Issue 280
January 23, 2006 - January 29, 2006
Volume 6
page 1
 

This Issue

Gaming News

Casino plan with Penguins is Isle of Capri's biggest bet

Measuring Gambling's Impact

Emperor Entertainment Group opens new casino in Macau

Online Gaming Stalwart InterCasino.com First to Offer Independent Arbitration Protection for Players

Thousands line up for casino jobs

Show Time Elton John, Celine Dion, and Jerry Seinfeld will be at The Colosseum at Caesars Palace.

Column New Blackjack Option Turns Tables on Dealers by John G. Brokopp

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Casino plan with Penguins is Isle of Capri's biggest bet

As Reported by Pittsburgh Post-Gazette

PITTSBURGH, Pennsylvania - The company that built its fortune on riverboat gambling is sailing into new waters.

Isle of Capri Casinos Inc. operates the most riverboat and dockside casinos in the world, but it has never undertaken a project as ambitious as the one it is proposing in Pittsburgh

The $250 million casino would be the 13-year-old gambling operator's largest, not only in number of slot machines -- 3,000 to start -- but also in projected revenue and earnings. But making the project even more aggressive is Isle of Capri's pledge to provide $290 million for a new arena for the Pittsburgh Penguins, its partner in bidding for the lone state license available for a casino within the city of Pittsburgh.

"It would be ambitious compared to other projects we've done," said Tim Hinkley, Isle of Capri's president and chief operating officer.

The company believes it is a gamble worth taking.

Mr. Hinkley estimated gross revenues at more than $400 million a year and said that, even after adding in construction costs and the 54 percent state tax on slots revenue, the Pittsburgh casino could still turn a profit.


History of rapid growth
Aggressive strategies are nothing new for a company that got its start in Biloxi, Miss., in 1992, after founder and chairman Bernie Goldstein yanked his money-losing casinos out of Iowa and floated them down the Mississippi River to the Gulf Coast.

An Iowa scrap metal dealer and river freight transporter, Mr. Goldstein has since parlayed that one Biloxi riverboat into a network of 15 casinos, most of them based in the Mississippi Valley. After starting with 400 employees and $50 million in revenue in its first year, his company has grown to 11,000 workers and $1.1 billion in gambling revenues.

It operates four casinos in Mississippi, three in Louisiana, three in Iowa with one under construction, two in Colorado, and two in Missouri. It also runs a casino in the Bahamas and the Pompano Park harness racing track in Florida.

Over the years, the Biloxi casinos -- there are 10 -- have generated $611 million for the state, $185 million for the city, and $73 million for city and county schools. Biloxi Mayor A.J. Holloway said Isle of Capri, which leases land from the city, probably generates more in gambling and property taxes than any other operator.

State Rep. Bobby Moak, chairman of the Mississippi House's gaming committee, said Isle of Capri was one of the first to get a casino up and running in Biloxi after Hurricane Katrina, and continued to pay its workers even after the hurricane shut down its operations for months.

"In Mississippi, Isle of Capri is pretty much to a standard that we can judge others by in the state," he said.

In at least one respect, Pittsburgh is no roll of the dice for Isle of Capri.

Since its inception, the company has singled out mid-sized markets in charting its growth, looking for areas with limited competition and high investment returns.

"They have a company direction to look at regional markets," said Paul Girvan, managing director of the Innovation Group, which helped in crafting Pennsylvania's slot machine law.

But with Isle of Capri's fast expansion has come high debt, a factor that has raised concerns on Wall Street and from the Illinois Attorney General Lisa Madigan, who said the increased leverage could raise long-term operating concerns.

Both Standard & Poor's and Moody's Investors Service put Isle of Capri on credit watch after Katrina, which destroyed the gambling operator's Biloxi casino and a casino barge under construction.

With the hurricane damage and one-time charge resulting from a $14 million lawsuit settlement, Isle of Capri reported a $4.2 million loss for the quarter ending in October.

