Management Pact for Casino Takeover OKd by Bell Council

After two months of legal and administrative delays, the City Council this week approved an agreement with a group of casino operators who will oversee the California Bell Casino when the city eventually takes over the financially ailing card club.

The operating agreement between the Community Redevelopment Agency and California Casino Properties Inc. leaves the city with one final hurdle in its 14-month quest to become the first municipality in the country to own a gambling club.

The city must now raise $7.1 million to complete eminent domain proceedings against the 8-year-old card club at 4901 S. Eastern Ave., City Administrator John Bramble said.

City to Issue Bonds

That figure--the agreed-upon fair market value of the club set by real estate appraisers last year--will be raised through the sale of revenue bonds, a process that will begin immediately, Bramble said.

“We start today,” Bramble said Tuesday morning. The city intends to issue bonds through Miller Schroeder, a Solana Beach-based securities underwriter. If the bonds are not sold by March 15, the contract between the city and the operating group can be terminated, according to contract provisions.

City officials, who had once predicted that the club takeover would be completed by last fall, now estimate that the city could acquire ownership by early next year.

In September, city officials announced that they had begun negotiating with California Casino Properties Inc. after choosing from a list of four finalists. At that time, Bramble predicted that an agreement would be signed in two weeks.

“This is a complicated process,” Bramble explained in a recent interview. “We’re basically breaking new ground.”

The bond issue could be ready for sale in 60 days, Bramble said. After the money is raised, he added, the city will complete the takeover proceedings with the current management group, the California Bell Management Corp.

The city will pay off the bond debt with gambling proceeds, not city operating funds, Bramble said. He declined to elaborate on how the bondholders’ investment would be protected; that aspect of the bond issue is currently being discussed with the underwriter.

The agreement goes into effect after the city completes eminent domain proceedings, mediated by Superior Court Judge Pro Tem Herbert M. Klein.

Members Named

Members of the new management group include Julius Kahn, a former director of the Las Vegas Dunes Hotel and Casino, and Dennis Robie, a longtime floor manager of various casinos “around the world,” said Robert Bernstein, attorney for the group.

“We look forward to a long and lasting relationship,” Bernstein told the council after the unanimous vote to hire California Casino Properties.

The 3-year operating agreement includes options for a 40-year extension and a buyout if the new management group chooses to assume ownership after two years. The city has the power to cancel any contract extension if the management group fails to generate at least $19 million in gross receipts during the third year of the original agreement.

The group also has agreed to put a security deposit of $1.2 million into a city-controlled account during the first year, hire two city employees--an accountant and a police detective-- and to spend $1 million remodeling the club. In return, the city has agreed to sell the club to the management group at a 35% discount of the club’s appraised value at the time of purchase.

The city first announced that it planned to gain control of the card club in September, 1987, after the once highly successful club had fallen on hard times. The casino, which five years ago had generated $2 million in tax revenue for the city, now owes the city more than $750,000 in back taxes and operating fees, Bramble said.

The city decided to initiate condemnation proceedings as the last chance to save the beleaguered casino and ensure that it provides a “steady revenue stream to the city as it did in the past,” Mayor George Mirabal said.

Decline Began in 1984

In the first three years, the club paid $2 million annually in city taxes and fees. But in 1984, as newer casinos sprang up in neighboring cities, the club’s popularity declined and so did the revenue.

City officials, optimistic that the club can regain much of its former clientele, estimate that the club could pay as much as $2.8 million to the city in annual fees by 1991.

“People thought that we were crazy when this whole thing came up,” Councilman George Cole said before Tuesday’s vote. “It’s a creative use of condemnation power and a creative way to solve all the problems.”

Meanwhile, city officials have completed their takeover negotiations with attorneys for the current management group.

“There’s really nothing left for us to do,” said attorney Howard Manning, who represents California Bell Management. The management group is also the club’s chief stockholder. “We’ve stipulated that we are not opposed to the condemnation.”

The poker club, the first of several to open in the Southeast area, has been hampered by financial and managerial problems for years.

Skimming Investigation

Last May, law enforcement agents raided the club, the homes of three general partnership directors and a Las Vegas-based gambling firm in a search for evidence that club revenue was being illegally diverted.

Agents in the “skimming” investigation reportedly seized financial and business records, but have so far not filed any criminal charges. Manning confirmed that the investigation of his clients is continuing. He said that the directors in the management group are innocent of any wrongdoing.

The California Bell Management Corp. also is a defendant in a civil suit set for trial in Los Angeles Superior Court in March. The suit, filed by former club financial director Ebrahim Victory and 50 limited partners, seeks damages under the federal racketeering law.

The suit alleges that several directors conspired to “systematically loot, plunder and convert for their own benefit the assets, cash, earnings and property of the club.”

“I wish the city and the new management group all the best luck,” Victory said in a telephone interview.

Because of the past problems, attorney Bernstein was quick to point out that the new management group currently has no interest in club operations.