Rock Ohio receives license to operate in Cleveland

5/2/2012

COLUMBUS — Rock Ohio Caesars on Wednesday became the first casino operator to be licensed to do business in Ohio for its downtown Cleveland casino slated to open on May 14.

A consultant for the Ohio Casino Control Commission is expected later Wednesday to recommend similar action for Penn National Gaming, Inc., which plans to open Hollywood Casino just 15 days later on the Maumee riverfront. That vote, however, is expected at a later date.

The commission unanimously approved the license for Rock hours after the company wired a $50 million license fee to state coffers. But the commission put off action until potentially later Wednesday on a separate license for a Rock subsidiary that will actually run the Cleveland casino, Horseshoe Management LLC, until the commission receives confirmation that the firm has wired its $1.5 million management licensing fee.

An investigatory report conducted by the commission’s consultant, Spectrum Gaming Group LLC, generally praises Penn National’s gaming operations in multiple states and will recommend issuance of the second casino license in the state.

“As a result of the company’s history of successful financial results and based on the positive financial outlook, we believe that Penn National demonstrates the requisite financial stability and financial integrity for licensure by the commission,” the report reads.

It will recommend the license despite red flags again raised pertaining to New York-based Fortress Investment Group LLC, which owns a small piece of Penn. In January, Fortress announced the resignation of its chief executive officer, Daniel H. Mudd, who faces Securities and Exchange Commission accusations of multi-billion-dollar fraud related to his prior tenure as president and chief executive officer of mortgage giant Fannie Mae.

The report raises concerns after how forthright Fortress was about Mr. Mudd’s exit, noting that the resignation actually took effect a month later and that Mr. Mudd remained a paid Fortress employee until then. The report notes that, on top of that, Mr. Mudd walked away with a $1.25 million lump sum payment and that the value of his stock options was about $14 million.

“Spectrum is troubled by Fortress’ apparent lack of forthrightness and candor in failing to properly and timely apprise the commission of the full details pertaining to Mudd’s employment status and ongoing situation with the SEC…,” the report reads. “We would expect that a public company such as Fortress would be more cognizant of its communication responsibilities in dealing with licensing and regulatory agencies.”

The state’s action to formally award license less than two weeks before Ohio’s first casino will open demonstrates how the state has worked against the clock to set up the regulatory framework for what is essentially still an unknown industry in the state.

The 2009 constitutional amendment approved by voters authorized four casinos on specific parcels of land in Toledo, Cleveland, Columbus, and Cincinnati. Rock and Penn own or have options on all of those parcels, but that did not guarantee them licenses to operate those casinos.