Casino News Today

Would-be Ohio casino kingpin Dan Gilbert was confronted yesterday over his 1981 arrest for running an illegal bookmaking operation as a college student.During a Cleveland debate over state Issue 3, which would permit four casinos in Ohio cities, including two to be owned by Gilbert, a man in the audience asked Gilbert whether his 1981 arrest should disqualify him from being in the casino business.

Gilbert minimized the arrest, noting that he was an 18-year-old freshman at Michigan State University at the time and that no money changed hands. He said police dropped the case.

Gilbert’s interrogator asked what sort of crimes should disqualify someone from operating a casino in Ohio. (Issue 3 doesn’t say.)

“What crimes?” Gilbert mused. “Probably murder, rape, extortion of funds, things like that. Good question, though.” 

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Backers of Issue 3, which would allow casinos in Cleveland, Columbus, Cincinnati and Toledo, are confident that Ohio voters are ready to embrace gambling.

Their odds improved a bit last month when the Ohio Supreme Court ruled that Gov. Ted Strickland can’t add slot machines right now to Ohio’s horse racing tracks.

That decision sucked away the financial incentive some track owners might have had to fight for all of the potential gambling dollars and oppose Issue 3, leaving Cleveland businessman Jeff Jacobs largely alone in bankrolling the opposition, known as TruthPAC.

This battle, of course, is between gamblers.

Jacobs owns MTR Gaming, which operates the Scioto Downs racetrack near Columbus, which would profit from slots, and Mountaineer Casino in West Virginia, which would face competition from Ohio casinos.

Issue 3 sponsors get their muscle from Penn National Gaming of Pennsylvania, which sank more than $35 million into defeating a 2008 ballot initiative to place a single casino in Southwest Ohio, which would have competed with its Argosy Casino in Indiana.

Even if he had more stones, Jacobs would have a tough time killing the Issue 3 Goliath because it has so much money. (Deep-pocketed Dan Gilbert, majority owner of the Cleveland Cavaliers, is Penn’s partner.)

One only needs to turn on the television, open the mailbox or answer the phone to understand that Issue 3 is doubling down with an aggressive campaign selling casinos as a jobs panacea. And the campaign is a full-employment act for consultants and lobbyists too numerous to mention in this short column.

Issue 3 doesn’t have to detail its spending in finance reports just yet and campaign spokesman Bob Tenenbaum said he won’t talk about “mechanics of the campaign.” But a report titled “2009 Ohio Casino Gaming” obtained by The Plain Dealer offers some insight into those mechanics.

The report, authored in part by Columbus consultant Rex Elsass, says winning a casino campaign would require $45 million to $50 million.

That’s more than Barack Obama and John McCain spent in Ohio during last year’s presidential campaign and more than the 2006 U.S. Senate race cost.

Elsass, who heads the Strategy Group for Media, wrote the report in January in the hopes of becoming the lead consultant on the campaign. The report, which was shown to gambling interests including Gilbert, also mentions that Elsass’ team includes My Ohio Entertainment, the group behind the 2008 single-casino proposal. (Controversial Minnesota casino builder Lyle Berman, chief executive of Lakes Entertainment, was a part of My Ohio Entertainment.)

Elsass lost out on the big score to run this year’s casino campaign. That honor went to former Ohio GOP Executive Director Thomas Whatman’s Strategic Public Partners lobbying firm, which represents Penn.

But this being the land of strange bedfellows, Elsass, also a former GOP executive director, is handling the lucrative media-buying portion of the Issue 3 campaign.

Elsass’ January report called for spending a whopping $27 million just on television and radio, so it’s likely the Issue 3 campaign has a similar goal. The plan also budgeted $250,000 for an economic study boasting of the job benefits of casinos. And the plan budgeted $5 million for direct mail and millions more for voter identification and outreach.

It’s paying off, so far. A recent Ohio newspaper poll shows that a majority of Ohio voters support Issue 3.

But the consultants know from history that the November ballot issue will mark the fifth time in two decades that Ohio voters have weighed in. And they know that proposals that have led in opinion polls have gone on to fail on Election Day. That’s why Issue 3 backers are keeping their chips stacked high, ready to go all in.

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LAS VEGAS — After a six-year building frenzy that transformed this city, casino companies are shifting strategies dramatically toward slower growth, paying down debt and cutting back on spending.

Many casino executives don’t expect to break ground on another major building project in Las Vegas for at least 10 years.

“The old model has been thrown out the window,” says MGM Mirage Chief Executive Jim Murren.

For most of this decade, casinos embarked on a debt-fueled expansion, plowing more than $30 billion into casino and hotel projects around Las Vegas. When the economy collapsed, it left casino companies with dwindling revenues and mountains of debt. Several entered bankruptcy-court proceedings.

Now, casino companies are eschewing capital-intensive projects to focus on increasing profit margins through branding, marketing and customer loyalty.

MGM Mirage, which is building the CityCenter complex in Las Vegas with Dubai World, said it may write down the value of the $8.5 billion development. Many casino companies are paying down debt and halting expansion.

MGM Mirage spent the past few years planning an $8.5 billion hotel and casino complex called City Center, slated to open later this year. But in the future, it will adopt a more conservative strategy of trying to lure more customers to its existing properties, “and it doesn’t take a $3 billion building to do it,” Mr. Murren says.

The new approach represents a challenge for an industry that has relied on glitzy casino and hotel openings as one of its primary draws. “It’s the theme-park dilemma,” says Robert LaFleur, an analyst for Susquehanna Financial Group. “You’ve got to build a new roller coaster. Everyone likes to go but you need a reason to keep them going back.”

In the past, Las Vegas was considered fairly recession-proof as gamblers returned to the city despite economic downturns. But the industry’s reliance on nongambling revenue from hotels and restaurants and other entertainment means it is more dependent on business and leisure tourism than in the past.

