Timetable for Argosy License Still Pending in Iowa

The challenge from Penn National Gaming over the awarding of a new license for Sioux City is getting more serious. As required by law, Penn has partnered with a new non-profit organization and has withheld monies from its previous partner after that partner jumped ship.

The Iowa Racing & Gaming Commission has scheduled a March 5 administrative hearing to discuss whether a gaming application without an operating agreement with a qualified nonprofit group prevents the license from being renewed. At issue is the former agreement between Argosy Sioux City and Missouri River Historical Development, which expired in July 2012 after months of failed talks. IRGC Administrator Brian Ohorilko said Argosy parent Penn National Gaming has applied for a new license with the nonprofit Greater Siouxland Improvement Association. The application “will be evaluated by the commission in due course consistent with past commission practice,” Ohorilko said at the IRGC’s recent meeting. No timetable has been set.

Penn wants the GSIA to receive the 3 percent of the Argosy’s gross casino revenues that previously went to MRHD, which now is the nonprofit partner of Sioux City Entertainment, or SCE Partners, which the IRGC chose over Penn, to build a new casino downtown. Penn has been withholding the funds, designated for charitable purposes. GSIA partnered with both of Penn’s applications for the land-based casino license. The IRGC has allowed the Argosy to remain open until the new Hard Rock Sioux City Hotel & Casino is completed.

Meanwhile, Polk County District Court Judge Eliza Ovrom will hold a hearing on January 30 to review whether or not it had the authority or jurisdiction to stay Sioux City Entertainment’s license, when SCE was not a party to the case, in a suit brought by Penn. Polk County District Court Judge Robert Hanson granted the stay on December 10, and at the request of both the IRGC and SCE Partners, Supreme Court Justice Brent Appel granted an emergency stay of Hanson’s stay on December 19. After attorneys Penn filed a response on December 24, a three-judge panel of Appel, David Wiggins and Bruce Zager considered the appeals and sent the case back to District Court for review, where it landed in Ovrom’s courtroom.

In its lawsuit, Penn contends “the IRGC’s issuance of licenses to SCE and MRHD was unlawful and rife with misconduct.” In response, the IRGC argued that state law gives it authority to grant or deny gaming licenses.

The judicial panel said the District Court must rule on the case by February 15, and must expedite its schedule “to ensure prompt disposition of this matter.” The panel also stated, “In the event the district court determines that SCE Partners should be joined as a party, the court shall allow SCE to present evidence on the stay issue with an opportunity for opposing parties to respond. The court shall then reconsider its decision whether to grant a stay.”

A Penn National Gaming spokeswoman said the company respects the Supreme Court decision, and will “continue to pursue our rights in accordance with its instructions.”

Hanson noted, when granting the stay of the Hard Rock license, that there exists the “substantial possibility” that Penn would ultimately succeed on the merits of its judicial review case.

Also at the IRGC meeting, Steve Gray, founder of the Cedar Rapids Development Group made the case for the proposed $165 million Cedar Crossing Casino, while Waterloo officials pointed out the problems. Gray explained, “We have 3 meaningful steps, first was this presentation, secondly is the site visit and third obviously is the ultimate decision” of the IRGC expected on April 17.

Cedar Crossing supporters said the casino could generate $61 million a year for the state, give one percent of adjusted gross revenue to the city and create more than 450 jobs.

Cedar Rapids Mayor Ron Corbett said, ” The Cedar Crossing Casino is critical to our community’s future and also provides an economic benefit to the state of Iowa.” He added the casino would “put property back on the tax rolls, create more jobs, over 400 jobs in Cedar Rapids, bring in revenue to the community and help revitalize the area that was hit hard from the flood.  And, help with flood protection.” Several other speakers called the casino the “capstone” project for Cedar Rapids’ recovery, both from the 2008 flood and the recession.

