Developer in Sumner casino for big stakes

As a world champion poker player, Lyle Berman has been holding 'em, folding 'em and going all in since he was 10 years old.

The bigger the stakes, the better.

"If it doesn't hurt to lose, it's not exciting," Berman said.

The CEO of Lakes Entertainment is playing for big stakes with Chisholm Creek Casino Resort, which his company would manage at the Kansas Turnpike exit near Mulvane if the state casino review board approves it next week.

The company plans a $225 million facility that would start with an all-cash $150 million first-phase investment, which includes a mandatory $25 million privilege fee.

The casino review board is scheduled to decide next week in Topeka whether to approve the project, which would be owned by the state.

If the board approves, the Kansas Racing and Gaming Commission would conduct background checks before a contract with the state could be finalized.

Developers have said the resort would open in September 2011, followed by the opening of a hotel in March 2012.

A controversial figure

Berman has won and lost at poker and in the casino business since co-founding Lakes' predecessor, Grand Casinos, in 1991.

Grand Casinos built and managed Indian casinos in Minnesota and larger casinos in Louisiana and Mississippi.

After it was absorbed by Park Place Entertainment in 1998, Berman spun off Lakes. The Minnesota-based company operates three Indian casinos in Oklahoma, California and Michigan, with agreements to build more.

But Berman has raised hackles along the way.

* Lakes made a surprise and controversial foray into non-Indian casino gambling in Ohio just before voters there approved a historic referendum earlier this month. Berman was criticized for not revealing that the company had contributed to the referendum campaign in exchange for shares in the new casinos.

* Berman was in charge of a large Las Vegas casino, the Stratosphere, when it went bankrupt only months after it opened in 1996.

* Berman lost money after investing for many years with convicted Wall street con man Bernard Madoff.

* His company still faces a lawsuit in Louisiana over back taxes.

The three-time World Series of Poker champion said he has learned that business is like poker.

"Poker reinforces that decisions matter, and you're responsible for your decisions," Berman said. "In poker, you find out the ramifications in about 30 seconds. In business, it might be three years before you find out."

Chisholm Creek plan

Berman thinks Lakes is holding four aces in its bid to win the review board's approval, even though the board has made it clear it can reject the proposal if it isn't satisfied.

In the first phase, Lakes is offering a casino with 1,300 slot machines, 30 gaming tables, eating and entertainment venues, and an emergency services substation.

It negotiated with Double Down Development of Topeka to build a hotel of at least 100 rooms to satisfy the board that the facility would be a "destination casino."

Berman said that the addition of the hotel and more entertainment inside the casino, including a sports bar and live music area, boosted its first-phase amenities and should meet the board's wishes.

"I think they'll be very pleased," Berman said.

Questions remain

The review board has questioned whether the company will expand the facility after starting small.

Berman said it always expands its properties.

Grand Casinos built casinos from the ground up, starting with two tribal casinos in Minnesota and expanding to Louisiana and Mississippi.

In Minnesota, Berman said, Grand Casino Hinckley opened in 1992 without a hotel and now has a 450-room facility. It started with 1,200 slot machines and grew to 3,300.

The Grand Casino Gulfport opened in Mississippi in 1993 with no hotel rooms and grew into a facility that could support a hotel with 1,000 rooms.

Similar growth occurred with Grand Casinos in Coushatta, La., and Tunica and Biloxi, Miss., he said

"One of the things we've tried to impress the lottery commission with is that we always grow," Berman said. "We don't start out with the Taj Mahal; we let the consumers tell us what they want."

The same will happen in Sumner County, he said.

"If you look at the casino five or eight years after we open I think it'll be substantially different —bigger and better," he said.

Oklahoma casinos

Lakes manages the Cimarron Casino near Perkins, Okla., for the Iowa Tribe of Oklahoma. It has 350 slots and a small food venue.

It plans to build another casino for the tribe 25 miles northeast of Oklahoma City that would be similar in size to its planned Sumner County facility.

That project is languishing before the Bureau of Indian Affairs.

The casino would include 1,200 slots, 25 tables, three restaurants and a 150-room hotel, with the potential to expand gambling, add hotel rooms and build a golf course in future phases.

Berman said construction could begin next year, possibly about the same time as the Sumner County casino.

The Oklahoma facility would exist at the outer edge of the market defined by consultants hired by the state of Kansas for Sumner County's casino, but Berman doesn't think he'll be competing with himself.

"I don't think we'll compete at all in the day-trip market," he said. "Certainly we would compete a little with the hotel, but there's 30 or 40 casinos in Oklahoma and I don't think one more or less would have a really direct competition with the Wichita casino.

"We don't consider it be to be a conflict of interest at all," he said, adding that each facility would have its own operations and marketing staff.

Lakes also manages the Four Winds Casino Resort in New Buffalo, Mich., for the Pokagon Band of Potawatomi Indians. It opened in August 2008 with 3,000 slots and 85 tables.

In its third-quarter report, Lakes said the casino is achieving expected results. Tough economic times and new competition from another casino had a negative effect for the quarter, but not to the level Lakes had anticipated, the company reported.

Lakes also manages the Red Hawk Casino near Sacramento, Calif., for the Shingle Springs Band of Miwok Indians. That casino opened last December with 2,100 slots and 75 tables.

