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Rod Smith

Binion's Horseshoe Sale Approved

4 March 2004

LAS VEGAS -- Meeting in back-to-back emergency sessions, Nevada's gaming regulators late Wednesday approved the sale of Binion's Horseshoe to Chester, W.Va.-based MTR Gaming Group, subject to 10 conditions.

The state Gaming Control Board and the state Gaming Commission also approved Harrah's Entertainment as the operator for the downtown Las Vegas landmark, subject to the same conditions.

Harrah's initially agreed in January to buy the Horseshoe in a $50 million deal, mostly in the form of assumed Horseshoe liabilities.

In February, Harrah's negotiated another agreement with MTR to buy the Horseshoe directly from owner Becky Binion Behnen for an undisclosed amount. Harrah's would still pick up the brand name and the World Series of Poker, which were its main interests in the original deal.

Harrah's executives said they now hope to have the 52-year-old hotel-casino open by April 1 and plan to hold the World Series of Poker there as scheduled.

Tom Jenkin, Harrah's Western Division president who will oversee management of the Horseshoe, expressed confidence the Horseshoe will reopen as scheduled and said his company will recruit about 900 workers, including as many former Horseshoe employees as possible.

They will all be MTR employees for at least the first year of operation, depending on whether options to extend the joint agreement for another two years are exercised. Sixteen to 20 senior managers from Harrah's Las Vegas and the Rio will oversee the workers, Jenkin said.

MTR President Ted Arneault promised regulators that after the Horseshoe reopens, his company will make substantial capital improvements, although he said his company has only started planning.

"We see this as an opportunity to work with a first-class gaming operator in Harrah's," he said. "We also see it as an opportunity to expand our operation in Nevada, which has been one of our goals. And we see (a redeveloped Horseshoe) as the cornerstone of a new downtown.

"It's one of the classic Las Vegas properties. It gives us a much greater footing in Las Vegas and Nevada. There is no better property that would fit better for MTR in Nevada."

However, Arneault said the deal would probably not have been made without Harrah's acting as operator for at least one year because of the management team it brings to the table.

MTR Gaming Group's only other Nevada holdings are the Ramada Inn and Speedway Casino in North Las Vegas.

MTR and Harrah's submitted license applications to the Nevada Gaming Control Board Feb. 18, with Harrah's filing to be "a key employee" and operator of the Horseshoe, board Chairman Dennis Neilander said.

Neilander, who called the arrangement "very unusual," said the license approvals were fast-tracked with back-to-back special meetings of his agency and the gaming commission because of the importance of giving the Horseshoe's former workers a chance to go back to work.

University of Nevada, Las Vegas professor and casino industry expert Bill Thompson said it was appropriate for the regulators to meet in emergency session and act with record speed, rather than let the closing of a property in the heart of downtown linger.

The Horseshoe has been closed since Jan. 9, when deputy U.S. marshals, accompanied by Gaming Control Board agents and armed with two court orders, seized cash from the casino and forced the shutdown of the casino and hotel.

"Also, both companies are licensed and Harrah's is recognized as one of our top companies, so the key questions were going to be easy to address," he said.

Control Board Member Bobby Siller, however, objected that regulators were being forced to make a decision with less information than normally would have been required.

"I would have expected you to be better prepared. The credibility of your company -- Harrah's -- and the interests of the employees is comforting to me in wanting to move forward nevertheless," he said.

Neilander and board member Scott Scherer also objected, but agreed they did not want to hold up the deal.

"A lot of what we're doing is on the fly here, but I thought it was worth giving it a try today," Neilander said.

Harrah's Treasurer Jonathan Halkyard said time had been of the essence to get former Horseshoe employees back to work, to hold the World Series of Poker as scheduled at the Horseshoe starting April 23 and to avoid a possible involuntary bankruptcy against the property, which would seriously have delayed any transaction.

The two most hotly debated issues involved the obligation to pay off outstanding chips from the Horseshoe and resolving the leases for the land under the hotel-casino.

The agreement between Harrah's and Horseshoe owner Becky Binion Behnen called for reserving $1.5 million to pay off any outstanding chips for 120 days.

Control board members, however, disputed whether the sum was enough, even though Behnen and her attorneys vigorously defended it.

In the end, the board and commission's approval was made contingent on Behnen reserving another $1.5 million from closing and putting it into an escrow account for 120 days to cover any chip claims former customers make.

The other difficult issue for regulators involved the lease rights to the land under the Horseshoe.

Agreements in principle have been reached with the owners of all but two of the seven parcels under the property, although documents are still being executed to sell the fee-simple interests or assign the leases.

However, the so-called Perry parcel at the corner of Fremont and First streets is owned by a deceased individual whose estate was never properly probated. That issue is expected to be cleared up in court Friday.

Rights to another parcel largely under the parking garage entrance and a small portion of the casino is still being negotiated, with no agreement in sight.

Neilander argued property could not be occupied and gaming could not be conducted where an operator does not have clear rights or title.

Therefore, the board and commission imposed another condition on the transaction, saying that areas sitting over real estate the operator does not have clear title to will have to be roped off and cannot be used for gaming operations.

Eight other conditions that will have to be met before gaming operations can be started include:

• A system of internal controls will have to be submitted to regulators.

• Notification must be submitted on accepting noncash wagers in the race and sports book.

• The surveillance system has to be reviewed and upgraded as required.

• A preopening cash statement and financial projections have to be submitted.

• Managers will have to file appropriate license applications.

Another issue that was raised in the commission meeting but not addressed was the Las Vegas City Council decision Wednesday to approve the change in ownership at the casino, part of approving a tavern license, subject to a one-year review, which prompted representatives of both parties involved in the casino sale to seek a meeting with Mayor Oscar Goodman.

As a condition of his support, Goodman demanded the new owners keep the World Series of Poker in downtown Las Vegas at least through the city's 2005 Centennial.

"There's no question in my mind that they intend to take the World Series of Poker out of the Horseshoe and out of downtown Las Vegas," the mayor said. "I told them that's unacceptable. It has to be here at least through the Centennial."

During the council's afternoon session, Goodman made a motion and the City Council approved reconsidering its decision on the change in ownership. The council will reconvene Friday at 9 a.m. to vote on the matter.

Harrah's spokesman Gary Thompson said his company's goal remains reopening the Horseshoe by April 1, and other issues such as the tavern license will have to be dealt with if they arise.

Other officials of both companies and regulators said they were not familiar with the details of Goodman's actions.

Review-Journal staff writer Michael Squires contributed to this report.