People kept coming back to Las Vegas earlier in the decade — and spending more and more money when they did. In July 2007, visitation to the city was up 13% compared with the same month in 2002, while gambling revenue was up 53% and room rates were up 74%.

The massive investments in construction projects also boosted casino stocks as investors bet that revenue and profits would rise. Las Vegas Sands Corp. shares hit $144.56 in the fall of 2007, more than double their closing price on the stock’s first day of trading at the end of 2004. MGM Mirage’s stock nearly tripled to $99.75 a share during that same period.

Many companies tried to pile into the Las Vegas market. In May 2007, El-Ad Group of Israel paid nearly $36 million an acre for 34.5 acres of land on the Las Vegas Strip, with plans to build a $5 billion complex.

That all collapsed when the economy went sour. By this spring, MGM Mirage stock had lost 98% of its value and Las Vegas Sands stock had fallen 99% from its peak. Both have recovered somewhat since then. MGM Mirage is trying to work off its more than $12 billion in debt, while Las Vegas Sands is trying to reduce its more than $10 billion in debt. The plans for El-Ad’s complex on the Strip never materialized.

Gambling revenue in Las Vegas this year was off 13% through July compared with the same period a year earlier, while visitation was down 6% and room rates were off 26%.

“The industry is seeking a new equilibrium,” says Gary Loveman, the chief executive of closely held Harrah’s Entertainment Inc. “The last period was one where people were drunk on the use of capital and used it to solve every problem. Clearly that can’t continue.”

In the place of new buildings, the casinos and the Las Vegas Convention and Visitors Authority say they are working to create more special events. Examples include the Nascar awards to be held in December in Las Vegas after decades in New York, and a small-theater Beyoncé concert specially designed for the Wynn Las Vegas earlier this year.

MGM Mirage this year announced plans to franchise some of its landmark casino brands, such as the Bellagio, MGM Grand and Skyloft hotels, through a new hotel-management division. The strategy is intended to minimize MGM Mirage’s risk and investment by relying mostly on hotel owners to find the capital for new projects.

The investments the industry is still making are happening far from the Strip. Many casino companies are considering modest investments in some of the states that are looking to expand gambling to try to increase revenue. Harrah’s, for example, recently announced an agreement to purchase a bankrupt race track in Ohio for $89.5 million after the governor and the legislature authorized slots there. That could be challenged by a popular vote next year.

Some Las Vegas-based casino companies now see Asia as their primary vehicle for growth. Last week, Wynn Resorts Ltd. priced shares in the initial public offering of its Macau operations at $1.30 each, valuing the total number of shares in the unit at $1.63 billion. Wynn operates Wynn Macau, a 600-room replica of its Wynn Las Vegas casino. It plans to open the $650 million Encore addition in the spring.

Las Vegas Sands has a $12 billion plan to recreate the Strip on an island off Macau, but the project has stalled while the company addresses its hefty debt.

Sheldon Adelson, chief executive of Las Vegas Sands, says he doesn’t plan on investing further in Las Vegas for the moment. “I’m already fulfilled in Las Vegas,” Mr. Adelson says. “I don’t see the need for any more.”

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ST. CHARLES, Mo. — Substantial fines were levied against two casino companies for allowing underage people inside Missouri casinos.The Missouri Gaming Commission on Wednesday fined Pinnacle Entertainment Inc. $60,000 and Ameristar Casino Inc. $25,000. A Pinnacle spokeswoman declined comment. An Ameristar spokesman called the fine “excessive.”But Gaming Commission director Gene McNary said the fines show the commission has no tolerance for casinos that fail to keep out those under 21.“That should get the message across that the law is clear,” McNary said. “They (casino companies) are going to have to make the effort to make sure underage gamblers don’t get on.”McNary said the problem has gotten worse since November when Missouri voters approved a ballot measure eliminating the state’s $500 loss limit. Commissioners directed an industry group, the Missouri Gaming Association, to spend the next month developing a plan to combat underage gambling.“We’re trying to move forward on this problem,” said Jim Mathewson, the former Democratic lawmaker who now chairs the five-member Gaming Commission.A report to the commission cited two incidents in May at Pinnacle’s Lumiere Place casino in St. Louis.On May 20, a 19-year-old man was caught on the gambling floor, but only after he played table games and an electronic gaming device. A security guard, table game supervisor and dealer all failed to verify his age, the report said. He was caught when a cashier checked his ID.That same day, a 20-year-old played blackjack and roulette, and was served alcohol before a cashier checked his identification, learned he was underage, and contacted security.Commission staff recommended a $25,000 fine for Pinnacle, but commissioners voted raise it to $60,000.At Ameristar’s Kansas City casino, a 19-year-old got onto the gambling floor on April 19 when a security guard checked his ID but failed to notice his age. The young man left, then was caught when he tried to re-enter. He did not gamble or drink.Staff recommended a $10,000 fine but the commission upped it to $25,000.Ameristar spokesman Troy Stremming noted that more than 4 million patrons visit the Kansas City casino each year. “Unfortunately, mistakes are going to occur,” he said.The security guard who failed to notice the patron’s age was fired. Stremming wondered why commissioners increased the fine recommended by staff.“It’s frustrating for us,” he said. “It seems excessive.”The passage of Proposition A meant that casino patrons no longer had to show a card allowing them to gamble, a move that previously added another roadblock for those under 21 trying to sneak onto a gambling floor. McNary noted it was the gambling interests who pushed hard for passage of the measure, and it is up to them to keep out underage gamblers.Commissioners directed the Gaming Association to look at procedures at all Missouri casinos, develop a “best practices” list, and bring the plan to the Oct. 27 meeting.Copyright 2009 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed  

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