Partnership once floated for Cedar Rapids and Riverside casinos

CEDAR RAPIDS — In their battle over who gets a slice of Iowa’s gambling billions, two casino operators were cast as rivals for a decade while backers of a Cedar Rapids casino tried and tried again to open a venue less than an hour away from the Riverside Casino & Golf Resort.

After a Cedar Rapids license was rejected twice and as the would-be casino developers were preparing to try again, the rivalry took a turn.

“Any interest in joining us for the next round of applications for CR?” asked a Jan. 11, 2022, email from Jonathan Swain, president of the Cedar Rapids Development Group and board member of casino operator Peninsula Pacific Entertainment.

He was asking that of Dan Kehl, chief executive officer of Elite Casino Resorts — the owner of the Riverside casino that stood to lose millions if a Cedar Rapids casino were to open and that repeatedly fought the proposal before regulators.

Swain was proposing that the potential competitors go in together on a 50-50 economic joint ownership of a casino that would be located in Cedar Rapids and would have about 700 slot machines, 30 table games and other amenities.

Although the pitch never came to fruition, the revelation that the casino operators were in contact about the possibility of a partnership was disclosed last month by Swain in court papers as the Riverside casino fights to overturn a state license granted Feb. 6 that would allow a Cedar Rapids casino to finally open.

A judge last week declined to put a hold on the new license — but said Riverside had “shown a reasonable likelihood of success” in its quest to challenge a 2021 public referendum in Linn County that was supposed to clear the way for legalized gambling in the county if regulators allowed it, which they did in the 4-1 vote earlier this year.

Swain, in disclosing he had a conference with Kehl in February 2022 about the proposed partnership, said that no mention was made then that the referendum would become an issue — as it has now.

“To my knowledge, at no time during our discussions in 2022 did Mr. Kehl or anyone else at Riverside raise with myself or anyone on our team concerns that Public Measure G was somehow invalid, or that Linn County had not properly authorized gambling games.”

‘Eager to litigate the merits’

While 8th Judicial District Judge Michael Schilling last week did not grant the stay on the license that Riverside wanted, he allowed the challenge to move forward and set an April 8 hearing.

Swain said in a statement last week that Cedar Rapids Development Group was “pleased” with the decision to deny the stay.

He characterized Riverside’s challenge as a “unjustified attempt to reject the will of Linn County voters and the carefully considered decision by the Iowa Racing and Gaming Commission to grant a gaming license.”

“Looking ahead, we are eager to litigate the merits of this case and to finally make Cedar Crossing a reality,” Swain wrote.

Officials with Riverside Casino & Golf Resort did not respond to requests for comment. Executive Director Patty Koller with the Washington County Riverboat Foundation — Riverside’s nonprofit affiliate — declined to provide a statement.

Timely construction of the proposed $275 million Cedar Crossing Casino & Entertainment Center is contingent on the case’s conclusion. The proposed facility would include 700 slot machines, 22 game tables, restaurants, bars, an entertainment venue with a 1,500-person capacity, an arts and cultural center and a STEM lab for children. It would be built in northwest Cedar Rapids near downtown.

Cedar Rapids officials said that while the legal dispute plays out, work continues in partnership with Peninsula Pacific Entertainment and the Linn County Gaming Association, which holds the new license, to prepare for the project’s next steps. A groundbreaking ceremony was held Feb. 7, though it was mostly ceremonial.

Cedar Rapids Economic & Development Services Director Bill Micheel said some of the ongoing conversations include the preliminary site plans, infrastructure assessments and property surveys necessary before construction could begin in earnest.

“There’s a lot still happening in the background as we wait for the court proceedings to move forward,” Micheel said. “... We haven’t stopped anything. This allows us to get some of the work done now, and then hopefully we’ll see the outcome we’re hoping for after the hearing in April.”

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Riverside says it will lose 200 jobs

If Cedar Crossing is built, it is expected to support 792 construction jobs and employ 365 workers once open. Its application says it would pay at least $15 an hour to non-tipped employees.

Two market studies ordered by the Iowa Racing and Gaming Commission say a proposed Cedar Rapids casino largely would rely on pulling patrons and revenue from other Iowa casinos — including Riverside — but still add about $60 million in new net gaming revenues annually for the state.

Casino developers would have to pay a $20 million license fee to the state over five years, according to a proposal presented to regulators, and have already made the first installment of $4 million.

Developers have further agreed to a minimum assessment of $50 million for the project — bringing in what it estimates at $2 million a year in local property taxes. And the backers pledged 8 percent of the casino’s annual net adjusted gross revenue to nonprofit organizations.

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But if a Cedar Rapids casino were to open, market studies estimate Riverside would lose millions annually — leading to the elimination of at least 200 jobs, Riverside argued in a court petition.

“(Market studies) predict that while the Linn County casino is projected to create jobs in Linn County, some of these jobs will simply replace jobs lost at other casinos,” the petition states. “The negative impact … will be most significant for operators in the east-central region of Iowa, which includes Riverside.”

Ballot language in question

Central to Riverside’s argument to quash the license are claims the ballot referendum submitted to Linn County voters in November 2021 was “defective” and misleading. Riverside argues that regulators were precluded from issuing the license because Linn County voters didn’t truly authorize it as required.

The 2021 ballot question passed with nearly 55 percent of voters approving the measure meant to indefinitely extend a similar measure that had been approved in 2013.

Riverside officials took issue with the wording of the 2021 ballot, which asked Linn County voters whether legalized gambling “may continue” — even though none was taking place at the time.

In Wednesday’s order, Judge Schilling said Riverside failed to preliminarily establish the regulators’ failure to consider the negative economic impacts in granting the license. But he proved more amenable to the second point — raising questions about the ballot language to allow legalized gambling in Linn County.

Besides wondering about the “may continue” language, the judge also questioned an explanation on the ballot of what a yes vote would mean. The ballot described a yes vote as being in favor of “gambling games with no wager or loss limits.” But, according to the ruling, that is “a subset of the gambling games allowed by Iowa law.”

“Arguably, the Linn County voters approved only gambling games with no wager or loss limits, not a broader spectrum of gambling games,” Schilling wrote. “If an inconsistency exists between what the voters approved and the license the (commission) issues, the question arises whether the license reflects the will of the voting public.”

In court filings, Riverside asked the question: “How did the county draft such odd language?” It speculated that the Linn County drafters turned to model ballot language suggested by the Iowa Secretary of State’s Office — but picked an outdated version and one that didn’t apply to holding a second vote.

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In their own filings, Cedar Crossing affiliates rejected those concerns and questioned the timing of the objection. Attorneys point to those 2022 conversations about a possible partnership.

“Only after the partnership discussions broke down … and after it appeared possible that the IRGC would grant a gaming license in Linn County did Plaintiffs abruptly pivot and declare awarding a license was illegal,” court documents from Cedar Rapids casino backers state.

Schilling stated he did not consider any of the briefs or arguments filed that addressed the merits of the case prior to last week’s ruling — only whether the circumstances necessitated an immediate stay.

Additional arguments will be considered at the April hearing.

Comments: grace.nieland@thegazette.com