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Artist rendering of proposed Penn casino in Cherokee County.
Lottery allows developer 12-year buy-in for casino
BY FRED MANN
The Wichita Eagle
Without much enthusiasm, the Kansas Lottery Commission approved the first casino contract under the state's new expanded gambling law Monday.
It allows Penn National Gaming to phase in the required $225 million minimum investment for its Cherokee County casino over 12 years rather than paying it up front.
"Plain and simple, we don't like it," said Keith Kocher, the lottery's gaming facilities director.
But, he said, Penn National, which also is bidding for a Sumner County casino, was the only applicant in the southeast gaming zone, and the gambling law doesn't prohibit paying the minimum investment over time.
The contract will be forwarded to the lottery's review board, which will meet to make a decision in August.
Penn National, based in Wyomissing, Pa., said it asked to phase in the investment for its proposed $295 million resort because it faces competition from a $301 million casino being built by the Quapaw Tribe of Oklahoma nearby. The Penn National site is on U.S. Highway 166/400, about one mile north of I-44 in the southeastern corner of Cherokee County.
Its approach was questioned by a lottery consultant. The typical response to casino competition isn't to enter a market piecemeal, but to build a better product, wrote Richard Scheutz in a report to the commission. He is a Laguna Beach, Calif., economist hired to help the Kansas Lottery negotiate and evaluate casino contracts.
"They seem to be admitting defeat before the first punch was even thrown," Scheutz wrote.
But Scheutz also wrote that Penn National, which owns 19 gaming facilities in the U.S., had the financial ability, track record and management expertise to be "more than acceptable as a responsible financial partner in Kansas's gaming."
The contract allows Penn National to make an initial investment of $125 million and phase in the rest over time.
It also calls for the company to pay a $25 million privilege fee within 30 days, as required by the law.
Penn National can't expect the same phase-in provision for its proposal in Sumner County, where three other applicants are competing for a casino, Kocher said.
"It may be that we accept this holding our noses," he said, "but they would be attending their own funeral."
Penn National said the business climate is different in Sumner County, which doesn't face a $300 million casino opening across the border in Oklahoma.
"What we might propose in a different county is far different than what the facts are in Cherokee County," said Tom Auriemma, vice president and chief compliance officer for Penn National.
The company has proposed a $365 million casino near the Wellington exit of the Kansas Turnpike. Other Sumner County bidders include Marvel Gaming for a resort at the same exit, and MGM Mirage and Harrah's Entertainment for projects near the Mulvane exit.
The deadline for the lottery to sign contracts with the Sumner County applicants is May 27. The commission will hear presentations from the developers May 19-20 in Topeka.
Auriemma said the company plans to open its Cherokee County casino on May 5, 2010, with 34,500 square feet of gaming space, 900 slot machines and 30 table games. The first phase will include a buffet, coffee shop, gift shop and entertainment lounge/bar.
He said amenities that may be added later include a 200-room hotel, a car museum, an event center, pool and spa facilities, more food and beverage amenities, and additional gaming. The casino could expand to 1,500 slot machines, he said.
Penn National's contract also calls for a progressive rate of payments to the state. It will pay the minimum 22 percent required by the law for the first $200 million of gambling revenue, 25 percent from $200 million to $250 million, and 28 percent above $250 million.
Kocher said he thought those revenue levels were too high, but he said they were the best the lottery could negotiate.
Cherokee County will receive 2 percent of the revenue and Crawford County, the other county in the Southeast zone, will receive 1 percent.
