Caesars Entertainment is disputing payment of two $50m licenses connected to its takeover of Centaur Gaming.
Bankruptcies and license transfers
This is a complex tale that has many twists and turns. It involves Centaur Gaming, a gambling company that was previously acquired by Caesars Entertainment Corporation.
Centaur Gaming was the license-holder for the Hoosier Park and Indiana Grand casinos. Hoosier Park’s parent company was Centaur Gaming, while Indianapolis Downs LLC was the parent company of the Indiana Grand.
The licenses were issued in 2008, but Centaur had to file for Chapter 11 bankruptcy just two years later in 2010. This led to the creation of new entities to take control and manage Centaur’s holdings. As part of this process, the Hoosier Park license was transfered to Hoosier Park LLC from Hoosier Park LP.
Indiana Downs LLC also filed for Chapter 11 bankruptcy, in April 2011.
Then, in 2013 Caesars Entertainment acquired the Indiana Grand’s rights and license for about $500m. The acquisition in November 2018 of Centaur Gaming was worth $1.7bn and included its racinos in Shelbyville and Anderson.
So far, so straightforward. Normally, when a license is transfered from one party to another, a $50m transfer fee is payable. But the Chapter 11 filings have triggered a point of contention. As both the initial license-holders had to file for bankruptcy, most parties thought that no transfer fee was necessary.
Centaur Gaming made a request at the time it obtained the licenses. It asked the Indiana Gaming Commission to make a provision that the fee would not be applicable for transfers in the future. However, the commission did not fulfill this request.
Recently, there have been calls to levy these two $50m transfer fees on Caesars.
Who will pay the fees?
As per state law, there is a requirement for the original holder of a casino license to pay the $50m transfer fee when it sells its controlling interest in the facility. However, an exclusion to this law includes the bankruptcy of the original license holders.
Caesars is pursuing the argument that the fee should not be applicable because the initial license-holders are no longer involved. Others in the state say that levying the fees would be a deterrent to Caesars, which is looking to make a major investment in the area. That would create many jobs in the process.
State Representative Sean Eberhart is of the opinion that it is too late to do anything. He said: “I wish we would have had more time to work on the issue and maybe we could have done something legislatively, but it’s too late to do something at this point. It’s a combination of not having enough time and it’s a little difficult to do something while this transaction is happening. It would be a little odd with the timing.”
There is a question of fairness. Other companies in the past may have paid such a transfer fee.
Caesars’ point of view
Caesars was planning on pursuing a project worth about $90m in Horseshoe, Southern Indiana. However, if it has to pay the transfer fees then it will likely not go ahead.
The entertainment giant already owns two casinos in Indiana – the Horseshoe Hammond Casino in the northwest of the state and a casino in Harrison County. Caesars would consider its position for these two casinos as well.
While the state law says an operator cannot have more than two casinos in the region, it is not applicable to racinos. I Caesars goes ahead with its acquisition of the two racinos it would control four of the top five earning casinos in the state.
This issue will likely not get a resolution until May or June, when the gaming commission will meet to review the Caesars acquisition of Centaur Gaming.