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Rod Smith

Land Owners Against Binion Deal

20 February 2004

LAS VEGAS -- Owners of the land under Binion's Horseshoe are refusing to go along with the proposed sale of the hotel-casino to MTR Gaming Group, even while industry analysts and downtown businesses are applauding Harrah's Entertainment's plans for the property.

MTR and Harrah's on Thursday announced signing a definitive agreement for Speakeasy Gaming of Fremont, W.Va., an MTR subsidiary, to buy Binion's Horseshoe from owner Becky Binion Behnen and for Harrah's to operate the hotel-casino for one year, with two one-year extensions of the operating agreement possible.

The landowners, however, could scuttle the deal.

Local attorneys for two of the five groups of landowners of the property under the Horseshoe who asked not to be identified said there has is still no agreement with Harrah's for the payment of an undetermined amount of back rent or for appropriate leases for the land.

"Harrah's is trying to get us to lower the price on the argument even Jack (Binion) wasn't making money there," one attorney said. "But the landlords as a group are saying they aren't interested in doing that. The leases can be cancelled at any time. They're 100-year leases, but they haven't paid the rent (in months)," he said.

"Harrah's is proceeding along like 'we're Harrah's and we can make you do whatever we want,' " the attorney said.

Both attorneys described the ownership of the Binion's property as a hodgepodge because the parcels were all once railroad lots and individual owners made whatever deals they could early in the last century.

The attorneys said the state Gaming Control Board will have to investigate the question of the lease rights to the land before approving license applications submitted by MTR and Harrah's Wednesday to own and operate a hotel-casino at the downtown site.

"They'll have to show they have the right to be there, and the landowners aren't happy about claims they do, especially with MTR in the deal," one of the attorneys said.

They said MTR is a second-rate operator compared with Harrah's.

Control Board Chairman Dennis Neilander confirmed that his agency will need to review the status of the leases and the rights of MTR and Harrah's to own and operate a hotel-casino on the site as part of its review of the license applications.

"They have to have the legal right to the property. The lease documents should clear up whether the assignments are there or not," he said.

Another source close to the Harrah's negotiators said the landlords are "absolutely right."

"The deal won't go ahead unless everyone agrees, but there's nobody else in the wings. They can agree or they can sue Becky," he said.

The source also said some of the landowners have said individually they are willing to sell their parcels and that negotiations are proceeding.

Harrah's spokesman Gary Thompson confirmed that negotiations with the landlords are continuing.

"(The company is) optimistic we'll be able to come to an agreement that is fair to all concerned," he said.

University of Nevada, Las Vegas professor and casino industry expert Bill Thompson said the battle of wills was a classic bargaining confrontation.

"They're going to have to bargain it out or they'll have an empty property," he said. "Harrah's will come out OK with the (Horseshoe) name and the World Series of Poker, but MTR wants a casino, so it could be a loser."

"If either side wants to go to the the mat without compromising, it could be a dead deal, but the money should bring the two together," Thompson said. "But if we have two unreasonable sides, we lose a casino downtown. Maybe (Mayor) Oscar (Goodman) should get involved as a mediator because this is critical for what he want to so to make downtown viable."

Meanwhile, the two companies did not disclose terms of the transaction, although Harrah's Thompson said his company plans to reopen the downtown landmark by April 1 and convene the World Series of Poker for its 35th anniversary there on April 22.

Sources close to the company, however, said it is likely the poker tournament will be moved in future years, probably to the Rio, until Harrah's develops or takes over a megaresort on the Strip that would be an appropriate long-term site for the tournament.

Harrah's will also acquire use of the Horseshoe brand name in Nevada, while MTR will obtain the rights to use the Binion's name in Clark County.

Analsysts were also enthusiastic about the proposed deal.

Joe Schillaci, president of the Fremont Street Experience, said reopening the Horseshoe under MTR ownership should be a good fit with plans for the revitalization of downtown.

"I'm from Pittsburgh, and they ran a quality operation back there," he said. "They have a good track record and they'll bring new blood to downtown, which I view as very positive."

MTR owns the Speedway Casino at the Ramada Inn in North Las Vegas, Scioto Downs in Columbus, Ohio, and the Mountaineer Race Track and Gaming Resort in Chester, W.Va.

Don Snyder, president of Boyd Gaming Corp., which owns Main Street Station, the California Hotel and the Fremont, said MTR's entry to the market will bring new energy to downtown.

"West Virginia is what the company is all about. I'm very impressed with the management and what they've created," he said.

Joe Greff, gaming analyst for Fulcrum Global Partners, said the deal is much more important for MTR than Harrah's, considering the companies' relative cash flow, a key measure of profitability.

In the 2003 third quarter, the most recent period for which data is available, MTR's had cash flow of $17.6 million, compared with Harrah's cash flow of $1.1 billion in 2003 as a whole. Cash flow is generally defined as earnings before interest, taxes, depreciation and amortization.

However, Deutsche Bank analyst Marc Falcone said the evolving transaction is also a good deal for Harrah's.

"They don't want to be a downtown operator. They'll bring in a quality operator and get what they want -- the brand name and the World Series of Poker," he said.