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V.I. CASINO CONTROL COMMISSION FY 2020 ANNUAL REPORT 12/10/2020 VICCC’S ANNUAL REPORT i | P a g e TABLE OF CONTENTS LETTER TO THE GOVERNOR .................................................................................................................................................................... 1 LETTER TO THE SENATE PRESIDENT .................................................................................................................................................... 2 THE VIRGIN ISLANDS CASINO CONTROL COMMISSION ................................................................................................................. 3 FISCAL YEAR 2020 REVENUES ................................................................................................................................................................ 3 BY REVENUE SOURCES ........................................................................................................................................................................ 3 CASH FLOW STATEMENT AS OF SEPTEMBER 30, 2020 ................................................................................. 4 CASINOS GROSS EARNINGS FOR A FIVE-YEAR PERIOD 2016 - 2020 ............................................ 4 DISASTER RELIEF FUNDING ............................................................................................................................................................... 5 BANK ACCOUNT BALANCES AS OF SEPTEMBER 30, 2020 .............................................................................. 6 FISCAL YEAR 2020 PROFIT AND LOSS STATEMENT ....................................................................................................................... 7 AN ASSESSMENT OF THE COMMISSION’S FY20 FINANCIAL STANDING ................................................................................... 8 FISCAL YEAR 2020 BALANCE SHEET ................................................................................................................................................... 9 ADMINISTRATIVE AND FINANCIAL MEASURE..................................................................................... 9 RECOMMENDATIONS ................................................................................................................................................................................ 10 VICCC’S ANNUAL REPORT 1 | P a g e LETTER TO THE GOVERNOR December 10, 2020 Honorable Albert E. Bryan, Jr. Governor of the Virgin Islands of the United States Office of the Governor Government House, Charlotte Amalie St. Thomas, VI 00802 Dear Governor Bryan, The attached comprises the Virgin Islands Casino Control Commission’s Annual Report as mandated by 32 V.I.C. § 424 which states that, “The Commission shall make to the Governor and the Legislature an annual report of all revenues, expenses and disbursements, and shall include therein such recommendations for changes in this chapter as the Commission deems necessary or desirable.” As such, the enclosed document reports on the financial position of the Commission for Fiscal Year 2020, and our records indicate that this is the Commission’s first issuance of an Annual Report. Submitted to the Governor, as well as the Legislature of the Virgin Islands of the United States for the period of October 1st, 2019 through September 30th, 2020 are the following reports: Balance Sheet, Income, Cash Flow Statement and Casinos Gross Earnings for a Five-Year Period; along with a comparative analysis of the previous fiscal year’s financial position versus that of the concluding year. A presentation of recommendations, as deemed necessary by the Commission, concludes our submission of the fiscal year 2020 Annual Report. The Commission Members and Staff remains readily available to assist the Executive and Legislative Branches in any attempts to update or implement changes to the existing laws that governs gambling and gaming in the Virgin Islands. Sincerely, Usie R. Richards, Commissioner Stacy A. Bourne, Commissioner VICCC Acting Chairman VICCC Secretary/Treasurer VICCC’S ANNUAL REPORT 2 | P a g e LETTER TO THE SENATE PRESIDENT December 10, 2020 Honorable Novelle E. Francis Senate President, 33rd Legislature of the U.S. Virgin Islands Capitol Building, Charlotte Amalie St. Thomas, VI 00804 Dear President Francis, The attached comprises the Virgin Islands Casino Control Commission’s Annual Report as