Caesars Leaves Casino Project after Gaming Comm. Report

October 25, 2013
By

The Massachusetts Gaming Commission (MGC) came to bury Caesars last Friday afternoon, not to praise them.

The entire casino effort at Suffolk Downs this week is in flux as the track searches for another gaming operator, Caesars Entertainment has limped out of town, rejected by MGC, and a vote on the overall casino plan will take place in less than two weeks in Revere and Eastie.

And, an deadline for the casino application process comes on Dec. 31.

Caesars Entertainment has been on board as the team’s gaming operator (with a 4 percent ownership stake) since 2011, and track officials this week said they just learned of serious problems with Caesar’s this month from the MGC.

Last Friday, all of that came to a head when the MGC released to Suffolk Downs an overview of its background check report – a report that wasn’t favorable for Caesars.

“On Oct. 2  we were informed for the first time of questions about Caesars suitability by the Investigative Bureau of the Gaming Commission and immediately retained former Attorney General Tom Reilly to conduct an internal review,” read a statement from Suffolk Downs COO Chip Tuttle. “Based upon further information made available to us and within hours of receiving the Bureau’s recommendation, we asked Caesars on Oct. 18 to withdraw as Suffolk’s [gaming] manager.”

The MGC has been conducting background checks on all resort casino applicants since the beginning of September. A spokesperson said they had recently finished their report on Suffolk’s team and apprised them of the negative findings regarding Caesars.

“After an exhaustive investigation, the Massachusetts Gaming Commission’s Investigations and Enforcement Bureau (IEB) recently provided casino gaming applicant Sterling Suffolk LLC, with an overview and report of its findings,” read a statement from Elaine Driscoll of the MGC. “As is standard procedure after all background investigations, the Commission has scheduled a hearing to publicly review the facts established in the background investigation report. No suitability decisions will be made until after the adjudicatory hearing and the Commission’s deliberation on the IEB report. This hearing will be held on Oct. 29.”

 

The Issues

Driscoll said a redacted report of the Suffolk investigation will become public today, Oct. 23.

Nevertheless, multiple sources close to the investigation said there were four key problems cited with Caesars.

First and foremost was the company’s large amount of debt, which has climbed to $22 billion as gaming revenues in the company have decreased in the last several months.

Second was an ongoing lawsuit between a customer who lost a great deal of money at a Caesars casino and refused to pay. When Caesars tried to collect the debt, the customer cited that employees gave him free drinks and watched him use drugs while he gambled. He argues they should have stopped him. Caesars wholly disputes his claims, but the suit is still ongoing.

Third was a questionable figure that works in the company’s internet gaming division.

None of those findings were particularly new, though they still did play a role.

However, another piece was new. That was a deal put together in Las Vegas by Caesars and other individuals in March to replace its ‘Bill’s Gamblin’ Hall and Saloon’ with a $185 million development carrying the Gansevoort Hotel brand.

MGC apparently found and believes that one of the investors in the project with Gansevoort, Arik Kislin, had ties to the Russian mob.

Bloomberg News reported that the allegation came from filings against Kislin in a German court – filings that were reported in the New York newspapers last year.

Caesars did try to drop its affiliation with Gansevoort over the weekend, but it was apparently too late, and so they were asked to leave the Suffolk team.

Caesars officials have told numerous press agencies that they are stunned and don’t believe that any big casino operators will be able to make it through Massachusetts’s stringent process.

Tuttle said they are glad to see the stringent standards, and Suffolk expects to be approved on Oct. 29.

“The Commission has decided it is going to have very stringent standards and we’re good with that,” he said. “We want to live up to those tougher standards and we want to live up to that commitment. We had 89 qualifiers and 88 had no issues. We have full confidence Suffolk Downs as an entity will be found suitable. In many ways, we are getting to see the process work as it was intended to.”

He said Suffolk Downs is working with Caesars to absorb that company’s 4 percent stake in the operation, and that Suffolk Downs would retain that stake.

 

Operator, Operator

While many are saying the process worked much the way it is supposed to, the timing of the decision and the change is one of the most shocking pieces of news to hit Revere and East Boston in some time.

With Caesars having a big name in the gaming world, and having been on the team for more than two years – residents who go to the polls are left scratching their heads. Many wonder what it means for the project; how they will vote for a casino on Nov. 5 if there is actually no casino operator.

Tuttle said the track is aggressively looking for another operator to partner with, and it has to get done soon. However, he also said it might not get done before the referendum.

“The clock is ticking,” Tuttle told the Journal. “We would like to get a new operator by the end of the month. We want to get that in place ASAP. If it’s not practical to get it done in the next two weeks, we need to have it done soon after because our final application is due by Dec. 31.”

That deadline means that the new operator will likely not be one from outside of the current process – eliminating entities thrown around in conversation like Boston native Sheldon Adelson’s Las Vegas Sands company. Some 11 companies are already in the MGC’s vetting process and Tuttle said it would likely be one of those that they would partner with, as time is of the essence.

Any outside operator would have to start over at Phase 1, and there is probably no time for that. An operator already in the process, he said, could more easily switch over.

“Once you’re already through in Massachusetts, the background check and investigation are the same whether you are in Springfield, Worcester or Boston,” Tuttle said. “It would be hard to get outside [operators] though in time. It would be ideal, or easier, to get someone who is already in Massachusetts. As I said, the clock is running here.”

