In May, the Internal Revenue Service revoked the tax-exempt status of the Prairie Meadows racino in Altoona, Polk County, Iowa. The IRS said the operation lacked government oversight and the only difference between it and for-profit casinos is that Prairie Meadows does not pay federal taxes. The IRS further concluded the operation owes an estimated million in back taxes.
That leaves Prairie Meadows with two choices, analysts said. One is that it must win its IRS appeal and keep its tax-exempt status. The other choice, if Prairie Meadows loses the appeal, is to seek private ownership. Arthur T. Cox, associate professor of finance and director of theCenter for Real Estate Education at the University of Northern Iowa, said, “It certainly could make sense. It just depends if there is a use for the capital that could provide as good of a return as the rent stream from owning it.”
UNI finance professor Fred Abraham said Prairie Meadows probably could be sold for $500 million to nearly $1 billion, nearly three times the $300 million offer made in 1998 by Calumet Gaming Group of Mission, South Dakota. To allow the sale, the Iowa legislature passed a bill requiring a referendum of Polk County voters to allow the facility’s gambling licenses to be transferred to another party. But that referendum never was held because the Polk County Board of Supervisors rejected the offer as too low, although that legislation would apply to any future sale.
Stephen Karoul, president and chief executive officer at Euro-Asia Casino Consulting in Connecticut, noted, “That 1998 offer really doesn’t mean anything. Fifteen years ago, there were probably less than 100 casinos in the United States. Today, there are probably close to 1,000.”
The county leases the facilities, including a conference center, hotel and nine restaurants, to the nonprofit Prairie Meadows Corporation, which
operates them. The venue has held its federal tax-exempt status since opening as a horse racetrack in 1989. According to IRS documents, county and state officials helped Prairie Meadows become a reality so it could “lessen the burdens of government.” Polk County backed the $40 million in construction bonds and made a loan to the racetrack when it lost money and eventually filed for bankruptcy in 1991. However, slot machines were added in 1995 and quickly helped Prairie Meadows to repay about $100 million in debt, mostly to Polk County.
Today Prairie Meadows generates $185 million in gaming revenue before government or charitable distributions, including $25 million to Polk County annually in lease and revenue-share payments. The casino’s property is assessed at more than $126.5 million.
Bill Friedman, president of the casino consulting firm Friedman Management Group, said, “The first thing private investors would look at is what it’s doing now, and then what its potential is.” One major consideration would be any change in a state law requiring Prairie Meadows to continue horse racing, which costs the facility about $23 million annually, according to a recent audit.
Dan Kehl, chief executive officer at Riverside Casino & Golf Resort in Washington County, said he and his associates are not interested in taking over Prairie Meadows. He stated the existing arrangement of distributing the casino’s profits to local governments and charities serves the metro area’s best financial interests. “The best thing for everyone involved is for Prairie Meadows to win that fight with the IRS,” said Kehl.
Prairie Meadows also is facing a challenge from the Des Moines Register, which filed a records complaint against the facility for not making public the details of a 35 percent bonus this year to Chief Executive Officer Gary Palmer. The casino board voted 21-1 in January to grant the bonus based on Palmer’s 2015 base compensation.
Casino officials have refused to state the dollar amount of the bonus, provide the specific written performance goals Palmer met to earn the extra pay or identify the board member who voted no. The officials claim Prairie Meadows is exempt from the state’s public records law because it no longer owes debt to Polk County.
