Seminoles want out of casinos, hotel contract - Monday 17th of October 2005
The Seminole Tribe wants to buy out its contract with the developer of its Hard Rock hotel casinos, less than two years into a deal that could cost the tribe at least $1.2 billion over the next decade.
Seminole leaders have begun negotiations with Baltimore-based Cordish Corp, which built the luxury hotels that opened last year on tribal land in Hollywood and Tampa, tribe spokesman Gary Bitner said. The tribe would continue to run the casinos and would also assume management of the hotels and Seminole Paradise, a complex of high-end shops, restaurants and nightclubs at the Hollywood Hard Rock.
The current contract calls for Cordish to receive 30 percent of net hotel and gaming profits, expected to reach more than $400 million this year, according to the tribe and financial records.
The tribe estimates Cordish would make approximately $120 million per year under the 10-year contract, or $1.2 billion.
"The Tribe believes the original deal with Cordish was fair, given that there was no way to predict, in advance, the huge success of the Seminole Hard Rock Hotels & Casinos, tribal counsel Jim Shore said in a written response to questions from the South Florida Sun-Sentinel. "Based on the success of these projects, the Tribe believes that a buyout is now in the best economic interest of the Tribe and its members.
Joseph Weinberg, executive vice president and chief spokesman for Cordish, could not be reached for comment.
The deal -- and the $415 million in tax-free bonds used to pay for the projects -- has drawn scrutiny from the Internal Revenue Service and sparked a Broward County lawsuit by Donald Trump, who accuses Cordish of stealing his idea and cutting him out of the deal.
The IRS has twice ruled the bonds should be taxable, saying they dont constitute a legitimate public use, as required by law. On Thursday, the tribe announced it was selling $730 million in new bonds to pay off the original bonds, and will use the remaining money to consolidate debt and pay for other projects.
The tribe and its adviser on the first deal, Capital Trust Agency, said they would continue to challenge the IRS ruling. If it stands, the tribe could face lawsuits from bondholders seeking to have the tribe and CTA pay for any tax penalties.
Jessalynn K. Moro, a financial analyst at Fitch Ratings in New York, said the tribes potential tax problems are minimal and rated this weeks bond offering A-. She said any buyout of Cordish would likely be financed with another bond offering.
"The buyout is the No. 1 risk to this bond [offering], she said. "Conservatively, the gaming revenues are substantial enough that there wouldnt be any problem covering the [debt service on all bonds]. The tribe is in a strong financial position.
Another potential problem is an audit being conducted by the National Indian Gaming Commission, Moro said.
The tribe confirmed Thursday the agency was investigating all of the tribes spending for 2004 and 2005. Court hearings over several years revealed that tribal leaders spent tens of millions of dollars buying luxury cars, trips and even cosmetic surgery for themselves, family and friends.
By law, the tribe must spend casino profits on projects that benefit the welfare of all members, including projects for education, health, and infrastructure, as well as direct dividend payments to each member.
The bond offering, proposed settlement and pending federal investigation wont affect Trumps lawsuit against Cordish, Trumps lawyers said Thursday. In December, Trump sued the company and Richard Fields, a former Trump employee who negotiated the Seminole deal for Cordish.
Trump began courting the Seminoles to build a casino in the late 1990s, but abandoned the effort after concluding -- on Fields advice -- the deal was not feasible, according to the lawsuit.
Fields then took the proposal to Cordish and soon after the Seminole Hard Rock Hotel and Casino deal was born, the lawsuit claims.
Trump now wants all of Cordishs profits and would like to take over management of the properties, according to the lawsuit.
A hearing is scheduled for Wednesday in Broward County Circuit Court.
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