mandated by 32 V.I.C. § 424 which states that, “The Commission shall make to the Governor and the Legislature an annual report of all revenues, expenses and disbursements, and shall include therein such recommendations for changes in this chapter as the Commission deems necessary or desirable.” As such, the enclosed document reports on the financial position of the Commission for Fiscal Year 2020, and our records indicate that this is the Commission’s first issuance of an Annual Report. Submitted to the Governor, as well as the Legislature of the Virgin Islands of the United States for the period of October 1st, 2019 through September 30th, 2020 are the following reports: Balance Sheet, Income, Cash Flow Statement and Casinos Gross Earnings for a Five-Year Period; along with a comparative analysis of the previous fiscal year’s financial position versus that of the concluding year. A presentation of recommendations, as deemed necessary by the Commission, concludes our submission of the fiscal year 2020 Annual Report. The Commission Members and Staff remains readily available to assist the Executive and Legislative Branches in any attempts to update or implement changes to the existing laws that governs gambling and gaming in the Virgin Islands. Sincerely, Usie R. Richards, Commissioner Stacy A. Bourne, Commissioner VICCC Acting Chairman VICCC Secretary/Treasurer 3 | P a g e THE VIRGIN ISLANDS CASINO CONTROL COMMISSION FISCAL YEAR 2020 REVENUES Established for the governance, operational, and regulatory functions of internet gaming, racinos pursuant to the Virgin Islands Horse Racing Industry, and Casino IV establishments within the enterprise zones of Christiansted and Frederiksted St. Croix; the Virgin Islands Casino Control Commission (VICCC) receives its authority pursuant to Title 32, Chapter 21 of the Virgin Islands Code. Funded through four sources: (1) The General Fund for employee salaries only, (2) A Special Casino Control Commission Checking Account, formerly the Casino Control Revolving Fund pursuant to 32 VIC §514, which was amended by Act 7643. This account is funded in the same manner as the former Revolving Fund, namely by casino and casino employee license fees, fines and other fees imposed by law or through regulation by the Commission, (3) The Casino Revenue Fund pursuant to 32 VIC §517 which is funded by the 12% and 8% tax on both casinos. In this regard, the Commission receives a mere 10% of these taxes, with 90% being allocated to other Departments and Agencies of Government, and (4) The Casino Revenue Fund pursuant to 32 VIC §901 (The Virgin Islands Horse Racing Industry Assistance Act of 2011 (Bill 29-0127; Act 7318). The collections of these fees support the day-to-day functions requiring administrative and operational oversight of the casinos. General Fund Though the VICCC was allotted $600,000 (per Act No. 8245) for fiscal year 2020 for the Agency’s funded positions, the actual payroll cost was $823,000. The amount remains in line with funds received in fiscal year 2018 and 2019. Special Casino Control Commission Account The VICCC received a total allotment of $184,010 from casino and casino employee fees, fines, and other fees imposed by law or through regulations set by the Commission. Casino Revenue Fund The VICCC received a total allotment of $411,392 which represents 10% of collections from taxes acquired from licensed gaming entities by the Government of the Virgin Islands. ▪ Includes an amount of $154,377 allocated for youth related programs and administered by the VICCC pursuant to Title 32, Chapter 21, Article XI, §518 (A-G). BY REVENUE SOURCES VICCC’S ANNUAL REPORT VICCC’S ANNUAL REPORT 4 | P a g e CASH FLOW STATEMENT AS OF SEPTEMBER 30 , 2020 Table 1 provides an illustration of the flow of revenues generated by the Commission for fiscal year 2020. Table 1 Virgin Islands Casino Control Commission Statement of Cash Flows October 2019 through September 2020 OPERATING ACTIVITIES October 2019 – September 2020 Net Income 190,512 Net Cash Provided by Operating Activities 190,512 Net Cash Increase for FY 2020 190,512 Cash at the Beginning of the Period 320,246 Cash at the End of the Period 510,758 ▪ The VICCC earned $411,392 in revenues generated from a percentage of sales from casino income. ▪ FY 20 recorded collections for work permit income was $184,010. ▪ FY 20 recorded expenditures totaled $404,890. ▪ FY 20 net income was $190,512. CASINOS GROSS EARNINGS FOR A FIVE-YEAR PERIOD 2016 - 2020 Total