The Red Hawk is earning less than expected, the company reported. Housing and financial markets have limited customers' discretionary spending in a highly competitive casino market, it said.

For the nine-month period ending in September, Lakes reported revenue of $21 million, compared with $18.9 million for the previous year's period, primarily due to the opening of the Red Hawk.

Lakes would manage the Sumner County casino, but would put up only 17 percent of the investment. Och-Ziff Real Estate of New York would invest 50 percent, and Clairvest, a Canadian private equity firm, would put up the remaining 33 percent.

Lakes' share comes to $25 million, of which it already has invested $8 million, Berman said.

Berman dismisses concerns about Lakes' ability to fund its share of the project. The company has $150 million in assets and no debt, and its partners have stated they'd cover Lakes' share if necessary, he said.

"That's really a nonissue," Berman said.

But the company could face additional financial stress if it invests in Ohio's newly approved casinos or loses a lawsuit filed against it by the Louisiana Department of Revenue.

Lakes involved in Ohio

Berman raised eyebrows, and ire, in Ohio earlier this month when Lakes suddenly popped up as potential part owner of four casinos that voters had approved, one each for Cleveland, Cincinnati, Columbus and Toledo. It was the first time Ohio voters authorized casinos for the state.

The campaign was backed by Rock Ohio Ventures, led by Dan Gilbert, owner of the Cleveland Cavaliers, and Penn Ventures, a subsidiary of Penn National Gaming.

Voters didn't know until after the election that Lakes had entered into agreements to fund 10 percent of the referendum costs —estimated at $35 million — in exchange for the option, but not the obligation, to a 10 percent share of each casino. Lakes would be a passive investor.

The news caused controversy because Lakes had funded a heated campaign in Ohio the previous year that would have allowed it to build a single casino in Clinton County, Ohio. That effort that was trounced at the polls.

Berman had been vilified during that campaign as a professional gambler and incompetent businessman who had bankrupted the Stratosphere, a 135-story tower, casino and hotel in Las Vegas.

Penn National, one of his new Ohio partners, led the attack against him.

"As the saying goes, it was just business," Berman said. "We didn't take it personally."

Backers of this year's campaign denied rumors of Berman's involvement before the vote. It wasn't revealed until a few days after.

"We didn't announce it because we didn't actually sign any agreements until a week before the election," Berman said.

He and the other partners also knew that casino opponents would've pounced on him had the news been revealed.

"We just didn't see any reason to give them more ammunition to distort the facts, so we didn't announce it until after it was done," Berman said.

Bankrupt casino

Berman was Grand Casinos' chairman of the board when the Stratosphere went bankrupt.

"I don't think chairmen of boards are necessarily exclusively responsible for bankruptcies," he said.

Unfamiliarity with the Vegas gambling market was to blame, Berman said.

"The primary reason was that we didn't build enough rooms when it started. In Las Vegas if you don't build 3,000 rooms you won't have a major casino, and we only had 1,500 rooms."

The company also had veered away from its primary strength — developing casinos in emerging markets, Berman said.

"There's a lot of things about the Las Vegas market we didn't understand as well as we should have," he said. "We always open the big dog on the block, and in Las Vegas we were not the biggest and the best."

Berman said he lost $25 million of his own money on the venture and the company lost about $100 million.

The lawsuit in Louisiana claims that Lakes owes about $8.6 million in taxes, plus interest, on earnings from management fees at two Indian casinos in 2000 and 2001. The lawsuit will go to trial in February.

Berman thinks Lakes will prevail.

"We believe we did pay exactly what we were supposed to," he said. "We kept very meticulous records while we were there."

Berman said that losing the lawsuit "won't affect the Wichita casino in any way."

The company would raise money for its Kansas venture and any additional costs in Ohio and Louisiana through equity or debt financing, or a combination of both, he said.

Berman's own finances took a hit when Madoff's Ponzi scheme was exposed. He wouldn't say how much he lost.

He'd invested with Madoff for more than 20 years, he said.

"When all this was discovered I didn't have a huge amount, but it wasn't a happy day, I can tell you that," he said.

An early risk-taker

Berman has been playing for high stakes since his college days. He and two roommates were kicked out of the University of Pennsylvania's Wharton School of Business in the early 1960s for running a poker game out of their apartment.

In his book, "I'm All In," Berman wrote that it might've been the best things that happened to him. He wouldn't have achieved the degree of success he enjoys if he'd finished his degree there, he wrote.

Berman kept playing at the University of Minnesota, where he graduated in business administration, then joined his father's leather business and expanded it to 200 stores, selling it twice in the process.

When friends approached him for money to develop casino projects in Minnesota, Berman thought it was a good opportunity, and in 1988 began developing and managing Indian casinos.

Berman said he also was among the first to see the opportunity to develop large casinos in emerging markets like Louisiana and Mississippi.

Among many other ventures, Berman was co-founder of the World Poker Tour in 2003, which helped bring the game out of back rooms and onto television screens.

About a year ago, Lakes distributed its shares of WPT stock to its shareholders, and has nothing more to do with it, but Berman remains its board chairman and largest stockholder, he said.

Berman still dabbles in tournament play, finding links to the game and his business.

"I don't like to use the word 'gambling,' but most businesses have some degree of risk in them, and gaming has a number of risks," he said. "We try to minimize the risks."