Las Vegas-based Caesars Entertainment Corp. is arguing that a $50 million transfer fee should not be applied to its acquisition of Centaur Gaming LLC and its two casinos. And if the Indiana Gaming Commission doesn’t agree, Caesars said it likely won't pursue a $90 million project in the state that's on the drawing board.
Caesars revealed in November 2017 that it planned to pay $1.7 billion in cash to buy Indianapolis-based Centaur and its Hoosier Park casino and racetrack in Anderson and Indiana Grand casino and racetrack in Shelbyville.
Caesars already owns two casinos in Indiana—Horseshoe Southern Indiana Hotel and Casino on the Ohio River in Harrison County, and Horseshoe Hammond Casino on Lake Michigan in northwest Indiana.
State law prohibits one company from owning more than two casinos in Indiana. However, that doesn't apply to the racetrack-based casinos, which were authorized under a different law. The move would give Caesars, one of the world’s largest gambling companies, control over four of Indiana’s five top casinos, when measured by gambling revenue.
The transaction requires approval from the Indiana Gaming Commission and the Indiana Horse Racing Commission, which are both expected to consider the request in May or June.
However, in the meantime, a debate over whether the state’s $50 million transfer fee should apply to the transaction has begun behind closed doors.
According to state law, the initial casino license holder is required to pay a $50 million transfer fee when the controlling interest in the license is sold. The law has a few exceptions that would waive the fee, including a transfer resulting from bankruptcy by the initial license holder.
The initial license holders for Hoosier Park and Indiana Grand were Hoosier Park LP and Indianapolis Downs LLC, respectively. Centaur was the parent company for Hoosier Park LP.
In 2010—two years after the licenses were issued—Centaur filed for Chapter 11 bankruptcy. The bankruptcy plan created new entities to oversee Centaur’s holdings. This included transferring the license for Hoosier Park from Hoosier Park LP to Hoosier Park LLC.
The $50 million transfer fee did not apply at that time because the arrangement was a result of Centaur's bankruptcy.
During the gaming commission hearing for the Hoosier Park fee, Centaur asked the commission to include a provision in the order that stated the fee would not apply to future transfers, but the commission denied that request.
In April 2011, Indianapolis Downs LLC also filed for Chapter 11 bankruptcy, and in 2013, Centaur acquired the license and rights to Indiana Grand for $500 million.
The $50 million fee also did not apply to that transaction because it again involved the initial license holder, in this case Indianapolis Downs, filing for bankruptcy.
In January, Elizabeth Cierzniak, a partner at Faegre Baker Daniels LLP representing Caesars, emailed Indiana Gaming Commission Executive Director Sara Gonso Tait a memorandum arguing that the fee should not apply in either case because the transactions do not involve initial license holders.
However, after researching the issue, staff at the Indiana Gaming Commission disagree.
“The commission staff has reviewed the document submitted by Caesars, and we respectfully disagree with their conclusion,” Deputy Director Jennifer Reske said. “Commission staff has conducted a thorough review of the applicability of the fee, and it is staff’s position that the fee does apply to the transfer of Hoosier Park, and staff requires the fee to be paid by Centaur.”
But Reske declined to elaborate further.
“To the extent this is considered by the commission, it will be discussed publicly by the commissioners,” Reske said.
The commission is expected to discuss the fee issue at a meeting in May or June, when it reviews the entire Caesars-Centaur deal.
But that might not be soon enough for Caesars, which is tying the fee decision to another proposed Indiana casino project.
According to emails and a voicemail IBJ obtained through an open records request, Caesars is planning to invest $90 million at its Horseshoe Southern Indiana casino.
Details for the project were not immediately available, other than it would involve constructing a land-based facility on Horseshoe Southern’s property.
In 2015, the Indiana General Assembly passed a law that allows casinos to move onto dry land, as long as the new facility is within their existing footprint.
The Horseshoe Southern project had been expected to be introduced at the commission’s meeting March 8, but Caesars officials believed the $50 million fee issue would have been resolved prior to that.
“… Caesars is now facing some very difficult decisions with regard to its proposed $90 million investment in southern Indiana,” Timothy Donovan, executive vice president, general counsel and chief regulatory and compliance officer for Caesars, wrote in an email to Tait on March 2. “We would prefer not pulling it from next week’s agenda, but at this point we may have no choice given the continued uncertainty surrounding the $50 million transfer fee.”
Donovan added that the company did not expect to “be approaching the eve of our public announcement of the Horseshoe Southern Indiana project without knowing whether we would also face a $50 million transfer fee.”
He also said the uncertainty with the fee was causing the company “great concern about our decision to increase our investment in Indiana.”
Donovan ended the emailing by encouraging Tait to help resolve the fee issue before March 8.
The same day, Cierzniak left a voicemail for an attorney for the commission reiterating that the $50 million fee could jeopardize the southern Indiana project.
“Frankly, if we don’t get a favorable resolution of this, I don’t think they want to have the presentation on Thursday because they’re going to have to reconsider the entire investment,” Cierzniak said in the voicemail on March 2.
The threat from Caesars surprised commission staff.
“It was not until we received [Cierzniak’s] voicemail yesterday afternoon that we were made aware there could be any impact upon Caesars’ decision to proceed with Horseshoe Southern’s land-based request,” Tait wrote in an email to Donovan on March 3. “To assert we were aware of this contingency and deadline you are now imposing for clarification is inaccurate.”
Tait told Donovan that the decision regarding the fee wouldn’t be final until the commission reviews the entire Caesars-Centaur transaction, and that it isn’t up to staff to make the decision.
Reske told IBJ that the staff can only make recommendations to the commission.
“Staff’s role is to conduct research and to make a recommendation to the commission,” Reske said. “This is ultimately a commission decision, not a staff decision.”
Given the ongoing uncertainty, the Horseshoe Southern Indiana project was not included on the commission’s March 8 agenda.
“We’re very disappointed Caesars has decided to make the project in southern Indiana contingent upon a favorable opinion of the $50 million fee,” Reske said.
Caesars did not immediately respond to IBJ’s request for comment.
Centaur has also weighed in on the fee issue. On March 7, the company sent Tait a letter saying it also doesn’t believe the $50 million fee should be imposed on the Hoosier Park transfer.
The letter said the company “reserves all of its rights and intends to take all appropriate action, including but not limited to litigation, to resist imposition of the fee.”
Centaur did not immediately respond to IBJ’s request for comment.
“Concerning the correspondence we received from Centaur, we completely understand why a company would want to seek judicial review on this matter,” Reske said.