Annual Gross Earnings for VIGL (Caravelle Casino) *April – December 2016 $2,985,174.30 January – December 2017 $5,533,332.46 January – December 2018 $8,978,203.92 VICCC’S ANNUAL REPORT 5 | P a g e January – December 2019 $10,385,466.21 January – October 2020 $2,459,174.19 *VIGL, Caravelle Casino, commenced operations in April 2016. Total Annual Gross Earnings for DIVI Carina Bay Casino DIVI TRAXCO January – December 2015 $15,082,967.00 $3,595,687 January – December 2016 $12,005,152.00 **$1,251,999 *January – September 2017 $7,617,765.00 September – December 2018 $4,099,559.38 January – December 2019 $11,730,912.52 January – October 2020 $ 4,825,120.16 *On September 20, 2017 Hurricane Maria caused DIVI Carina Bay Casino to close due to the significant damages to the casino. DIVI reopened in September 2018. ** TRAXCO ended operations on May 6, 2016 “Gross revenue”, as defined by the Casino Act — The total of all sums, including checks received by a casino licensee pursuant to section 457 of this title, whether collected or not, actually received by a casino licensee from gaming operations, less only the total of all sums paid out as winnings to patrons and a deduction for uncollectible gaming receivables. The deduction for uncollectible gaming receivables shall not exceed the lesser of: (1) a reasonable provision for uncollectible patron checks received from gaming operations; or (2) four percent (4%) of the total of all sums including checks, whether collected or not, less than the amount paid out as winnings to patrons. Gross revenue shall not include any amount received by a casino from casino simulcasting. For the purpose of this definition, any check which is invalid and unenforceable pursuant to subsection (f) of section 457 of this title, shall be treated as cash received by the casino licensee from gaming operations. DISASTER RELIEF FUNDING The VICCC received approval of a Project Work Sheet in the amount of $123,326.72 in disaster relief funding for fiscal year 2020. Utilization of the funds remains dependent upon incurred expenses prior to applying for reimbursement. Approved funding is being directed to internal building damages, mold remediation, security cameras and damaged vehicles. VICCC’S ANNUAL REPORT 6 | P a g e BANK ACCOUNT BALANCES AS OF SEPTEMBER 30, 2020 A financial overview of the Commission, by bank account for the period of October 1, 2019 thru September 30, 2020 has been compiled in Table 2. Table 2 Accounts Beginning Balance October 1, 2019 Ending Balance September 30, 2020 Commission Operating Account (BP) $65,443 $49,693 Youth Programs Account (BP) $216,370 $366,247 Commission Revolving Account $26,963 $41,063 Commission/DGE Revolving Account $11,470 $53,755 With the exception of the Youth Programs savings account, beginning balance reflects statement balance on 9/30/2019. ▪ The four accounts listed in Table 2 contained an accrued beginning balance of $320,246. ▪ At the end of FY 20 the VICCC had a total ending balance of $510,758. Casino establishments reopened during the first quarter of FY20 following closure due to damages sustained during the 2017 hurricane season. Unfortunately, the VICCC has been unable to collect the 12% tax on gross revenues from DIVI Carina Bay Casino and Resort, as a result of a two-year reprieve offered to the establishment through Act No. 7952. Continued challenges from the ongoing pandemic have affected the operations of both Casinos. Exhibit I. Virgin Islands Casino Control Commission Income/Expense Trend Report Fiscal Year 2020 $ in 1,000’s VICCC’S ANNUAL REPORT 7 | P a g e FISCAL YEAR 2020 PROFIT AND LOSS STATEMENT Table 3 contains a copy of VICCC’s Profit and Loss Statement for fiscal year 2020. Compiled based on bank statements obtained from bank accounts for the Commission at Banco Popular De Puerto Rico and First Bank. Table 3 Virgin Islands Casino Control Commission Profit and Loss Statement October 2019 through September 2020 Oct '19 - Sep 20 Ordinary Income/Expense Income Sales 411,392 Work Permit Income 184,010 Total Income 595,402 Gross Profit 595,402 Expense Advertising and Promotion 12,796 Automobile Expense 4,458 Bank Service Charges 622 Cable Expense 800 Computer and Internet Expenses 34,039 Insurance Expense 22,503 Janitorial Services 240 Meals and Entertainment 439 Merchant Fees 5,413 Miscellaneous Expense 67 Office Supplies 4,307 Professional Fees 149,217 Rent Expense 89,369 Repairs and Maintenance 34,354 Telephone Expense 7,924 Training Expense 3,250 