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Rod Smith

Harrah's Fails in Bid for Last Illinois License

16 March 2004

Harrah's Entertainment's bid for the 10th and final casino license in Illinois was shot down Monday when the state Gaming Board named Isle of Capri Casinos the winner in an auction for approval to develop a hotel-casino.

Illinois Gaming Board spokesman Gene O'Shea said "a multitude of factors" accounted for the second-highest bidder being named the winner, including each company's proposed contribution to state revenues, planned casino location and that community's support for the project.

Harrah's, the second-largest U.S. casino company, was the high bidder Thursday when it offered $520 million at an 18-hour-long auction for a Chicago-area casino license.

"We're disappointed, but we accept the decision of the Illinois Gaming Board and we've move on with other developments," Harrah's spokesman Gary Thompson said.

Isle of Capri bid $518 million for a license to build a casino in Rosemont, a Chicago suburb adjacent to O'Hare International Airport.

Harrah's wanted to build a casino in Waukegan, a town north of Chicago along Lake Michigan, and Midwest Gaming and Entertainment, the third finalist, bid $476 million to build a casino in Des Plaines, O'Shea said.

Thompson said it is too early to speculate on whether his company will pursue other opportunities in Illinois, such as the urban casino that Chicago Mayor Richard Daley has discussed.

"There are other opportunities in other areas of the country and overseas we'll be taking a look at," he said.

Deutsche Bank analyst Marc Falcone called Harrah's proposal "interesting" because of the revenue stream it would have generated by drawing new gamblers from Wisconsin and the limited effect it would have on existing riverboat casino operations.

However, he also said Isle of Capri submitted a bid that would have a building in Rosemont up and running in only nine months, while Harrah's project would have taken about 15 months.

Isle of Capri also promised to pay Illinois $500,000 a day for any delays in opening after nine months, up to $105 million.

Falcone said he had expected the gaming board to consider the tax revenue potential of the bids, with Isle of Capri estimated to add as much as $50 million a year more than Harrah's, as well as the planned distribution across underprivileged communities.

Finally, although he said the decision will probably surprise stock market investors, the selection of the Rosemont site might help head off litigation that could delay the project since it is the same site now-bankrupt Emerald Casino, which now holds the 10th license, had planned to use for a casino.

Falcone also suggested Monday that Isle of Capri could be in for a surprise.

When Illinois raised its top incremental tax rate on gambling revenue to 70 percent last year, the legislation included a provision that the top rate be cut to 50 percent once the 10th license holder opens a casino.

But, Falcone said that because the final winning bid was worth more than $500 million and promises to contribute about $200 million to reducing the state's deficit, the state may be discouraged from reducing its tax rate back to 50 percent.

"However, we also believe this would be a slap in the face to all operators, particularly the final winner, which we believe made its decision to bid at those levels on the basis of a more realistic tax rate of 50 percent," Falcone said. "We think this topic will intensify over the next several months."

The state, which projects a $1.7 billion budget deficit through June 2005, will share proceeds from the license with Emerald's creditors.

Creditors will get more than $120 million from the license sale, which the bankruptcy court still must approve.

Harrah's Fails in Bid for Last Illinois License is republished from