Many of those operators are already pursuing their own projects around the state and have a great deal invested in their own projects – meaning they likely wouldn’t dump what they’re doing to come to Boston.

Some have postulated that Steve Wynn could join the Suffolk effort and abandon Everett, but that seems unlikely at this time. Additionally, Wynn has yet to clear a background check and was called before the Commission last Thursday to speak about his foreign business practices.

A more realistic partner would be the Hard Rock Casino, whose project was rejected in West Springfield last month by voters. While they have been through the process in Massachusetts, they no longer have a project to pursue.

Hard Rock also has an existing relationship with Suffolk owner Richard Fields through the Hard Rock Seminole Casino in Florida.

Regardless, Tuttle said they have a lot of interest, perhaps a dozen inquiries.

“There is considerable interest already,” he said. “This market is incredibly attractive to casino operators. The structure of the market is as strong this week as it was last week.”

Any operator will have to agree to the existing conditions of the Host Community Agreements in Revere and Eastie, as Caesars was a party at the table in those negotiations. Any operator would have to agree to what Caesars had already agreed to without any input of its own.

 

The Vote Goes On

Even if there isn’t a new casino operator chosen by the Nov. 5 vote, Revere and East Boston voters will go to the polls to vote for the casino question.

So far, it doesn’t appear the shocking news about Caesars will change the vote – despite the fact that Caesars is mentioned in the Boston ballot question. It isn’t, however, mentioned in the Revere ballot question, but referred to in the Revere Host Community Agreement.

Tuttle said he doesn’t believe that would be an issue because the question deals with land use – whether or not a casino should be allowed.

“The vote is about permitting the location of a gaming operation,” he said. “You’re not voting on Coke versus Pepsi or Marriott versus Hyatt. They’re voting on whether or not they want a gaming facility sited here. It’s always been Suffolk Downs, the owner of 78 years, that’s been asking for that and that hasn’t changed.”

He said they are immediately conducting an aggressive marketing campaign – with television commercials in Revere and Eastie – announcing the change and informing voters.

Not everyone, though, felt the situation was so seamless.

Councillor Brian Arrigo submitted a piercing op-ed this week about the turn of events, and said voters deserved better than a hurried  decision without any input.

“If Suffolk Downs manages to find another world-class operator to replace Caesars before the election Nov. 5, it will be a hurried decision that will lack any transparency or community input,” he wrote. “On the other hand, if Suffolk Downs does not manage to find another world-class operation to run the casino, voters will be asked to just trust Suffolk Downs and cast a blind vote. Either way, the residents of Revere deserve much better.”

Councillor President Ira Novoselsky said he had concerns about that, but that he is positive Suffolk can get through this and move forward.

“Yes it does concern me,” he said. “However, I’m still upbeat and I’m still for it. We all knew for a long time Caesars had issues and we were dealing cards. We were never voting for Caesars though…What we’re voting for is whether we want casinos – yes or no. Caesars was only a management company hired by Suffolk Downs.”

Councillor Bob Haas said the whole situation is just crazy, from Caesars to the Gaming Commission to Suffolk.

“It is crazy,” he said. “For two years we’ve trusted that Caesars would be there and then two weeks before the vote, they’re out…This puts a lot of difficulty in the vote for citizens. I think they’ll end up having to play it by ear and hope it all works out. It’s crazy the Gaming Commission created this now by notifying Suffolk that Caesars wouldn’t be a player.”

 

What They’re Saying

The range of opinions on the abrupt swerve in the casino discussion has ranged from cavalier to catastrophic.

Mayor Dan Rizzo said he remains confident in the casino application that Suffolk Downs has, and he doesn’t believe this is as big a deal as most are making it.

“Caesar’s departure is a blip on the screen as it relates to the overall project,” he said in a statement. “Terms of the Host Community Agreement stay in place as does the architectural design for the casino itself. They will merely need to work with another casino operator.”

Meanwhile, Charlie Lightbody – who is running a local ‘No Casino’ effort in Revere – said it was too risky to vote for an unknown.

“It’s like being on a plane in mid-air with no pilot or co-pilot,” he said. “Eventually you will crash and burn.”

Novoselsky said it wasn’t a deal breaker for him.

“It’s like a condo association that hires a property manager,” he said. “They’ve changed property managers, but the owners are all still the same. It’s not stopping me. I met with about 25 people on Standish Road and most of them haven’t changed their positive opinions of the proposal, and they live right next to it.”

Said Haas, “Some are saying it’s no big deal, but I think it is a big thing when a major operator leaves the project in the last two months. No question about it; people are concerned in Revere across the board.”

Arrigo said in a statement that it is a devastating blow.

“The news that Caesars, the ‘world-class’ managing partner hand-picked by Suffolk Downs two years ago to run its resort casino operation, will not be part of a Revere resort casino is undeniably a devastating blow to Suffolk Downs’ credibility and should be a major red flag for any Revere resident,” he wrote. “Anyone who says otherwise is not putting Revere residents first.”

Finally, Tuttle said they have seen tremendous support from the two communities since the announcement.

“The timing certainly presents challenges and we’ve acknowledged that, but it is – in some ways – refreshing in terms of the support we’ve seen since we announced this,” he said. “Many people I’ve talked to, if they thought it was a good idea last week, they still think that. I haven’t found the person yet who has said they’ve changed their mind because of this.”

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