Kansas Star Casino, LLC (Kansas Star) considered the arena component of its property (including an open-air event pavilion, a covered arena, and 183 horse stalls) completely obsolete due to superadequacy. The arena component is not profitable, and Kansas Star concluded that the arena was fundamentally incompatible with its gaming operations. It markets half-house and smaller shows at the arena because of the losses sustained from full-house shows. It stated that gaming revenue decreases during large events held at the arena because high-end players avoid the crowds. The equestrian events lost more money than the entertainment events.
Kansas Star argued that its arena was at a competitive disadvantage due to its location in a saturated arena market. Its general manager described the very competitive nature of the market and testified that the arena operated at a loss of $575,000 in 2014 (but still less than projected at the time of the original project bid).
The county appraiser performed a full appraisal, valuing the property at $167 million. Kansas Star objected and retained a Kansas certified general appraiser who arrived at a value of approximately $76 million. The county's appraiser considered all three approaches to value--the sales comparison approach, the cost approach, and the income approach--but he concluded the cost approach was the most appropriate. The cost approach has three components: (1) land value, (2) reproduction/replacement costs, and (3) depreciation.
The county's appraiser considered depreciation and applied a $1.11 million allowance for physical depreciation based on the Marshall Valuation Service (MVS) curvilinear depreciation tables (he believed the straight-line depreciation would inaccurately reflect changes in value over time). He found the functional/economic obsolescence amounted to $3.8 million.
In analyzing functional obsolescence, the county's appraiser explained that functional obsolescence has two parts. First, he recognized a reduction in value of $3.8 million, derived from items torn out during the arena renovation, architectural fees that were written off, and some demolition. Second, the county's appraiser determined the arena was not superadequate because (1) a highly experienced professional gaming company designed and built it, (2) casinos often included arenas, (3) the arena would drive visitation to the property, and (4) building the arena was a legal requirement of the Kansas Star's management...