SugarHouse petition stirs concern in 5 casino bidders

The five applicants for Philadelphia's second casino license objected at least partially last week to the petition by SugarHouse Casino to have a formal chance to speak at the Pennsylvania Gaming Control Board hearings late next month.

The subject of those hearings, scheduled for Jan. 28-30, is the suitability - including the financial capability - of those bidding to spend up to $700 million on a new casino in the city.

The petition by SugarHouse focused mostly on the financial harm that would come to it from a competitor based in Philadelphia, given the drumbeat of evidence that the market is saturated with gambling halls.

But the petition also briefly raised a complicated, nuanced issue that could become a headache for three applicants that already own more than a third of an existing casino in Pennsylvania, according to Duane Morris lawyer Frank A. DiGiacomo.

When lawmakers wrote the Pennsylvania Race Horse Development and Gaming Act in 2004, one goal was to restrict casino ownership to ensure that a few companies would not dominate.

The law forced Penn National Gaming Inc., for example, to sell one of the two racetracks it owned in Pennsylvania.

The common reading of the law is that it restricts ownership to 100 percent of one slots operation, plus no more than 33.3 percent ownership of another.

That is why Penn National Gaming and the owners of Parx Casino in Bensalem are pursuing separate deals that would give them a 33 percent stake in a South Philadelphia casino - if one of the South Philadelphia developers is granted the license. Penn National Gaming and Parx already own 100 percent of an existing casino.

But DiGiacomo, whose clients include Wynn Resorts Ltd., which dropped its bid for the Philadelphia license Nov. 11, suggested that it's not so simple.

DiGiacomo said the statute can be read to mean that the owner of a third of one casino could be restricted to owning no more than a third of another.

"[The provision] makes no distinction in what interest came first. I would argue that it requires a look back in the other direction," DiGiacomo said.

Reading it "backwards" would mean the owner of a 33 percent stake in a casino cannot own 100 percent of another.

DiGiacomo also said there is support for his view that the provision should be read both ways in an August 2008 ruling by the Gaming Control Board that approved the restructuring of the Rivers casino in Pittsburgh.

The ownership restriction cited in the SugarHouse petition would not make Penn National and Parx's parent, Greenwood Racing Inc., ineligible for the second Philadelphia license, but it would force them to sell two-thirds of their existing casinos, if DiGiacomo's hunch is right.

Oddly enough, the law allows one company to own up to a third of multiple casinos - up to the point where the gaming board becomes concerned about "undue concentration."

Penn National's South Philadelphia partnership is PA Gaming Ventures L.L.C. Two thirds of that company is owned by a nonprofit that would funnel money to city schools and pensions - after Penn National's management and licensing fees and debt-service were paid.

PA Gaming's response to the SugarHouse petition said its corporate structure "is designed and intended to comply" with the section of the gaming law on ownership restrictions, arguing that its management contract for the proposed Hollywood Casino in South Philadelphia does not count as an interest that would push Penn National over the 33 percent threshold.

Greenwood Racing is in a partnership called Stadium Casino L.L.C. with Cordish Cos.

If Stadium wins the license, Cordish would own 50 percent, Greenwood 33 percent, and a trust for family members of Greenwood's majority owner, Watche "Bob" Manoukian, would own 17 percent. The Stadium filing said SugarHouse's ownership restriction argument was "meritless and denied."

Market East Associates L.P., which wants to build a casino at Eighth and Market Streets in Center City, was also cited as potentially having a problem with the ownership restrictions mentioned by SugarHouse attorney John M. Donnelly. The Mohegan Tribe of Indians of Connecticut owns 100 percent of Mohegan Sun at Pocono Downs and would own 16 percent of Market East.

The gaming board is scheduled to decide on the SugarHouse petition Jan. 8.

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