Iowa Judge Hears Sioux City Arguments

Penn National Gaming recently told Polk County, Iowa District Court Judge Eliza Ovrom that Hard Rock Sioux City developers SCE Partners knew the risks involved in proceeding with their downtown casino. SCE Partners said Penn National is just angry that the gaming commission gave them the county gaming license.

The battle over the gaming license in Woodbury County, Iowa recently continued in Judge Eliza Ovrom’s courtroom in Polk County District Court. The state Supreme Court had ordered the district court to determine if it had jurisdiction to stay the license of Hard Rock Sioux City developers SCE Partners LLC, issued by the Iowa Gaming & Racing Commission, when SCE Partners is not a party to a lawsuit against the IRGC filed by Argosy Belle of Sioux City owners Penn National Gaming. Also, the court was ordered to determine if SCE Partners should be joined as a party to the judicial review with the IRGC; in that case, Sioux City Entertainment would be allowed to present evidence on the stay issue.

Previously, the district court ruled in favor of Penn National Gaming, blocking the new license. But the Iowa Supreme stayed that stay on the license and ordered the district court to address the two issues and make a decision by February 15.

Representing Sioux City Entertainment, attorney Guy Cook told the judge Penn National could not reach an agreement with its nonprofit partner Missouri River Historical Development, so the IRGC opened up the competitive bidding process for the gaming license. Cook said Penn Gaming “of course was unhappy with the expiration of their agreement with the charity and unhappy that the IRGC did not choose them in the open competitive bidding process. And so they challenged in district court by filing what is called a petition for judicial review, agency action,” Cook said.

He noted Sioux City Entertainment was legally granted a license for the land-based casino and moved forward with their plans. Cook said SCE would face “irreparable harm” if the judge agreed to uphold the stay on the license. “If the stay was entered here, or put another way, not dissolved, the lender could call the default on the loan agreement, pull the funding. There’s not money to pay the contractors, people are out of work, financing is gone, the project collapses,” Cook said. Cook added his client already has invested $47 million into the Hard Rock Casino project.

Attorney Mark Weinhardt, representing Penn National, noted SCE was aware that the license process was not legal and decided to take the risk. Stated Weinhardt, “They know when they are putting in the application that we have three times over challenged the legality of the very process by which they are able to participate. They decide not withstanding those challenges to participate in the process, so the go through the process.”

Weinhardt added, “We’re frankly flummoxed that they would take any of those actions, but for a long time those actions are on paper, they are reversible. Until August when they start to do something of substance that would appear to be irreversible, which is they start to break ground.” He noted construction of the new casino continued even after the original ruling stayed the license. But that was SCE’s strategy, Weinhardt contended. “Interesting that we’re here talking about the gaming industry because they made a gamble, and here it is, that if they could start building and build as fast as they possibly could they could show the judges pictures of what they’d built. And those pictures would cause that judge or judges to say ‘that’s a lot of work, I’d better not mess with that,” Weinhardt said.

Weinhardt said SCE is exaggerating the extent of monetary damages a stay would put on the company, noting many penalties wouldn’t be applicable under court order. He also questioned why the company is just now asking to be involved in the hearing. SCE “elected not to intervene” and instead “sat on their hands, Weinhardt said.” He argued SCE decided to enter the lawsuit only because they didn’t like the ruling on the stay. Penn National would lose its entire $150 million investment in Sioux City and the riverboat’s 320 employees would lose their jobs, he argued. “This has to be weighed against the harm SCE Partners is talking about,” Weinhardt said.

SCE Partners Bill Warner was the only witness during the nearly four-hour hearing. He said since the company’s more than $30 million in equity financing is nearly depleted, the Credit Suisse loan is vital for the work to continue and for SCE to meet deadlines set by the lender, the IRGC and the city of Sioux City. However, under cross-examination by Penn National attorney Christopher Tayback, Warner acknowledged that Credit Suisse has not taken action to rescind the loan and that bank officials have not told him they intend to do so.

In December, the district court will hear Penn National’s case against the IRGC to determine whether the IRGC, in taking bids and awarding a license for a land-based casino, violated state law and the Argosy’s constitutional protections. The city of Sioux City filed an emergency request to intervene but has been told it cannot participate because the request was made too late. The city will have a hearing on March 7 in which they can argue its case.

Meanwhile, two competing reports show different impacts of the proposed $150 million Cedar Crossing Casino in Cedar Rapids, Iowa. One report, completed in February 2013 by the New Orleans-based Innovation Group and recently filed with the Iowa Racing and Gaming Commission, indicated the proposed Cedar Rapids casino would cannibalize $28 million annually from the Riverside Casino and Golf Resort and cost that business 39 percent of its gross gambling revenue. Innovation Group was hired by Riverside to prepare the report, which also said existing state-regulated casinos in eastern Iowa would lose $62 million in annual revenue–nearly two-thirds the projected $95.3 million in annual revenue the Cedar Rapids casino would generate.

Specifically, the report estimated in addition to the $28 million in annual revenue lost at Riverside, Davenport would lose $6 million; Bettendorf, $5 million; Clinton, $2 million; Dubuque, $6 million; Waterloo, $11 million; four other casinos, including Prairie Meadows in Altoona, $3 million total; and at Meskwaki tribal casino in Tama, $10.5 million.

However, a report issued earlier this month by TMG Consulting, which was hired by Cedar Crossing Casino, estimated annual gaming revenue losses would be less than $8 million for Riverside, $8.7 million for Tama, $4 million for Waterloo and less than $2 million for Dubuque.

Steve Gray, chairman of casino developers Cedar Rapids Development Group, called the Innovation Group’s report “an outdated and flawed study that is not based upon the project actually proposed for Cedar Rapids. We stand by our market analysis for the region because it is current, reflects our unique proposal and conducted by an analyst with a proven record in the Iowa market. There is more than enough room in the Eastern Iowa market for Cedar Rapids to have an urban casino.”

Jeff Link, a strategic adviser for Riverside casino, located 12 miles south of Iowa City, said the Innovation Group report is more precise than TMG’s because it is based on actual data from the Riverside Casinos players club database. Link added at least one-third of Riverside’s 700 current employees would be laid off as a result of the Cedar Rapids casino. “The overall gambling market is saturated. We think that the combined cannibalization will defeat the casino application in Cedar Rapids,” Link said.

The Iowa Racing and Gaming Commission will announce its decision on granting a license to the Cedar Rapids casino on April 17. Prior to that, on February 20, the IRGC will have the results of two independent research studies it commissioned about Iowa’s gambling market. On June 12, the commission will announce its decision about granting a license for a proposed casino in Greene County.