August 21, 2008 09:43 pm
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By Roger McKinney
rmckinney@joplinglobe.com
TOPEKA, Kan. — The Kansas Lottery Gaming Facility Review Board is expected to decide today on contracts for state-owned casinos in Cherokee and Sumner counties.
Though Penn National Gaming has the only proposed contract in Cherokee County, it is competing with two other companies for the contract in Sumner County. The company is promoting a “southern strategy,” stating that if it doesn’t receive approval for its contract in Sumner County, it likely will not build the casino in Cherokee County.
“Penn National is committed to investing $615 million in the state of Kansas” in both casinos, Steve Snyder, a senior vice president for Penn National, told the board on Thursday.
Company officials have said having both casinos would create “synergies” and branding loyalty that would increase revenue for the state.
William Eadington, a consultant for the review board, said he doubted there would be any benefit to the state from such a strategy.
“I do not place much credence in the southern strategy,” Eadington said. He said having two operations in a region creates economies of scale. He said that helps on the cost side but doesn’t affect revenues.
“It’s probably overstated as presented by Penn,” he said.
In Cherokee County, Penn National already had scaled back its application from an initial project costing $295 million to an initial investment of $125 million. It would phase in the remaining $100 million investment required by the state over the next 12 years.
Penn National is faced with competition from Downstream Casino Resort, the $301 million project of the Quapaw Tribe of Oklahoma. The casino opened July 5 just off Interstate 44 where Oklahoma, Kansas and Missouri intersect.
Penn National is proposing to build its casino just north of there, in Cherokee County. It would have a casino with 900 electronic machines and 30 table games. It also would have a 225-seat buffet, a coffee and pastry shop, and an entertainment lounge and bar. It would employ about 510 workers in its first year of operation.
Eadington said Penn National’s location on the borders with Oklahoma and Missouri would draw visitors from those states.
“The irony is somebody built a casino across the street and took that option away,” he said.
Eadington said that if Penn National were to go forward in Cherokee County, it would benefit the state of Kansas, but he’s not sure if the company would benefit.
Board member Jim Bergfalk asked Eadington if Penn National could be successful in Cherokee County. Eadington said Penn National is challenged because it would be paying taxes of 27 percent, whereas the Quapaw Tribe pays about 6 percent of its revenues to the state.
“Under the best circumstances, perhaps Penn would split the market with Downstream,” Eadington said.
Dan Biles, an attorney for the Kansas Lottery, said that if the board awards the contract and the applicant decides not to go forward, the bidding procedure could be restarted. He said Penn National could be refunded its $25 million “privilege fee” if it withdraws before a background check is performed.
Snyder, the Penn National official, said that if the board gives approval for Penn’s contracts in both locations, they would be successful.
“I’m confident that if we don’t generate revenue for the project, I would be without a job,” he said.
Snyder said during a break in Thursday’s meeting that if Penn National doesn’t receive approval for both contracts, no final decision would be made today about going forward in Cherokee County.
Sumner County
In Sumner County, Penn National has proposed a $340 million casino and hotel at Wellington. It would employ about 1,100 workers.
Harrah’s Entertainment, in a joint venture with Sumner Gaming and Resorts, has proposed a $490 million casino and hotel at Mulvane with estimated employment of 1,187. That proposal faced the greatest number of questions from the review board because of the financial arrangement. The discussion revolved around $19 million in ancillary development to be paid by Sumner Gaming and Resorts.
“I need to understand, without reservation, that there is $19 million available for the equity,” said board member Jack Brier. He asked if Harrah’s was willing to write the check for $19 million if Sumner Gaming was unable to do so.
Charles Atwood, chairman of the board of directors for Harrah’s Entertainment, said he didn’t think Harrah’s would be asked to pay the $19 million, because Sumner Gaming would get the necessary financing.
Also discussed was the Prairie Band Potawatomi Nation’s lawsuit against Harrah’s over a no-competition agreement.
Also competing for the Sumner County project is Marvel Gaming. It is proposing a $368 million casino and hotel at Wellington. It would employ 1,765 workers.
“We’re going to kick some rear end with it,” said Roger Wagner, president and chief operating officer for Marvel Gaming.
He said the company would target high rollers.
“We’ll be going after the premium market and rewarding the best customers,” Wagner said. “Twenty percent of our customers generate 80 percent of our income.”
Eadington, the review board’s consultant, said a casino at Wellington or Mulvane would have a regional monopoly in the greater Wichita market.
“It is the most valuable of all licenses in the state of Kansas,” he said.
Will Cummings, another consultant for the state lottery, said Penn National had lower revenue projections than its competitors in the South Central zone, because it proposed fewer slot machines and table games. He said it probably would have higher revenues if it were the same size, because its proposed casino site is in a better location.
Fair and square
Matt All, chairman of the Kansas Lottery Gaming Facility Review Board, asked all applicants if they thought the procedure was fair.
“It has been if we win,” said Roger Wagner, president and chief operating officer for Marvel Gaming. All of the applicants said they had been treated fairly.
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