Illinois gaming regulators Wednesday selected Harrah's Entertainment Inc., Isle of Capri Casinos Inc. and Midwest Gaming and Entertainment LLC as the three final bidders for a closely-watched casino license expected to be sold at auction in a few months.
The state enacted the highest incremental tax on casino revenue in the nation last year but is still coveted by gaming companies interested in developing near Chicago, an international airline hub considered to be one of the most potentially lucrative casino sites in the nation.
The three companies beat out four other bidders, including Caesars Entertainment Inc., Mandalay Hyatt LLC, Penn National Gaming Inc. and Southland Development Group. Mandalay Hyatt is a partnership of Mandalay Resort Group and Hyatt Development Corp. and Southland Development Group partnered with Merit Management Group LLC and Gatling Community Development Inc.
The winning bids -- Harrah's with $375 million, Isle of Capri with $351 million and Midwest Gaming with $360 million -- also were the highest, experts said.
Penn National submitted a bid for $506 million that would have included $711 million in debt, a deal analysts said would have meant less money up front for the state. The company would have managed the casino, which would have cost $225 million and be turned over to the state to own. Harrah's executives criticized the plan as rash and said it would be bad for the industry as well as a conflict of interest for the state.
Penn National representatives couldn't be reached for comment by press time.
"Because there's so much (controversy) behind this license, there's only one way to move forward with it and that would be to (award it) to the highest bidder," said Ray Cheesman, a bond analyst with Jefferies & Co. "I think that's a good sign."
Jefferies is an investment banking firm that was hired a few years ago to help sell the casino license, a process that was halted over concerns that the money would have unjustly enriched the previous owner of the license.
Harrah's, which has partnered with S-L Partners, intends to build a 50,000 square-foot casino in Waukegan, a suburb north of Chicago. The casino would be built on a 32-acre parcel located on the former site of the Lakehurst Mall and would include 250 to 500 hotel rooms and several restaurants. The company has estimated the project will take about 15 months to build and would create 1,500 to 2,000 permanent jobs with benefits. Waukegan has agreed to share 40 percent of its future tax revenue with nearby communities and school districts.
Isle of Capri plans to construct a 40,000 square-foot Caribbean-theme casino with restaurants in Rosemont, which is closer to Chicago. The company estimates the casino would take about a year to build and would create about 1,400 full time jobs. The city of Rosemont intends to share its portion of the gaming taxes with 71 other cities and communities.
Midwest Gaming and Entertainment, led by Chicago real estate developer Neil Bluhm, wants to build a 40,000-square-foot casino on a nine-acre parcel in Des Plaines, which is about 21 miles northwest of Chicago. The project calls for 300 to 500 hotel rooms as well as restaurants. Las Vegas casino resort developer Steve Wynn had originally partnered with Bluhm but withdrew from the bidding process last week.
"We didn't own the entire license, and after our partners take their share and the state takes its cut, the amount of money we stood to gain wasn't big," Wynn said Wednesday.
Bluhm said the Des Plaines and Rosemont locations, given their access to Chicago, are the best potential sites for casinos in the region.
"We have more land and we'll build a better project," than the Isle of Capri bidders, he said. "We're going to build a world class destination facility."
Isle of Capri President and Chief Operating Officer Timothy Hinkley said Rosemont is the top site because of its population density and easy freeway access to O'Hare International Airport.
"Rosemont is already a destination area, its in the top 10 as far as exhibition square footage in the U.S. Our advantage is to be there and tap into that," Hinkley said.
The company intends to use a permanent barge already built at the site for the casino but would be able to grow on surrounding land in the future, he said.
The Illinois Gaming Board expects to hear public presentations by the finalists on Monday and select a leading bid March 5. The board will conduct an auction among the final three bidders March 10 and plans to announce the winning bid March 15. The Bankruptcy Court in Chicago, where the 10th casino license has been tied up for years, is expected to confirm the final bid around April 1. The sale of the casino license is being conducted under a bankruptcy reorganization plan that was negotiated by the Illinois Attorney General and approved by a federal court.
Bankruptcy rules typically allow qualified bidders to emerge in court up to the last moment. But that won't happen in this case, Illinois Gaming Board spokesman Gene O'Shea said. The three finalists will be the only companies allowed to bid, he said.
Harrah's representatives said Wednesday that their proposal will create the greatest stream of new tax revenue for the state.
"We believe Waukegan is the site that best meets the main criteria in the (Illinois) Riverboat Gambling Act, providing the greatest economic benefit to the state and the greatest benefit to a large economically depressed area," said Jan Jones, a government relations executive for Harrah's.
A key benefit of the proposal is that Waukegan is only about 15 miles from Wisconsin, a state where the casino is expected to draw about 30 percent of its revenue, Harrah's spokesman David Strow said. Waukegan is expected to divert less business from existing casinos than other proposed sites, he said.
Harrah's already operates two Chicago-area casinos. One is in Joliet, about 50 miles southwest of Chicago, and the other is in East Chicago, which is less than 25 miles from Chicago in Northern Indiana.
Illinois wants to auction the license in order to raise money for its ailing budget. The Grand Victoria casino, now the closest casino to Chicago, generated some $405.7 million in revenue and about $166 million in state and local taxes in 2002. The property, half owned by Mandalay Resort Group and the Hyatt hotel company, generated revenue in line with that generated by Mandalay's Luxor and Excalibur casinos in Las Vegas during the company's fiscal third quarter, the latest available.
Some analysts have speculated that Rosemont, given its proximity to Chicago and the airport, could potentially become the most lucrative casino site for the state. Penn National and Caesars had proposed casinos in Rosemont in addition to Isle of Capri.
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