Well, it looks like the Jamul Indian Tribe has secured financing to build their casino:
MINNEAPOLIS — (BUSINESS WIRE) — March 31, 2006 — Lakes Entertainment, Inc. (Nasdaq:LACO) today announced that it has signed a development financing and services agreement with the Jamul Indian Village, a federally recognized tribe located near San Diego, California. This agreement will help assist the Jamul Tribe in developing a first class casino with related amenities/services on its existing six acre reservation which the Jamul Tribe will manage ("Casino Project").
Under the terms of the agreement, in addition to providing development design and construction oversight, Lakes will also advance to the Jamul Tribe sufficient sums to finance the design and construction of the Casino Project. Lakes will receive a flat fee of $15,000,000 for its development design services, and a flat fee of $15,000,000 for its construction oversight services. Each of these fees will be payable to Lakes evenly over the first five years after the opening date of the Casino Project. In connection with Lakes financing of the Casino Project, the Jamul Tribe will pay interest over a ten year period on sums advanced by Lakes equal to the rate charged to Lakes for obtaining the funds necessary plus 5%. Sums previously advanced by Lakes to the Jamul Tribe in connection with the Tribe’s proposed casino resort on land adjacent to the reservation are to be included in the financing for the Casino Project. Tim Cope, President and Chief Financial Officer of the Company stated, “We are extremely excited for the Jamul Indian Village as they take another step forward to achieving economic self-sufficiency. Designing, building and financing a large first class casino on their existing Indian land presents a tremendous opportunity for the Jamul Indian Village and our Company. We look forward to immediately starting the architectural plans and anticipate beginning construction within the next twelve months."
I’m not an expert on corporate finance, and especially not in the gambling industry — but I do know something about it (I was once the CEO of a public company, and I’m generally an entrepreneurial sort). This is a strange sort of deal. The two $15M flat fees seem outrageously exhorbitant, and they’re covering activities that would normally be billed hourly. The big, round numbers and huge amounts add up, basically, to a way to spin a large fee — I’d guess the PR folks think that’s more palatable to someone (I’m not sure who they care about pleasing). The rest of it (the construction cost) is structured as a straight loan, at cost plus 5% — which today would mean a 9% or 10% rate. Again, that’s outrageously high, and suggests one of several things: a large risk being covered by the large rate of return, an awesomely naive customer, or a downright desperate customer who can’t get financed anywhere else.
If you’re a regular reader, you know my stance on the casino: I hate the very idea of the thing, and I hope like hell that it won’t be built. But after reading this press release I can’t help but feel sorry for the Jamul Indian Tribe — because this deal stinks to high heaven. It looks to me like they’re being taken to the cleaners on this one…
Which is just one more reason to hope that the Jamul Casino is stopped…
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