Travel Expense 9,039 Utilities Electricity Expense 19,909 Security Expense 540 Water Expense 1,034 Utilities - Other 4,569 Total Utilities 26,051 Total Expense 404,890 Net Ordinary Income 190,512 Net Income 190,512 VICCC’S ANNUAL REPORT 8 | P a g e AN ASSESSMENT OF THE COMMISSION’S FY20 FINANCIAL STANDING Table 4 comprises a comparative analysis of VICCC’s Profit and Loss Statement for the periods beginning October 1st through September 30th of fiscal years 2019 and 2020. As illustrated in the report, the Commission’s expenses consumed what little income the agency received. Table 4 Oct '19 - Sep 20 Oct '18 - Sep 19 $ Change % Change Ordinary Income/Expense Income Sales 411,392 527,763 -116,371 -22% Work Permit Income 184,010 26,100 157,910 605% Total Income 595,402 555,863 39,539 7% Gross Profit 595,402 555,863 39,539 7% Expense Advertising and Promotion 12,796 8,167 4,629 57% Automobile Expense 4,458 5,280 -822 -16% Bank Service Charges 622 197 425 216% Cable Expense 800 2087 -1,287 -62% Computer and Internet Expenses 34,039 10,711 23,328 218% Insurance Expense 22,503 2,159 20,344 942% Janitorial Services 240 2235 -1,995 -89% Meals and Entertainment 439 0 439 100% Merchant Fees 5,413 1,917 3,496 182% Miscellaneous Expense 67 0 67 100% Office Supplies 4,307 8,544 -4,237 -50% Professional Fees 149,217 63,493 85,724 135% Rent Expense 89,369 173,172 -83,803 -48% Repairs and Maintenance 34,354 27,826 6,528 23% Telephone Expense 7,924 15,195 -7,271 -48% Training Expense 3,250 0 3,250 100% Travel Expense 9,039 12,546 -3,507 -28% Utilities Electricity Expense 19,909 28,265 -8,356 -30% Security Expense 540 2120 -1,580 -75% Water Expense 1,034 5,332 -4,298 -81% Utilities - Other 4,569 6,458 -1,889 -29% Total Utilities 26,051 42,175 -16,124 -38% Total Expense 404,890 375,703 29,187 8% Net Ordinary Income 190,512 178,161 12,351 7% Net Income 190,512 178,161 12,351 7% VICCC’S ANNUAL REPORT 9 | P a g e FISCAL YEAR 2020 BALANCE SHEET Table 5 contains a copy of VICCC’s Balance Statement as of September 30, 2020. Compiled based on bank statements obtained from bank accounts for the Commission at Banco Popular De Puerto Rico and First Bank. Table 5 Virgin Islands Casino Control Commission Balance Sheet As of September 30, 2020 30-Sep-20 ASSETS Current Assets Checking/Savings Banco Popular 49,693 First Bank - 7752 41,063 First Bank - 7763 53,755 Youth Programs Account 366,247 510,758 Total Checking/Savings Accounts Receivable Accounts Receivable -50,922 -50,922 Total Accounts Receivable Total Current Assets 459,836 459,836 TOTAL ASSETS LIABILITIES & EQUITY Equity Opening Balance Equity 15,947 Retained Earnings 253,376 Net Income 190,512 Total Equity 459,836 TOTAL LIABILITIES & EQUITY 459,836 VICCC’S ANNUAL REPORT 10 | P a g e ADMINISTRATIVE AND FINANCIAL MEASURES The Commission has established and/or about to implement the following measures to enhance the administrative and financial management of the institution: ▪ A Risk Management Plan in support of the Commission’s continued efforts to fulfill administrative functions in accordance with established laws and best practices. ▪ Establish remote payments via Electronic Fund Transfer (EFT) from our Banco Popular account. ▪ Establish an online payment portal on the Commission’s website for the collection of license fees thru the Banco Popular account to expedite the collection of revenues. ▪ Determine the availability of establishing a link with the central government financial management system that would allow for improved financial accountability, disbursement of funds and oversight control. ▪ Posting of the Commission’s finances on our website to achieve the ongoing goal of financial transparency. RECOMMENDATIONS The following recommendation is being presented in support of promoting an orderly, efficient, and effectively managed entity, consistent with the financial objectives of the Virgin Islands Casino Control Commission. The Virgin Islands Casino Control Commission recommends the establishment of a one-year deadline for the Master Franchises, USVI Host, Inc. (Formerly US Virgin Islands Technologies Initiative, LLP) and St. Croix Internet Group, LLC, granted pursuant to Section 4, of Act No. 6419, to submit an application for licensure. Similarly, a determination should be made by the Legislature on whether the intent of Act No. 6419 permits the change of the Master Franchises principals or ownership without the approval of the Legislature and/or the Virgin Islands Casino Control Commission.