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Wednesday, May 25, 2011

Kasich's Casino Consultant Meeting with Developers Today

Posted By on Wed, May 25, 2011 at 11:28 AM

I think this ran as part of that PD package last week.
  • I think this ran as part of that PD package last week.

This morning the Plain Dealer is reporting that the Wall Street firm Governor John Kasich hired to work out the details of Ohio’s gaming industry will be sitting down the state’s two casino developers today. And by “work out the details” we mean that Moelis & Co. was tapped to squeeze more dollars out of developers — and the firm has a financial incentive to do so.

The parties involved were mum on the matter, but the paper cites sources close to the situation. It’s about time this happened, because God knows the tension has been percolating for months.

To recap: Kasich thinks the casino developers — Rock Gaming and Penn National — got off too easy with the $50 million licensing fee and 33 percent tax currently leveled at the industry according to statute. He’s threatened to suck more cash from the casinos by reapplying the state’s commercial activity tax, a move developers characterize as unorthodox and unfair.

The disagreement has already ground construction on the projects to a halt, sidelining workers and likely pushing back the projected opening dates.

One of the more interesting aspects of this head-butting is that the NYC firm stands to make big money if they can get developers to fork over more cash — a dangling-carrot strategy that seems somewhat of a conflict of interest. As the PD explains:

In addition to its $200,000 monthly retainer, which state officials say equates to roughly $400 an hour, Moelis has an incentive fee in its contract for 3.25 percent, up to $13 million, of any additional revenue it can get from casino developers and other forms of gambling.

An official with the state department of administrative services, which awarded Moelis the contract April 29, said last week that contracts with incentive fees were "not typical."

"But this is the first time the state has entered into contracts with gaming industry consultants, which is unlike most industries," said Molly O'Reilly.

To get the full $13 million in incentive fees, Moelis would have to generate an extra $450 million dollars in gambling revenue, O'Reilly said. "This would be a good return of investment for the state," she added.

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