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Indiana Racino Files for Chapter 11, Remains Upbeat Over Growth Prospects

Posted on April 11th, 2011

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The Indiana Live! casino parent company is filing for Chapter 11 bankruptcy protection but state officials don’t expect it to register as a big event for both residents and local gaming regulators. Officials are not expecting a drop in state revenues for tax revenues when the facility completes the process and patrons are expected to go about their normal gaming ways as if nothing has happened. The owner of the Indianapolis Downs and Indiana Live! casino in Shelby County is shouldering a debt burden totaling $540 million. For gaming officials who are seeing the fifth bankruptcy filing in the state, it’s just another day in the life of a business venture. “As a regulatory agency, we don’t have great heartburn,” said Ernie Yelton, director of the state Gaming Commission. “We don’t have to. In all these bankruptcies, revenues have not been affected, not at all. In fact, they increased, all of them.”

The filing mirrors what has happened with the other racino in the state, the Hoosier Park in Anderson, who is also in bankruptcy but has seen higher tax payments over the last three months of operation. That number currently stands at $14.8 million in total and up 14 percent from the previous tax payment periods. “For the average Hoosier, it’s a nonevent,” remarks Ed Feigenbaum, the editors of the Indiana Gaming Insight newsletter based out of Noblesville. He adds that customers are likely not going to notice the change in operations due to the bankruptcy filing and that things should continue going about as they were. “Nobody will notice anything if this follows from the other four bankruptcies. It’s been totally seamless to patrons. Nobody sees any reduction, even in TV commercials.”

Indianapolis Downs and Indianapolis Live! are both owned by Oliver Racing LLC from South Bend. Oliver Racing has defaulted on its payment since November and because of its inability to restructure its debt obligations, the only logical way to proceed with the business was to file for bankruptcy protection. The company, in a statement, says that the debt is “significantly greater than anticipated and beyond its ability to service under current terms.” $250 million dollars, half of the total debt, is for slot licensing fees that were charged by the state before giving the casino permission to open in 2008. The racetrack dated back to 2002. Gregory Rayburn, the Chief Restructuring Office hired to manage the bankruptcy operations, said “That fee drove a lot of that debt.” Still, “we are not looking to roll back the fee that has been paid.” Hoosier Park also paid the $250 million to open its casino. The money was promptly used by state officials to provide property tax relief for residents statewide.

Feigenbaum was quick to add that the $250 million licensing fee has always been a concern for many operators looking to do business in Indiana. While revenue projections were healthy in years past, the recession drastically scaled back profit numbers causing debt payments to be pushed out. The slow recovery isn’t helping either. On top of the $250 million licensing fee, Oliver Racing also spent another $200 million to build its casino. That number easily doubles what Hoosier spent on its facility. Adds Feigenbaum, Indianapolis Downs “entered into a pretty one-sided management contract, which forced them to pay a lot of money each month.” The contract was primarily for management fees.

The bankruptcy filing specifically called for the rejection of that management agreement which was executed in 2007 with Power Plant Entertainment Casino Resorts Indiana. The agreement required a payment of up to 4.5 percent in gross receipts from gaming. Oliver Racing terminated the contract to which Power Plant promptly protested and declared the action unlawful. The two companies are currently under arbitration to settle the issue. Another reason for the reduced ticket sales, says Feigenbaum, is Indianapolis Downs’ failure to attract young professionals from the metropolitan areas of Indiana. In mid-game, the company decided to switch its target market to the middle-tier crowd of gambling patrons which according to Feigenbaum was the wrong move to make. “It was pretty costly to initiate and then change gears,” he said of the marketing campaign. “They’re still finding their niche.”