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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.
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