Saturday, March 06, 2004
Copyright © Las Vegas Review-Journal

Board recommends Harrah's for final gaming license in Illinois

Harrah's Entertainment cleared another hurdle Friday in its quest to win the last available gaming license to operate an Illinois casino.

The Illinois Gaming Board chose Harrah's proposal to build a 50,000-square foot casino in Waukegan, a northern Chicago suburb. But the company still has two competitors and two more hurdles to clear before winning final approval.

Harrah's Entertainment's offer totaled $375 million. Midwest Gaming and Entertainment submitted a $360 million bid to build a 40,000-square-foot casino in Des Plaines, and Isle of Capri Casinos submitted a $351 million bid for a 40,000-square-foot casino in Rosemont.

Gaming board spokesman Gene O'Shea said Friday any of the companies could still raise their antes for the license, which will be auctioned off Wednesday.

The results will be announced March 15. The U.S. Bankruptcy Court will then schedule a final hearing and approve the selection.

Deutsche Bank analyst Marc Falcone said the selection was good news for Harrah's, especially since there had been antitrust concerns that could have eliminated the company.

"However, as we have pointed out, Harrah's bid was the highest and it presented a very strong case to the board about its location north of Chicago. The Waukegan location would attract 30 percent of its business from Wisconsin and result in the least amount of cannibalization on the existing operators, therefore resulting in higher tax dollars," he said.

Harrah's spokesman Gary Thompson said his company is "delighted at the Illinois' Gaming Board's recommendation for our proposal and we look forward to the competition and the process next Wednesday when the final auction will occur."

Merrill Lynch Analyst David Anders predicted Friday in an advisory to investors that Harrah's would be selected.

"While there is still a chance that Harrah's may not be awarded the license, we believe that Harrah's proposal to locate the casino in Waukegan, out of the way of other casino operators, puts them in good stead with the state," he said.

If it wins the auction and is approved by the U.S. Bankruptcy Court, Harrah's is ready to proceed with development and expects to open the doors 15 months later, Thompson said. A hotel with 250 to 500 rooms and restaurants is planned.

Falcone said the Illinois operation could add to Harrah's cash flow and earnings by late 2005 and that the location would have little or no impact on current operations in Joliet and northern Indiana.

Analysts estimated the new Harrah's casino in Illinois could generate $75 million in added cash flow, a key measure of profitability, on a total investment of about $575 million.

Harrah's plans to own 60 percent of the casino, with its local development partner owning 20 percent and minority investors owning the remaining 20 percent.

Falcone said the new operation would add 10 cents to 15 cents to earnings per share, assuming the incremental tax rate that was raised to 70 percent last year is cut to 50 percent.

Anders explained the law raising the tax rate included provisions for a rollback once the 10th licensee is operational. He said the tax cut alone could add as much as 24 cents a share to Harrah's bottom line.

Caesars Entertainment and Mandalay Resort Group had been in the chase for the 10th license, but were eliminated by the board last month. Wynn Resorts Ltd. withdrew last month as a partner in Midwest Gaming.

The dormant license is held by bankrupt Emerald Casino. The state, which projects a $1.7 billion budget deficit through June 2005, will share proceeds from the license with Emerald's creditors.

More than $120 million from the sale will go to the creditors, bankruptcy court documents show.

Bloomberg News contributed to this report.