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Monday, June 13, 2011

Kasich Shakes Down Casino Developers

Posted By on Mon, Jun 13, 2011 at 5:15 PM

Not sure who this applies to now.
  • Not sure who this applies to now.

The schoolyard brawl between Governor John Kasich and casino developers Rock Gaming and Penn National could be over soon. For the last few months, construction on Ohio’s four casino projects has stalled due to headlock. The state wanted to see more money from the industry, and the industry wasn't interested in losing ground to the state.

But this weekend, Kamp Kasich beamed out news that a compromise had been made between the state and Rock. But just because we’ve got détente don’t mean the future is crystal clear. In fact, now that the governor has proven he can successfully shakedown casino developers, the old dynamics may be out the window.

“This is fucked up,” a veteran of the gaming industry tells Scene. “Investors want stability. If state governments can change rules at will, that’s the antithesis of stability.”

Let’s back up. Neither side has yanked back the curtain to show off the specifics of the new arrangement, but the Columbus Dispatch has some sources-say info that gives us hints. The deal doesn’t include increased taxes. According to the paper, individuals in the know say Rock will fork over a “significant payout” over “multiple years” in addition to the current $50 million per casino licensing fee. As per the fine print, the governor will boot a provision from the state budget that would apply Ohio’s commercial activity tax on wagers before winnings — a move that would have cost developers hundreds of millions annually.

But the paper reports the arrangement is mum on one central topic: whether the state will allow video slots in Ohio’s racetracks. The answer to that question would radically shake up Ohio’s industry just as it’s essentially learning to crawl.

Interestingly, the Dispatch also says Penn National was close to signing a similar agreement, but backed out at the last minute.

The reason one developer succumbed to the administration’s pressure and the other choose to fight another day gets right to the gooey middle of issue: Penn can afford to walk away from negotiations; Rock was in a trickier spot.

Over the last few months, as Kasich has been coy about new taxes or fees, Rock’s been trying to secure the loans necessary for a successful long jump from the drawing board to three dimensions. As Rock’s Matt Cullen told the Plain Dealer in April, the lack of clarity from the state was hampering a final deal.

"The lenders have said, 'We love you guys. We love these projects,' " Cullen said at the time. "But we don't understand the noise coming out of Columbus. What does it mean?"

Hopefully, this deal will put Rock back on track and get the doors open on the Cleveland project. Penn National, however, doesn’t need to worry about financing, so they have more weight with which to push back against the state’s demands.

And what the state wants is simple: cash. Rubberband banks. Bills. There is a budget hole that needs filling, but something about this push just seems a little unsavory. The fact that Kasich quickly dropped the commercial activity tax — not to mention that is wasn’t really even possible in the first place — indicates it was never an option, just the blunt instrument the governor threatened to bash the industry with unless they played ball. No, the state wanted that fee — the payoff to go away — and they got it with some strongarm tactics — which is why the industry insider above is a little unnerved. Banks like a sure bet, and a fickle state government with a record of squeezing money from an industry when it feels justified to do so doesn’t help the odds for success.

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