Caesars Entertainment Corp. on Feb. 3 pocketed $92.5 million in gambling income from its neon-lit Harrah's Chester Casino betting hall, built in 2006 next to the state prison in one of Pennsylvania's poorest cities.
After hearings last year, the Pennsylvania Gaming Control Board, approved Caesars subsidiary Chester Downs and Marina LLC's proposal to borrow more than $330 million from investors, using the company's Harrah's Chester Casino as collateral.
The money includes $234.5 million to refinance the debt that built the square hall through a Feb. 3 bond sale; $8 million in fees and expenses; and $92.5 million to be paid to Caesars.
Who got the money? Caesars' controlling owners are Apollo Global Management LP, the buyout firm cofounded by Joshua Harris, new owner of the Philadelphaia 76ers, and TPG (Texas Pacific Group), the buyout firm that owns part of Wayne-based SunGard (and was going to buy Cardone Industries, the Northeast Philadelphia auto parts refurbisher that's moving operations to the Mexican border; that deal cancelled last month. Corrected).
The board's own Office of Enforcement Counsel, which reviews casino payouts to investors to make sure they aren't paying themselves more than they can afford, at first challenged the Caesars payment, which increased the debt on the property.
"Since Chester was increasing its debt by approximately $100 million and also upstreaming a large portion of that increased debt" to the casino's owners,"the Office of Enforcement Counsel took the position that Chester had to prove its continued financial stability by submitting evidence to the full board," Frank DiGiacomo, one of a team of Duane Morris LLP lawyers who argued Harrah's case, told me. The company stressed its "continuing" investment in the Chester casino as "an important part of its global operations," he added.
After two days of testimony, the casino's lawyers convinced the board they could refinance the existing debt at lower rates; that enough gamblers are losing money there to keep the place profitable even if it took on more debt to pay investors; and that the payment could be made in lieu of management fees, which Harrah's hadn't collected up until then, Doug Sherman, the board's chief counsel told me. "We had not seen this before," he added.
The vote was unanimous, except that new chairman William Ryan recused himself. Ryan is a former district attorney for Delaware County, where Chester is located.
As my colleague Suzette Parmley reported earlier this month, Harrah's was the only Pennsylvania casino to report "a sizeable decrease" in gross revenue for January (a 6.8% decrease, to $20.1 million).
How much is $92.5 million, in Chester terms? A lot more than the $18 milion the Chester Upland School District raised from local taxpayers last year; but not so much more than the $87 million kicked in by state and federal taxpayers at the same time.