In December, Standard & Poor's removed the credit watch, affirmed Isle of Capri's BB-rating but retained a negative outlook, citing the company's increasing debt in light of announced expansion plans.

Michael Scerbo, a director at Standard & Poor's, said he expects the company to reap the benefits of its investment strategy over the next few years as new properties or expansions begin to make money.

He described Isle of Capri as "a healthy company" and said the BB-rating is "right in the middle" for gambling operators. He added that Isle of Capri, with both riverboat and land-based holdings, is more diversified than many gambling companies.

For Pittsburgh, Isle of Capri said it already has received a commitment from the Toronto-based CIBC World Markets, an international investment banker, to underwrite the arena and casino.

"Their financing is very solid," Penguins President Ken Sawyer said. "They are a major player. We made sure of that."

He said the Penguins had discussions with about a dozen casino operators before deciding on Isle of Capri. The company became its operator of choice because it was one of the largest players in the industry, had great success at winning licenses, and offered to build the city a new arena with a commitment on the financing, Mr. Sawyer said.

"They were the best candidate for us. It was important for us for someone to step up in a big way and make a dramatic offer like the arena," he said.


Share of troubles
Over the years, Isle of Capri and its predecessors have had their share of run-ins with regulators, public officials, and others, but the history seems to be no different than that of any of the other operators in an industry that's so highly regulated that you "get fined for blowing your nose," as Mr. Sawyer put it.

"Every company is going to pay little regulator fines here or there. I'm not aware of any major issues with them. They operate in a lot of jurisdictions," said Joseph Weinert, vice president of Spectrum Gaming Group, an industry consultant.

In December, Isle of Capri paid $14.35 million in Jefferson County, Missouri, to settle a lawsuit after ditching plans to build a casino in Kimmswick. The company also ended up being fined $250,000 by the Missouri Gaming Commission for making four misrepresentations in its application for the casino.

Executive Vice President Allan Solomon said Isle of Capri decided to drop the project for several reasons, including opposition from Kimmswick residents. He said the misrepresentations cited by the gaming board involved the status of permits needed for the project and were unintentional.

The operator also paid a $377,500 fine in 1999 to settle claims brought by the U.S. Treasury Department against two of its Mississippi casinos. The government said casinos in Biloxi and Vicksburg failed to report 75 currency transactions larger than $10,000 in 1993 and 1994 as required by law. Mr. Solomon said the fines involved "unintentional violations" that hit other gambling operators as well.

In 1993, Casino Cruises Inc., a company run by Mr. Goldstein, was fined $255,000 by the Illinois Gaming Board after he was accused by the board of helping the Par-A-Dice Riverboat in East Peoria buy overpriced casino equipment from an unlicensed dealer owned by Mr. Goldstein's relatives.

Mr. Solomon said the issue involved "minimal type dollars." He said Mr. Goldstein was not personally involved in the matter but that he and his family agreed to pay the fine to get it behind them. Casino Cruises paid the bulk of the fine.

Last year, Isle of Capri bid $518 million to win an auction for Illinois' final casino license. The license, held by Emerald Casino Co., was auctioned after Emerald filed for bankruptcy. But the victory didn't last long. The Illinois Gaming Board found that Emerald had misled the state about its ownership and committed other infractions. It revoked the license, in essence canceling Isle of Capri's winning bid. The company intends to pursue the license.

All of Isle of Capri's casinos have a Caribbean theme. Pittsburgh's proposed casino would retain that trademark flavor with some upgrades.


Measuring Gambling's Impact

As Reported by Harford Courant

CONNECTICUT- Pennsylvanians wondering what casino gambling might mean for their communities only need to look east to Connecticut's mega-casinos for some idea.

They are not all about dead-end jobs for blackjack dealers and cocktail waitresses.

Consider Todd Carden, for example.

Carden used to work in downtown Hartford, hustling to get ahead in the information technology department for Citigroup Inc. He's now happily ensconced at Mohegan Sun Casino, onboard since September as an information security manager, where the jobs for people with his qualifications pay between $90,000 and $100,000.

