The $40 million worth of tax-exempt bonds bought by the Cordish Co. is an unrated investment that is considered exceedingly risky by Wall Street standards, though that risk is rewarded with a 10 percent interest rate. Rank Group PLC, the London-based parent of Hard Rock, bought $25 million worth of the bonds in 2002 and recently sold them at a $3.9 million profit, according to reports filed with the Securities and Exchange Commission. The Cordish Co. is prohibited from selling its bonds until 2005, according to a prospectus distributed to potential investors.
Neither Cordish nor the Seminole Tribe would show their contracts to The Sun, but copies are included within the thousands of pages of documents available publicly because of the tax-exempt nature of the project's financing.
The Cordish Co.'s projected first-year revenue is equal to the cost of both the bonds and the shopping center. And, according to one investor in the project, the company's fees could be considerably understated. Gordon Graves, former chairman of the gambling machine manufacturer Multimedia Games Inc. and a private investor of "less than $1 million" in the Hard Rock deal, said he expects the casinos to pull in nearly double their published projections, collecting as much as $600 per machine each day. At that rate, the Cordish Co.'s share could exceed $2.6 billion over 10 years.
The Hollywood project will have a 500-room hotel, 2,000 electronic gaming machines, 65 poker tables and an 800-seat bingo hall, while the site near Tampa will have 250 rooms and a slightly smaller gambling operation.
"If you look at the locations and consider the potential, it just takes your breath away," Graves said.
Indians' new deal
A review of the contracts that other companies have signed to develop Indian casinos around the country shows that nearly all the deals are different. But few seem as potentially lucrative as the Cordish Co. deal.
One that could prove more lucrative is the deal that Malaysian billionaire Lim Goh Tong struck with the Mashantucket Pequot Tribe of Connecticut in 1991 to build Foxwoods Resort Casino, generally regarded as the most profitable in the world.
Details of the arrangement are not public, but a 1999 report in The Providence Journal, citing a confidential bond prospectus, said Lim's contract pays him 9.99 percent of the casino's adjusted gross revenue for 25 years. The Lim family reportedly lent the tribe $235 million to build the casino and receives interest on the loan in addition to a percentage of the profits.
The Foxwoods agreement was one of the first deals of its kind, struck when lenders shunned Indian casinos, and its 25-year term is considered an anomaly and has not been emulated.
One year later, a development group led by South African casino mogul Solomon Kerzner reached a deal with Connecticut's Mohegan Tribe to build and operate a casino near Foxwoods, granting Kerzner's group 30 percent to 40 percent of the net revenue for seven years. Cordish suggested that the Mohegan Sun contract shows that his company's deal is typical.
Unlike Cordish, Kerzner was dealing with a group of Indians that had never built a casino and was not recognized as a bona fide tribe when negotiations began. Kerzner spent four years helping the Mohegan Tribe secure federal recognition, then helped negotiate a gambling compact with Connecticut and finally completed the development deal by offering to finance the last $50 million of construction with his own money.
His company, Trading Cove Associates, also operated and managed the casino when it opened in October 1996. The Mohegan Tribe bought out Kerzner's interest at the end of 1999 for a 5 percent, 15-year share of the revenue, a sum estimated at $549.1 million at the time but projected near $1 billion today.
The Cordish Co., by contrast, dealt with a tribe already operating five casinos in Florida that was earning, according to court testimony from Billie, about $350 million a year.
The payments to the Cordish Co. also come as other tribes - such as the Mohegans in Connecticut, the Mississippi Band of Choctaw Indians and the Cabazons in California - are choosing not to share profits with developers or managers, saying they have gained enough experience to build and manage casinos themselves.
"I'm surprised they're working with that group. I think a lot of people are surprised," said DeRosa, the Cabazon Tribe's manager. "The Seminoles are hitting the ball out of the park already, and they have quality people on their own payroll. They don't need anyone's help."
The Seminoles' chief executive of gaming operations, James F. Allen, worked for Kerzner for six years and is often cited by investors as a key factor in the tribe's ability to win the trust of Wall Street. Allen spent a year working on the Hard Rock project as a Cordish employee but now works solely for the tribe. He will be paid $750,000 a year once the Hard Rock casinos open, according to a copy of his employment contract.