Roses or crossings? A new casino race begins

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Spurred by the thorns of a Wild Rose, Steve Gray and his local investor group are back in the casino race.

You may recall, in September Wild Rose Entertainment announced it would seek a state license for a $40 million “boutique” casino as part of a mixed use development on First Avenue in downtown Cedar Rapids. Local developers Steve Emerson and Hunter Parks are spearheading the plan.

That didn’t sit well with Gray and his investors, who pushed to pass a 2013 gambling referendum in Linn County but failed in 2014 to win a license for their $165 million Cedar Crossing Casino on the west side of the Cedar River.

So on Monday, the deadline set by the Racing and Gaming Commission for filing applications, Gray’s group will submit a two-piece proposal. Commissioners can choose the previously submitted Cedar Crossing “1.0,” or what I like to call Cedar Crossing Classic, or pick new plans for a smaller $105 million downtown casino adjacent to the U.S. Cellular Center along First Avenue. It’s roughly across the street from Wild Rose’s proposed location.

Call it the “Battle of First Avenue.” Call it “Casino Clash ’17.” Boutique or no-tique? It might be for all the marbles. The winner could get permission to build a casino in Iowa’s second-largest city.

Or, it could be a bunch of rich guys with flashy renderings fighting for participation ribbons.

And that’s because it’s a good bet the same Racing and Gaming Commission will be looking at roughly the same saturated gambling market landscape it saw in 2014. And that’s a landscape where a Cedar Rapids casino would suck too much of its revenue from existing nearby casinos. It was that “cannibalization” factor that sank Cedar Crossing Classic on a 4-1 commission vote in April 2014.

If so, the answer is likely no. And barring a surprise, that’s where the smart money remains.

I asked Gray and Brent Stevens, a principle in Peninsula Pacific, which would run Cedar Crossing, if they have any evidence much has changed.

“That’s the multimillion dollar question,” Gray said.

“Quite literally,” Stevens said.

“And we’re trying to find that sweet spot.” Gray added.

Both Gray and Wild Rose figure smaller is sweeter.

Wild Rose’s September plan called for a 25,000 square-foot gaming floor with 600 to 700 slot machines and 14 to 20 table games. It would include limited food and beverage amenities, with its backers arguing gamblers could frequent local joints nearby.

Gray’s new Cedar Crossing “Central” would have 550 slots and 15 table games, compared to 860 and 30 proposed for Cedar Crossing Classic. But Cedar Crossing Central’s 45,000 square-foot footprint would include restaurants and other amenities.

I say “footprint,” even though Cedar Crossing Central would be up in the air, literally, stretching like a massive skywalk over Fourth Street NE between what would be a new parking garage and the U.S. Cellular Center. Gray’s group would replace the crumbling Five Seasons Parkade with a new ramp.

So the commission could make history either way. It could approve Iowa’s first boutique casino, or the first casino hovering over a railroad.

If I get distracted by a loud horn and lose a hand of blackjack, can I call it a train robbery? I’ll have to wait for a ruling.

And yet, when I asked commission chairman Jeff Lamberti if he’s ready for another casino race, he seemed less than excited.

“Am I ready for it? No. Not much I can do about it, however,” Lamberti said, chuckling. “We don’t really control someone wanting to file an application. We just control what happens after that. It makes life interesting.”

The process will look a lot like last time, with presentations, deliberations and site visits. But it will feel much different. I doubt you’ll see the commission cheered as it arrives in Cedar Rapids this time around.

The commission also will be hiring a firm or firms to do market studies, weighty assessments that will include estimates of the dreaded cannibalization factor.

“The primary thing is going to be the impact on existing facilities,” said Lamberti, who hopes to be reappointed to the commission next month. He said he sees little change in the gambling market.

The commission has long protected existing members of the casino cartel from too much new competition. Market studies last time around showed Cedar Crossing Classic would pull much of its revenue from existing venues. Riverside Casino & Golf Resort would have sustained a revenue loss of anywhere from 27 to 46 percent, depending on which study you believed.

Lamberti points out that if the Legislature didn’t like this casino protection system, it could have changed the rules. Or maybe the courts step in. This week, the Iowa Supreme Court will hear arguments in a Cedar Rapids lawsuit challenging the commission’s process.

Barring such intervention, however, it’s still all about competition.

Gray’s group has some advantages, certainly. Thanks to a memorandum of understanding, Gray’s plan will have the backing of city leaders legally bound to support it. That could be kind of awkward, considering how Emerson and Parks are well-regarded local developers with multiple city-supported projects under their belts.

Gray said community groups who backed the last bid are back on board. The investor list, he said, is a who’s who of local movers and shakers.

Wild Rose has the advantage of already operating casinos in Emmetsburg, Clinton and Jefferson. Being a member of the cartel in good standing might sit well with commissioners. Although it’s certain other members of the cartel will be opposed to any new competition.

Both sides of the Battle for First Avenue will tout “synergies,” benefits created by locating close to the city-owned arena, DoubleTree hotel and Convention Complex. Night life, entertainment, heads in beds, etc.

Gray said his investor group always planned to make another go at a license, likely in 2018, but Wild Rose’s bid accelerated their timetable.

“We had never planned to go away,” Gray said. “It was all a matter of when we were going to reinvigorate our effort. But since Wild Rose hijacked the process, and is jumping in front of almost 100 local investors who spent a lot of time, and a lot of money, and made a lot of commitments, we need to respond.”

So is this about seeking a license or is it really about stopping Wild Rose from getting one?

“I will tell you this is a lot more offensive on our part than defensive. We play to win, we don’t play to not lose,” Gray said.

And if the answer is no again?

“It’s not about no. It’s about when,” Stevens said. Linn County’s referendum is good through 2021.

So the race begins. Place your bets. Roses or crossings? Synergies or cannibals? But remember, the house, in this case the casino cartel, usually wins.

l Comments: (319) 398-8452; todd.dorman@thegazette.com

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