State board considers casino applications

Topeka Capital-Journal, The, Sep 19, 2008

By Carl Manning

THE ASSOCIATED PRESS

The battered economy prompted members of the state board picking the companies that will manage state-owned casinos in Kansas to focus much of their time Thursday on how applicants expect to pay for their plans.

The Lottery Gaming Facility Review Board conducted its final round of questioning of three remaining Wyandotte County applicants and two vying for the Ford County casino. The panel plans to decide Friday who gets the two contracts.

"It's going to be a real hard decision and a complicated decision because we have good applicants and close competition in both zones," said Chairman Matt All.

If a majority of board members can't settle on a single applicant for a county, all contracts will be returned to the Kansas Lottery to renegotiate and then resubmit to the board. If they can, the single contract will go to the Kansas Racing and Gaming Commission for a background check and final approval.

But the slumping economy's toll on the gambling industry has been evident in Kansas in recent weeks.

On Tuesday, Pinnacle Entertainment Inc. pulled out of the Wyandotte County bidding, citing the "current turmoil in the financial markets." Another Wyandotte County bidder, Las Vegas Sands Corp., dropped out in July, citing increased borrowing costs as a factor.

Last week, Penn National Gaming Inc., walked away from its Cherokee County contract, saying it couldn't compete against an Oklahoma tribal casino at the state line. Harrah's Entertainment Inc. got the Sumner County contract.

Still in the running in Wyandotte County were Legends Sun, Golden Gaming Inc. and Kansas Entertainment, a partnership of Kansas Speedway and Cordish Co. Each would be near the Speedway -- and the substantial retail development that has grown up around the NASCAR track in recent years.

The board's consultants estimate gambling revenues for the Speedway's proposal at $222.7 million, with $48.9 million going to the state. Golden would have $194.8 million in revenues, with $42.8 million to the state, according to consultants' estimates. Estimates for Legends Sun's proposal are $167.7 million in revenue, yielding $36.8 million for the state.

In Ford County, it is between Dodge City Resort and Gaming and Butler National Service Corp. The consultants estimate revenues at $48.5 million for Dodge City Resort, with $10.6 million for the state, and $49.6 million for Butler National with $10.9 million for the state.

The winning applicants must invest at least $225 million, except in Ford County, where it is $50 million. They also must pay a $25 million privilege fee except Ford County where it's $5.5 million.

Under state law, the Lottery will own the actual gambling, while the winners of the 15-year contracts will build the casinos and manage day-to-day operations.

Consultant William Eadington, a University of Nevada, Reno economics professor, told board members this isn't a good time for the gambling industry because the economy makes borrowing money more difficult.

"Loans will be expensive, if you can get them," he said.

Eadington said lenders deem the gambling industry riskier than in the past 15 years. He also said projects in monopoly areas like Sumner and Ford counties will be viewed more favorably than in competitive markets.

He urged the board to examine the ability to get financing, the level of confidence in the casino management and the money generated by amenities such hotels and restaurants.

Board member Jim Bergfalk, of Mission Hills, said his concern is whether a project can be successfully completed and then expanded.

"Can they continue their financing as they go forward?" Bergfalk said. "What degree of confidence is there that it will be successful?"

The applicants each assured the board they had sufficient financing.

Board member Bob Boaldin, of Elkhart, asked Clark Stewart, president of Butler National, which plans an $88 million facility in Dodge City, "Do you have the money?"

"We believe we have adequate money," Stewart replied. "We intend to raise more equity money. We have money in cash to do it."

Steve Joseph, a Dodge City Resort investor, also said money won't be a problem for his group's proposed $70.3 million facility.

"We can do it today. We have the capital," Joseph said.

Board members questioned Wyandotte applicants about whether their proposal would cut into nearby businesses such as restaurants and bars. Each said that wouldn't happen.

"We are committed to doing this. We're willing to move forward and drive tourism for Kansas," said Speedway president Jeff Boerger, who wants to build a $680 million facility.

Blake Sartini, Golden Gaming's founder and CEO, touted his group's proposed location just south of Interstate 70 for its $662 million facility.

"Our project is the most suitable, particularly in today's financial market, of being the right size for the market," Sartini said.

Legends Sun is proposing a $767 million complex. It would be managed by Mohegan Sun, which would own two-thirds.

"We have a long history of doing what we promise," Mohegan Sun CEO Mitchell Etess said.