Battling the feds, negotiating with regulators, lobbying lawmakers, Genting is determined as ever to plant its flag in South Florida
Blocked by the US government, at least for now, from penetrating the lucrative South Florida gambling market by sea, Genting Group has forged an alliance with a local racetrack to bring 2,000 slot machines to a luxury mixed-use resort the company is developing on Miami’s Biscayne Bay.
Resorts World Miami, a division of the Malaysian conglomerate, has devised a four-way partnership centered on the racino license held by Gulfstream Park, a nationally known thoroughbred track in nearby Hallandale Beach. The plan calls for Gulfstream to move the license to a five-acre site on the bay that used to be the headquarters of the Miami Herald newspaper. Genting bought the property two years ago for $236 million as part of a protracted and ultimately unsuccessful bid to win the Legislature over to the idea of fullscale commercial casinos in Florida. Genting still believes in the site and still plans to develop it with a five-star hotel, luxury condominiums, waterfront restaurants and other attractions. It’s a considerable climb-down from the $3.1 billion gambling destination the company originally had in mind, but as lobbyist Brian Ballard described it to the Herald, it’s a way into the market—a “less lucrative option,” he acknowledged, but as he put it, “Genting, over the past couple of years, has decided to look at this with a fresh set of eyes.”
Which is where the slots license comes in. It’s smaller but more saleable to politicians and the public than a full-blown casino. The pitch is that a portion of the revenues will go to boost purses at Gulfstream, a portion will go to a non-profit company to benefit the other partners, and horse breeders, owners, trainers and Gulfstream all get a piece too.
“I think it’s game-changing,” said Lonny Powell, CEO of the Florida Thoroughbred Breeders and Owners Association. “This is the first partnership where the revenue stream and investment would actually go back into the horses.”
But it wouldn’t be the Sunshine State if there weren’t obstacles. The regulators who oversee the state’s pari-mutuel industry dispute Gulfstream’s claim that the license is transferable. So Genting may need clarification on that from the Legislature. Or it will have to persuade the regulators to reconsider their position. Or it can go to court. But a victory there is likely to spark a barrage of lawsuits from competitors. As a lobbyist for the racino at Calder Race Course said, “If they issue a permit that allows this to happen, it will draw a legal challenge. I guarantee it. This is an expansion of gambling.”
Genting is already enmeshed in a court battle over Florida with the US Customs and Border Protection Agency, which has banned the employment of foreign labor on the gambling “cruises to nowhere” the company launched last year from the Port of Miami.
It’s the second run-in the company has had with the federal government over the 1,500-passenger high-speed ferry it bought last spring to open up its remodeled and rebranded Resorts World Bimini to the South Florida market. The Bimini SuperFast, as it’s called, is designed to shuttle players the 50 miles between Miami and the Bahamas resort in the daytime and to function at night as a party boat where passengers can dine, drink and gamble in international waters.
It’s a business Genting should know well. It still owns 50% of Norwegian Cruise Lines, which it revamped over the course of a decade with $5 billion worth of classy new shipping. Yet it ran into problems with the SuperFast from the start.
Within weeks of its commissioning the boat was docked by the US Coast Guard for failing safety and equipment inspections. Construction of a pier in Bimini to berth the ship was opposed by environmentalists, who stalled the project in a Bahamas court for months. Last July, the SuperFast finally was cleared by the Coast Guard for sailing, and construction has since begun on the pier, which should be operational this summer. But transferring passengers from the ferry toa smaller vessel on the Bimini side has been a constant challenge, especially in rough seas, and the day shuttle has been scaled back to weekends only.
Then came problems with the foreign workers employed on the night excursions. The workers serve drinks, take tickets and perform other duties not directly related to operating the ship. It’s a common maritime practice when international ports of call are involved because the workers can be paid less than US minimum wages and operators aren’t required to remit payroll taxes or adhere to US workplace and labor laws. The Customs and Border Patrol Agency contends that “cruises to nowhere” don’t qualify for this exemption because they do not dock outside the US and their passengers never set foot on foreign soil. In November, the agency issued an order halting the cruises. Genting complied, then promptly sued in U.S. District Court in Washington, D.C., to overturn it.
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The CPB is calling on Genting to fix the situation by hiring American workers. Genting argues that replacing the 250-member crew would be “costprohibitive”. In court papers filed in the Bahamas during the pier dispute, the company said it expects to lose $11 million with the SuperFast this year alone. Docking rights at the Port of Miami are costing it $7 million a year. In December, the company told the District Court that losing the revenue from the nightime cruises could imperil the entire venture.
“Without the evening excursion, Resorts World Bimini simply cannot generate the revenues needed to continue the day excursions, meet our financial commitments, and otherwise continue the foregoing contributions to the local economy in Miami,” wrote Gregory Karan, senior vice president of Bimini SuperFast Operations. “The potential losses are incalculable.”
The CPB responded in a motion filed this month. “Plaintiffs have come to the court asking it to save them from a series of bad business decisions,” it said. “Plaintiffs still possess multiple courses of action that would help them avoid any potential harm to their parent company’s $39 billion market capitalization.”
The judge in the case has asked lawyers for both sides to clarify their arguments.
Genting still wants to do something bigger in Florida. They run the most lucrative machine gaming venue in the country in New York City under the Resorts World brand. They plan to invest upwards of $4 billion on a megaresort on the Las Vegas Strip. And according to Mr Ballard, “They’re not closing out the destination resort option at all.”
Genting and Las Vegas Sands have blown millions on high-powered lobbying campaigns for resort-scale casinos in South Florida only to have the Legislature reject the idea—twice—under pressure from Disney, the Florida Chamber of Commerce and religious groups. Mr Ballard said if lawmakers don’t approve them when they meet again in 2014 after a sweeping review of the state’s gambling laws, “It’s probably not going to happen.”
The Gulfstream partnership could prove critical. Racing is big business in the state, it enjoys a broad base of public support, and it wields clout in Tallahassee. As Mr Powell said, “In Florida, we’re a $1 billion industry with tens of thousands of jobs and an economic impact that exceeds [baseball] spring training.”
