Harrah’s review focusing on Chicago area

Tuesday, May 18, 2004 | 10:46 a.m.

Federal regulators studying a major merger involving Harrah's Entertainment Inc. have recently focused their attention on the potential market concentration of Harrah's casinos around the Chicago area, an official for Harrah's said Monday.

For the past several months, the Federal Trade Commission has been investigating Harrah's pending acquisition of Horseshoe Gaming Holding Corp. Harrah's expects the $1.45 billion deal -- which includes Horseshoe riverboat casinos in Shreveport, La., Tunica, Miss. and Hammond, Ind. -- to close by the end of June.

"Their interest has shifted to Chicago," Harrah's spokesman Gary Thompson said of the agency.

Louisiana regulators had expressed initial concerns with the company's acquisition of the Horseshoe casino in Shreveport, which led Harrah's to announce the sale of Harrah's Shreveport in conjunction with the Horseshoe deal, Thompson said. Federal regulators also had some initial concerns with potential market concentration in Shreveport, he said.

Louisiana regulators on Monday approved the sale of Harrah's Shreveport to Boyd Gaming Corp. of Las Vegas for $190 million. The sale "eliminates one potential objection that the FTC might have" with the merger, Thompson said.

Harrah's owns casinos in Lake Charles, La., and New Orleans as well as a racetrack with slot machines in Bossier City, which is near Shreveport. Owning the Shreveport casino as well as the Horseshoe casino in Bossier City would have given the company three casinos in the region and a position of market dominance.

The acquisition of the Shreveport casino gives Boyd Gaming Corp. three casinos in Louisiana and its first in Shreveport, near the Texas border in the northern part of the state.

Boyd owns the Treasure Chest casino near New Orleans and Delta Downs in Vinton, La., which is near the Texas border in southern Louisiana.

In November, Harrah's said the FTC had asked for more information about the merger. The agency requested information about all the markets in which Harrah's will be buying casinos but is particularly interested in potential market concentration in the Chicago area, Thompson said.

Harrah's isn't aware of any particular concerns federal regulators have with the acquisition of Horseshoe Tunica, he said.

The FTC doesn't comment on pending investigations.

Harrah's Tunica isn't a market leader and competes with three Caesars Entertainment Inc. casinos there, analysts say. Tunica already has about 10 casinos. Analysts also have downplayed market concerns in the Chicago area because of the proliferation of well-financed casinos there and because Harrah's owns fewer casinos there than it does in Louisiana.

Harrah's owns a casino in East Chicago, Ind., near the Horeshoe casino in Hammond, Ind., as well as another Harrah's casino in Joliet, Ill. Joliet is less than an hour from Chicago in Northern Illinois. East Chicago is about 30 minutes from Chicago and Hammond is about 35 minutes away.

Harrah's also has a casino in Metropolis, Ill. -- more than five and a half hours and 360 miles from Chicago near the Kentucky border.

Last month, the Indiana Gaming Commission approved Harrah's acquisition of the Horseshoe casino in Hammond with the condition that the deal also be approved by the Federal Trade Commission. The deal marks the first time a company has taken advantage of a new law that went into effect last year allowing companies to own more than one casino in Indiana.

Indiana regulators added several conditions to the approval, including requirements that Harrah's keep a separate management team for each riverboat and notify the Indiana Gaming Commission of any operational consolidations. The approval also requires Harrah's to abide by the terms and conditions of an existing development agreement between the City of Hammond and Horseshoe Gaming.

Unlike Indiana's other riverboat casinos, the Hammond casino sits on land owned by the city.

Hammond Mayor Thomas McDermott Jr. complained about the regulatory process during last month's meeting, saying he was left out of the loop.

"The lines of communication broke down," said Kevin Smith, special counsel to McDermott. "The only communication he had with Harrah's before the gaming commission hearing was a brief sitdown in the mayor's office in January. He didn't hear about what they were proposing (to regulators)" until the hearing.

"We have a very good relationship with the Horseshoe and (company owner) Jack Binion," Smith said. "We're hoping to see that Harrah's does a better job (of communicating) than they have."

The riverboat generates about $23 million a year in state taxes and another $5.3 million or so goes to the city annually based on the boat's admission tax, he said.

"The influx of revenue at this point in time is unmatched," Smith said. "It's a jewel of the city."

Thompson said the company, as a rule, "communicates openly with the communities in which we operate."

"Our goal is to have full and open communication with all our stakeholders," he said.

Thompson said he wasn't aware of any other local officials complaining about the pending acquisition.

"If the inference is that we'll be bleeding assets off from those properties and diverting them elsewhere, that's just not the case," he said. "You don't invest that kind of money and do anything other than maximize the operation as well as you possibly can."