the opening of a new casino, while the RIPEC study assumes payments to Lincoln Park and Newport Grand will be required until the slippage clause expires. The analytical difference is that the RIPEC study assumes that the amounts guaranteed to Lincoln and Newport move upward on a yearly basis, while the Building Trades study assumes the amounts guaranteed are static.
From reading the law, I think the Building Trades interpretation is correct. This is the infamous slippage clause as expressed in Chapter 322 of the 2005 Rhode Island Public Laws

(x) “Adjusted Base Year Net Terminal Income” means Lincoln Park’s or Newport Grand’s, as applicable, two (2) year average net terminal income during the twenty-four (24) calendar months ending on the last day of the calendar month preceding the opening of a new gaming facility increased by the change in the December Consumer Price Index All Urban Consumers (CPI-U) for the immediately preceding year published by the Bureau of Labor Statistics of the United States Government or its successor agency from the index for the December immediately preceding the opening of a new gaming facility, not to exceed three percent (3.0%) per year change in any year.
(y) “Slippage protection” shall mean: for any subsequent year (other than the first subsequent year occurring after the base year), whenever the net terminal income is less than the adjusted base year net terminal income, the blended rate shall be increased to that rate that would have eliminated the resulting adverse impact from that difference upon UTGR or NGJA. Provided, however, that for any subsequent year (including the first subsequent year) in which an amount equal to twice the first six (6) months’ net terminal income for such subsequent year shall not exceed ninety percent (90%) of the adjusted base year net terminal income for such subsequent year, the aforesaid increase to the blended rate shall occur beginning in the seventh month of such subsequent year.
I think this says that if a new casino were to open in RI, the adjusted base year income for slippage payments would be calculated only one time, and not be adjusted upward for inflation on a yearly basis. Ten years after a new casino opened, the slippage guarantees to Lincoln and Newport would be calculated relative to their take from ten years prior plus a one-time adjustment for inflation, with no assumption that revenues to Lincoln and Newport would have increased each year.

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