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On its face, most New Orleanians would be hard pressed to care much about a plan by Harrah's Entertainment Inc. to sell its two Lake Charles riverboat casino licenses to a competitor.
But Orleans Levee Board President Mike McCrossen says an examination of the fine print written into the proposed $70 million transaction makes it easy to see why it's a bad deal for the city.
Local interest in the deal, McCrossen said, lies in an unusual provision inserted by Harrah's that would impose a stiff financial penalty on the prospective buyer, Pinnacle Entertainment, if either gambling license is transferred to New Orleans or the Shreveport-Bossier City area, places where Harrah's already operates casinos
Under Harrah's proposal, if the company's licenses are sold and then used to open a riverboat casino over the next five years in either location, Pinnacle would have to pay an additional "adjustment" of $50 million per license. The proposed restriction does not include the West Bank of Jefferson Parish, where Pinnacle's Boomtown Casino is located.
The pending sale, which is scheduled for consideration at today's meeting of the Gaming Control Board, was the subject of a letter McCrossen sent last week to the state regulatory agency and Gov. Kathleen Blanco, who appoints the board's members.
"The practical effect of this (penalty) provision is to preclude riverboat gaming in Shreveport and New Orleans for five years," wrote McCrossen, who asked the board to "strip" the restriction from the agreement. "Given the limited number of riverboat gaming licenses, such a provision places a very real disadvantage to prospective gaming venues in New Orleans and Shreveport."
The Belle of Orleans operated at the Levee Board's South Shore Harbor marina until Hurricane Katrina laid waste to the facility and trashed the floating casino.
After moving the boat to Alabama for repairs, the casino's new owner, Kentucky hotel operator Columbia Sussex Corp., ceased lease payments to the Levee Board, which has taken the company to court. While the case remains unresolved, the Gaming Control Board has since given Columbia Sussex the OK to move the boat to St. Mary Parish, where voters have approved a proposition to accept the riverboat.
Meanwhile, the Levee Board recently launched formal talks with an out-of-town developer looking to build a hotel and gambling complex at the dormant South Shore Harbor.
In his letter to Gaming Control Board Chairman Charles Gaudin, McCrossen wrote that resumption of casino gambling on the site "is critical to the restoration and reopening" of the marina as well as providing money for flood protection.
Noting that tax dollars were used to pay for millions of dollars in infrastructure improvements there, McCrossen said Harrah's proposal to restrict new gambling enterprises in the city would effectively deprive New Orleanians of the opportunity to realize a return on their investment.
Under the agreement that Columbia Sussex inherited from the previous owner, Caesars, the casino operator made set lease payments and shared its gross gambling revenue with the board, paying the agency about $4.6 million a year, or nearly 18 percent of its annual operating budget.
Harrah's, which operates the state's only land-based casino in downtown New Orleans and one gambling boat in Shreveport, has seen its revenue climb since Katrina.
For example, the Canal Street gambling hall took in $35.7 million in May, compared with $33 million a year ago, according to figures released by state regulators. While revenue dropped in the five-casino Shreveport market, the decline was negligible.
With billions of dollars in pending federal aid expected to lure hordes of construction workers to New Orleans over the next several years, Levee Board officials say a return of casino gambling to its lakefront property could be successful.
"While I am not an attorney, and can therefore only suspect that the type of restriction sought by Harrah's might be illegal," McCrossen said in his letter, "it certainly seems to be contrary to the principles of unrestrained marketplace opportunities and fair play."
McCrossen isn't alone in his objection to the Harrah's plan.
A lawsuit filed last week in New Orleans contends that the proposed sale of Harrah's Lake Charles to Pinnacle violates state and federal laws. The suit also accuses Harrah's of negligence, saying it did not do enough to keep the Lake Charles casino from being destroyed by Hurricane Rita last year.
The suit was filed in U.S. District Court by Jebaco, the company that developed the first riverboat casino in Lake Charles in 1993. Jebaco later sold its interest to Players International. Harrah's bought Players in 2000.
A Harrah's spokesman said Monday that the company had no comment on either the lawsuit or McCrossen's letter, which also was sent to state Attorney General Charles Foti and state Treasurer John Kennedy.
"It would be inappropriate to say anything in advance of the (Gaming Control Board) hearing," spokesman David Strow said. "It's up to the board to decide."
Under an agreement with Harrah's that carried over from the Players sale, Jebaco maintained a financial interest in the gambling enterprise by collecting $1.53 for every person who boarded the riverboats. The payments to Jebaco ended last September after Hurricane Rita wrecked the gambling complex, which never reopened.
Pinnacle officials have said they don't intend to pay the patron fee to Jebaco if the purchase agreement is approved because they are not going to operate any riverboat casinos at the present Lake Charles site along Interstate 10.
Under the proposal, Pinnacle would use one of the Harrah's licenses to add a boat to the riverboat casino resort the company already operates in Lake Charles . While no formal announcement has been made regarding the other Harrah's license, Pinnacle officials have said it could be used in Baton Rouge or at the Boomtown site.
In addition to the $70 million from the sale of the licenses, Harrah's would gain control of a Pinnacle casino site that was destroyed by Katrina in Biloxi, Miss.
Gambling Control Board members, who meet this morning in Baton Rouge, must vote on the purchase agreement, the transfer of the two gaming licenses and relocation of the boats' berth. |
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