"I get calls every day from recruiters," said Carden, who is 35 and says he likes Mohegan Sun's relaxed environment and the emphasis on employee education. "I'm not entertaining any of them now."

Of course, Carden is just one among about 21,000 casino employees who work at Mohegan Sun and Foxwoods Resort Casino. And for every well-paid information technology professional there are housekeepers struggling to make ends meet on $8 an hour. Indeed, the impact of the world's largest and most profitable casinos on southeastern Connecticut is complex, far-reaching and in some cases, confusing.

The casinos have brought as many as 60,000 direct and indirect jobs to Connecticut and added about $3.6 billion to the state treasury since 1994 from slot machine revenues. At the same time, the state has virtually ignored the social costs of expanded gambling, spending just a few million dollars a year on treatment programs for addicts and putting off plans to study the extent of the problem.

Meanwhile, local officials complain that state government - not the casinos - is shortchanging southeastern Connecticut by failing to direct enough of the millions of dollars in slot machine revenue to address transportation needs, housing and public safety.

There is no debate, however, that the casinos arrived just as a dramatic downsizing in the defense industry was taking place and gambling quickly stepped into the void.

"There's a lot of people working here. If they weren't here, there wouldn't be many of us here," said Keith J. Robbins, first selectman in Bozrah and chairman of the Southeastern Connecticut Council of Governments.

"They have driven up the cost of housing in eastern Connecticut because there are more people trying to live here," Robbins said. "Do we need more casinos? No. But we need to play nice. What needs to happen is [that] the dollars being contributed to the state's general fund by the two largest employers in eastern Connecticut need to be redistributed to southeastern Connecticut."

Under a special agreement, the casinos give 25 percent of revenue from slot machines to the state, an amount that exceeds $400 million annually. Most of the money goes into the general budget and is distributed under a formula based on need. Additionally the five towns surrounding the casinos each received an additional $500,000 from the legislature last year.

Without the casinos, the entire state would be suffering more economically, said Fred V. Carstensen, a University of Connecticut economics professor who has done studies for the Mashantucket Pequot tribe, owners of Foxwoods. For example, state unemployment would be above 8 percent instead of today's 5 percent figure, he says.

"It is a very substantial impact. The casinos have mitigated the tremendous loss of jobs at Electric Boat and United Nuclear. It has made the southeastern Connecticut economy much, much healthier than it otherwise would have been," said Carstensen, director of the Connecticut Center for Economic Analysis.

These new jobs don't match the high-paying defense manufacturing positions. According to a 2004 report by the Southeastern Connecticut Council of Governments, the 11,000 manufacturing jobs lost between 1990 and 2002 had an average annual wage of $67,000 while the new service sector jobs pay about $33,000.

Both casinos offer extensive benefit packages, including health care and child care for full- and part-time workers.

"These are careers," said Joann Weber, senior vice president of Human Resources at Foxwoods. Many employees "have been here 12 or 13 years. They have managed to buy homes and buy cars."

Critics complain about clogged roads, overworked police and fire departments and the hidden cost of compulsive gambling. Schools in Norwich are stressed with the children of casino workers who speak dozens of different languages.

And in a state with one of the most pervasive and financially successful lotteries in the nation, the casinos only add to the menu. Studies, including one released last summer by a researcher at the University of Buffalo, have found that the incidence of problem gambling increases the closer you get to a casino. The Buffalo study found that people living within 10 miles of a casino are more likely to experience problem gambling.

"There certainly are more people gambling and that means more people who are vulnerable to developing gambling problems are also gambling," said Christopher Armentano, director of problem gambling services for the state Department of Mental Health and Addiction Services. "The difficulty is that the (slot) machines are addictive."

Norwich City Manager Robert Zarnetske sees all these problems but says he is watching a greater transformation taking place in the region.

"Southeastern Connecticut is being discovered. It would not be discovered but for the casinos," Zarnetske said. "There is real economic development here."

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