Penn tops list of bidders for Illinois casino license

By Liz Benston (contact)

Friday, Feb. 6, 2004 | 10:46 a.m.

Illinois regulators Thursday published the bids from seven companies that will compete for a 10th casino license up for auction. That license is now held by a company in bankruptcy.

A $506 million bid by Penn National Gaming Inc. topped the list, followed by a $375 million bid by Harrah's Entertainment Inc. and S-L Partners, a $360 million bid by Wynn Resorts Limited and partner Midwest Gaming & Entertainment LLC and a $351 million bid by Isle of Capri Casinos Inc.

Southland Development Group, Merit Management Group LLC and Gatling Community Development Inc. submitted a bid for $250 million. Caesars Entertainment Inc. submitted a bid of $205 million. Mandalay Hyatt LLC -- a partnership of Hyatt Development Corp. and Mandalay Resort Group -- submitted a $20 million bid.

Caesars Entertainment, Isle of Capri and Penn National submitted plans to develop casinos in Rosemont, a Chicago suburb near O'Hare International Airport and the 840,000-square-foot Rosemont Convention Center.

Harrah's is working to develop a casino with the city of Waukegan, north of Chicago. Mandalay Hyatt LLC would build its casino in Summit, the Southland Development Group is proposing a casino in Country Club Hills and the Wynn group has submitted a plan for Des Plaines.

The Illinois Gaming Board declined to reveal specifics on the proposals, though some of the companies released details about their bids.

The board hopes to designate three final bidders by Feb. 23 and designate a final bid by March 5. An auction will be held among the three finalists March 10 and the board is expected to announce the winning bid March 15.

The initial dollar amounts of the bids published Thursday are just part of the story.

The $20 million Hyatt-Mandalay proposal would eventually give the state two-thirds of the casino's profit, an idea that proponents say could reap $500 million for the state over time.

The Hyatt-Mandalay proposal would first pay creditors using 90 percent of available cash from the casino, which is cash remaining after paying all the operating expenses as well as the management fee, debt service, income taxes and reinvesting in the operation, said Daniel Azark, senior vice president for Hyatt Development Corp.

After creditors are paid, which Azark said could take about three years, the company proposes giving the state two-thirds of the casino's available cash. The company would take the remaining one-third.

Harrah's has publicly criticized Penn National's proposal, arguing recently that it has submitted the most favorable bid for the state.

During a conference call this week to discuss the company's fourth quarter results, Harrah's Chief Executive Gary Loveman called Penn National's proposal "the most reckless action I've seen a company propose" and said it sets a "terrible precedent for how our industry should proceed."

In a separate announcement Thursday, Harrah's said it was in the "strongest position" to win the license.

"So many questions have been raised about Penn National's bid -- from its legality to its viability -- that we question its role, altogether, as a player in this process," the company said. "Harrah's solid financial footing combined with Waukegan's ideal location and the city's plan to invest a portion of its share of tax revenue into the rebuilding of its lakefront all put Harrah's Waukegan in the strongest position to win this process."

Penn National's proposal calls for the company to develop the casino, which would be sold to the state for $1. Penn National would receive a management fee equal to at least 10 percent of gaming revenue plus an incentive fee. The casino would cost $255 million and include a 200-room hotel.

"Penn has by far the most novel bid," said Merrill Lynch analyst David Anders, who upgraded his rating on the company's stock to "buy" from "neutral" on its future earnings potential and expansion opportunities.

Illinois last year enacted the highest incremental tax on casino revenue in the nation but is still courted by gaming companies interested in developing near the potentially lucrative Chicago market.