Suzanne Perilloux Leckert, with TMG Consulting of New Orleans, which assessed the economic impact of the Cedar Rapids proposal, said the effects of the new facility will go beyond the casino walls. “There are not only impacts from the direct spending of the casino but induced spending that will roll all throughout the community. We found that the Cedar Crossing casino should be capable of generating $75 million in gaming revenues a year, $61 million of which would be net new gaming revenue to the state of Iowa.” She said the Cedar Rapids market is “underserved” and its urban location makes it a “new product” unlike nearby facilities.

Black Hawk County Gaming Association Chairman Tim Hurley questioned that assessment. He said Waterloo would lose significant revenue–$500,000 annually– if Cedar Crossing is built, because it would siphon money from the Isle of Capri. “The industry in Iowa is saturated in my view, and others. So this isn’t a growing pie,” Hurley noted. He said he is waiting for the results of the IRGC’s commissioned study on gambling in the state, which will be completed in March. “That will be more honest and objective,” he said.

Leckert said, “Now, we expect this casino to have impacts on existing facilities; however, we believe that these impacts will not affect their viability.” She said the Waterloo Isle could lose $4 million annually if Cedar Crossing is built. Also, Meskwaki in Tama could lose $9 million and Diamond Jo’s and Mystique together could lose $2 million annually.

Mystique spokesperson Jesus Aviles said, “I would say that number would understated. We feel the economic impact would bigger than that.” Added Hurley, “Their statements of potential impacts on Waterloo and Riverside, I think are clearly underestimated, in my opinion, and that worries me. Even at their estimate, that would be a $250,000 a year impact on the Black Hawk County Gaming Association” in grant money available for community projects and charitable contributions, Hurley said. “That’s significant to us, and I think it’d be at least twice that.”

In a statement, Isle of Capri Casinos spokesperson Jill Alexander said, “Our experience has shown us that another casino in the market, in the region, will have an impact on our business. We have confidence that the IRGC will closely look at any potential impacts and make the right decision for the state of Iowa.”

Regarding the presentation, IRGC Chairman Jeff Lamberti said, “Along with the community support, what the referendum was, the fact that you’ve got strong local investors, support of all those groups, the city, the county, that all ties into it. All of that has impact, but the market studies will still be very, very important. Also, I think the fact that it is the second-largest city has some impact.”

Also at the Waterloo session, the IRGC said they will hear a presentation from Greene County developers Wild Rose Entertainment at the March 6 meeting in Altoona. Commissioners will visit the site in Jefferson on May 29, followed by a final decision on June 12. Wild Rose operates casinos in Emmetsburg and Clinton.

In Davenport, the IRGC recently gave unanimous approval for developer Dan Kehl to purchase the Rhythm City Casino riverboat from Isle of Capri for $51 million. Kehl will develop a new $110 million land-based casino. “It’s been a long time to get this project to this point and soon we will have a land-based casino in the Quad Cities on Interstate 80, so we’re very excited about that,” Kehl told the gaming commissioners.

Kehl said he expects to finalize the sale on February 3, close the riverboat for two days to install new systems, then reopen February 5. He plans to operate Rhythm City for about a year and a half while raising funds from other equity investors and designing the new casino. If things work out, he said, ground will be broken for the new casino in September and it will open in fall 2015.

Kehl’s agreement with the nonprofit partner Riverboat Development Authority will pay the organization 5.25 percent of the adjusted net gaming revenue, increasing to 8.5 percent in four years. Of that 8.5 percent, 1.75 percent will go to the city, 0.35 percent to the Downtown Davenport Partnership and 0.4 percent to casino district improvements. Currently the RDA receives $2 million from the riverboat.

Finally, Iowa Gaming Association President and Chief Executive Officer Wes Ehrecke said Iowa officials, like those in other states, are expected to take a wait-and-see approach to online gambling, watching the results in Nevada, Delaware and New Jersey. Ehrecke added another reason 2015 would be the earliest Iowa lawmakers would consider online gambling bills is that the legislative session will be shorter than usual, so new proposals like internet gambling will not be priorities.