Harrah's Indian gaming trouble

from yesterday's Fort Wayne Journal Gazette

Harrah's Faces $2.8B Problem Over Casino
Published: October 28. 2007 5:06PM
By Ryan Nakashima And William Kates
Associated Press

"It garners a mere one-paragraph mention in the quarterly earnings report, but the private equity buyers of Harrah's Entertainment Inc. could have a colossal $2.8 billion problem on their hands.

The world's largest casino company by revenue inherited a legal quagmire that dates back to 2000.

That's when Arthur Goldberg, then chief executive of Park Place Entertainment Corp., signed a deal with the St. Regis Mohawk Tribe to acquire the exclusive rights to jointly develop a casino in the Catskills in upstate New York, just a 90-minute drive from Manhattan.

The tribe's current leaders say the deal was a sham, only meant to protect profits at four casinos in Atlantic City, N.J., now owned by Park Place's successor company, Harrah's.

It also pushed aside a deal the tribe had to build a casino in the Catskills, which seven years later, still has not been built.

Members of the tribe sued Park Place for its interference in 2000 and won a $1.8 billion default judgment in a tribal court mainly because Park Place lawyers did not show up. In July, the tribal court affirmed the judgment and tacked on $1 billion in interest owed.

The tribe sued again this summer, this time in U.S. federal court, to enforce the tribal judgment.

That could add a huge liability to the $13.9 billion in debt that Harrah's private equity buyers, Apollo Management and Texas Pacific Group, agreed to take on in the $17.1 billion deal expected to close by early next year." ...

"Part of what led to the tribe's exclusivity deal with Park Place in 2000 was its money-losing Akwesasne Mohawk Casino in Hogansburg, N.Y.

The year-old casino was reportedly losing as much as $500,000 a month, plagued by cost overruns and too few customers.

Park Place's Goldberg approached the tribe with a bailout deal, and the Akwesasne casino operator, Ivan Kaufman, was all in favor.

Kaufman even bragged to Park Place general counsel Clive Cummis on Feb. 16, 2000, that he was manipulating the finances of the casino to push the tribe into Park Place's hands, according to a tape he made of the phone call.

"I have kind of delayed their payrolls and slowed it down so badly that, you know, they're looking at Arthur as the savior," he said in the tape.

When the tribe signed the exclusivity deal on April 14, 2000, Park Place agreed to pay "$3 million for use by the Tribe in its discretion."

Former Chief Hilda Smoke denied the $3 million was a bribe. She said it was used to pay debts and keep the casino going." ...

"The problem with the deal became apparent in the following months and years.

Instead of a site at a racetrack in Monticello, N.Y., that had received a rare Interior Department approval for off-reservation gaming, Park Place suggested Kutsher's Country Club, the last of the big, old-style Catskills resorts. The site would need all regulatory approvals from square one." ...

"But clouding the tribe's claim is its own long-standing self-governance dispute.

The tribe tried to enact a constitution in 1995, but it narrowly failed to get 51 percent support in a referendum, sparking a crisis in which two sets of governments - the constitutional one and the traditional elected three-chief system - operated at the same time.

The turmoil put in jeopardy the tribal court system that was established in late 1994 - a weakness that Harrah's lawyers sought to exploit, Vacco said.

In a letter to Harrah's lawyer George Carpinello on Sept. 14, Interior Department regional solicitor Horace Clark said the Bureau of Indian Affairs would determine which government to recognize by the end of October.

If the bureau fails to recognize the three chiefs system, the court set up by the chiefs may be seen as illegitimate, potentially reducing the billion-dollar judgment to worthless paper. Regardless, the federal case will continue, Vacco said.

Today, the tribe is moving ahead with a $600 million casino at Monticello with the former partner it once spurned for Park Place, a company called Empire Resorts Inc. The 125-table, 3,500-slot machine casino would best nearby slots parlors because of the variety of action and its proximity to New York, says Chief Lorraine White." ...

"Ironically, it's not Indian casinos in the Catskills that are now jeopardizing profits at Atlantic City casinos - it's legalized slot machine parlors that have recently popped up closer to New York in Pennsylvania and Delaware.

Through September, Atlantic City's 11 casinos have taken in $3.8 billion, down 4.8 percent from the same period last year. It will likely mark the first annual revenue decline in the city's 29-year history of gambling.

Other jurisdictions in the northeastern U.S. are also flirting with gambling, including Massachusetts, the home state of Las Vegas Sands Corp. magnate Sheldon Adelson. Sands also is leading construction of a casino complex in Bethlehem, Pa., even closer to New York."

for the complete story see:
http://www.journalgazette.net/apps/pbcs.dll/article?AID=/200
71028/APF/710280700&template=apart