HARRISBURG - Four years after winning a coveted license to operate a waterfront gaming hall in Philadelphia, the Foxwoods Casino partners had it taken away today, with the state's gaming board rejecting their attempt to salvage the deal by partnering with Harrah's Entertainment.
The board voted six to one to revoke the license, with only James Ginty, the former president of AT&T Pennsylvania and an appointee of Gov. Rendell, voicing continued support for the project.
Lawyers for Foxwoods were shocked by the decision. F. Warren Jacoby of Cozen O'Connor said the partners had not made a decision yet on whether they would appeal.
"We came prepared to have them say, 'We're very pleased,' " Jacoby said.
This is the first time the state has revoked a gaming license and most likely ensures that Philadelphia will not have a second casino for some time. Both regulators and Foxwoods lawyers predict that the matter could be tied up for years in court.
The state's gaming law does not spell out what to do in the event of a license revocation. Doug Sherman, the gaming board's chief counsel, said an appeal of the decision would have to be handled by Commonwealth Court.
He said the agency was "a long way from making a decision" on whether the license would be put out to bid again. He said the specter of litigation with Foxwoods could "freeze" that license. "We have to wait and see," Sherman said.
The board's decision marks the stunning collapse of a project that was viewed as a sure thing in 2006 when it won one of the city's two gaming licenses. The men behind the project were some of Gov. Rendell's closest friends, including South Jersey entrepreneur Lewis Katz, Center City developer Ron Rubin and Comcast-Spectacor chairman Ed Snider. They partnered with the Mashantucket Pequot tribe in Connecticut, operator of the country's largest casino, to develop, build and operate a waterfront casino on South Columbus Boulevard in South Philadelphia.
In testimony before the board this morning, lawyers for the Foxwoods group - known as Philadelphia Entertainment & Development Partners (PEDP) - said they had reached a final agreement on Dec. 10 for Harrah's to take over the project. The two sides have estimated that they need to raise $275 million to build a 60,000 square foot casino, including $75 million in equity and $200 million in debt.
PEDP attorney Jacoby testified that the group had a firm commitment for $46 million in equity: $25 million from Harrah's and $21 million from Snider and a charitable family trust controlled by Melissa Silver, the daughter of Katz, putting in another $21 million.
Jacoby told the seven commissioners that investment bankers would be "actively soliciting starting tomorrow" to raise the remaining money. He said there were a number of original partners, in addition to Snider and Silver trust, with "a strong desire to invest substantial sums of money" in the project.
Jacoby added that two lenders also had issued letters that they were "highly confident" that they would be able to help raise the $200 million in debt needed to begin construction.
But commissioners and enforcement lawyers for the board expressed doubts about financing and the nature of the proposed new casino.
Cyrus Pitre, chief enforcement counsel for the board, testified that the final agreement to bring Harrah's into the project was contingent on too many variables. He said some of the attachments to a critical "change of control" document had attachments as evidence of a definitive deal that were unsigned.
Pitre said he would not call the purchase agreement between PEDP and Harrah's definitive. "They have their opinion; I have mine," Pitre said. He added that based on documents that PEDP and Harrah's turned over to the board, it would have been as late as May 2011 before they completed all aspects of a deal.
The vote both stunned and pleased anti-casino activists.
"We've been fighting this for four years. I know it's the right decision," said Lily Cavanagh, an activist with Casino Free Philadelphia. "We still have a lot of work to be done to make sure predatory gambling doesn't belong in neighborhoods."
In questioning of PEDP and Harrah's lawyers, commissioners seemed to zero in on three aspects of the deal: the changed charitable nature of the deal; the smaller physical scope of the proposed casino; and the unfinished financing of the project.
Commissioner Kenneth I. Trujillo, a former Philadelphia city solicitor, pointed out that in its bid to win a license in 2006, PEDP played up the fact that 42 percent of the project's profits would go to charities to help underprivileged children in Philadelphia and South Jersey. Snider and charitable interests for the families of Rubin and Katz had pledged all of their earnings to nonprofits - an amount that could have equaled $300 million over 10 years.
Under the Harrah's deal, the casino would donate 2 percent of revenue to a partnership representing local investors. Jacoby had testified that at least $500,000 a year for the next seven years would go to a Connecticut museum run by the Pequot tribe.
"The only solid commitment," Trujillo said, "is $3.5 mill go to the Pequot museum in Connecticut."
Gaming Board Chairman Greg Fajt seemed to focus on the fact that the project being proposed by PEDP in 2010 is vastly different than the one approved for a license in 2006.
Fajt noted that the original plan was for a $525-million project with 90,000 square feet of gaming space for 3,000 slots, a showroom, 600-seat buffet and garage for 4,200 cars.
The Harrah's Horseshoe would have covered 64,000 square feet of gaming space for 1,500 slots; 1,372 parking spots, no showroom and less dining.
Ginty, the only commissioner to vote for the project, said the decision could put Philadelphia's ability to hold onto a second license at risk, as well as the jobs and tax revenue that would have been generated by the project.
"At best, this will delay those jobs and revenue for five years," Ginty said.
The investors behind the Foxwoods project have been struggling for four years to launch a casino in South Philadelphia on Columbus Boulevard between Tasker and Reed Streets. After winning one of the city's casino licenses in December 2006, the PEDP group faced intense political and neighborhood opposition.
Mayor Nutter came into office in 2008, vowing to stop both of the city's planned casinos, arguing that it was bad use of waterfront property. At the same time, the collapse of the economy took a toll on the Mashantucket Pequot tribe of Connecticut, which was supposed to open and operate the Foxwoods Casino in Philadelphia.
With the support of Gov. Rendell, PEDP tried to placate political opponents in Philadelphia by moving its project to Center City, at first exploring The Gallery at Market East mall before settling on the old Strawbridge & Clothier department store.
But the gaming board ordered the partners to move the project back to its original waterfront location. With the Mashantucket Pequot tribe unable to bring the project together, local investors reached out to Las Vegas casino operator Steve Wynn, who reached an agreement last March to open a Wynn casino in Philadelphia. Wynn, however, abruptly dropped out of that deal last April, giving no public reason.
Facing a deadline on its license, PEDP had to scramble to find a replacement. Many in the gaming industry viewed Harrah's Entertainment as a logical choice. The Las Vegas company operates more casinos than any other business, including a facility in Chester, 15 miles south of Philadelphia. Under Pennsylvania law, Harrah's cannot own more than 33 percent of a second casino.