Missing the Boat : Controversy Over Hilton’s Flamingo Casino Stalls Its Opening

On the south bank of the Missouri River in Kansas City, Mo., the Flamingo Casino--a $110-million riverboat gambling hall--was expected to have opened by Labor Day weekend to throngs of gamblers eager to try their luck at the floating version of Las Vegas.

But the glittering Flamingo Casino and its 800 workers have remained idled for weeks after running aground on a local controversy that has proved an embarrassing and costly episode for its owner: Beverly Hills-based Hilton Hotels Corp.

Missouri gaming regulators delayed awarding Hilton a gambling license, which is needed to operate the casino, after an investigation turned up some questionable business practices in the early phases of the project.

Meanwhile, a federal grand jury in Kansas City has subpoenaed the records of some of the city’s businesses and government agencies that helped secure local approval for the casino. However, no one involved in the casino case has been charged with any wrongdoing, federal and state officials said.

While gambling regulators may give Hilton the final go-ahead to open the casino as soon as today, getting the license has been painful and humiliating. The flap has already cost the company several million dollars in lost revenue, tarnished its reputation and resulted in the resignations last week of three senior executives.

One of those individuals included Hilton board member and former President Raymond C. Avansino. “This is a major company and a good company,” said Missouri Gaming Commission Chairman Robert Wolfson. But that’s no excuse for Hilton to “come into our community and do the wrong things.”

The controversy comes at an awkward time for Hilton, which is nearing completion of a $3-billion merger with Bally Entertainment Corp. that will create the nation’s largest gaming company. The Kansas City incident has already drawn the attention of gaming regulators in other states, including Indiana and Louisiana, where Hilton has also applied for licenses to operate riverboat casinos.

Hilton has remained silent on the subject since Friday, when Chairman Stephen F. Bollenbach announced the three resignations before a stunned Missouri Gaming Commission. Company spokesman Marc Grossman said Hilton had no further comment.

Hilton’s problems in Kansas City stem from its campaign to win city approval of the casino by pledging to support minority and community groups. The proposals included selling a 10% stake in the riverboat to minority investors and awarding a total of five annual grants of $250,000 to minority and community groups once the casino was open for gambling.

It was not the proposals but the individuals who would directly benefit from them that triggered worry among regulators, said Tom Irwin, executive director of the Missouri Gaming Commission. “The cause is worthwhile,” said Irwin of the Hilton proposals. “The fact that [Hilton] didn’t check who these folks were and didn’t know what their performance was [created a] problem.”

The commission was concerned over the first--and so far only--$250,000 grant Hilton has made to a firm headed by Michelle Nathan, a business associate and former employee of Elbert Anderson.

Anderson, a public relations executive, is the former chairman of the Kansas City Port Authority, which oversees gambling development in the city and approved Hilton’s riverboat plans in January 1993. Testimony at a recent gaming commission hearing probing Hilton’s license request showed that Anderson had urged Hilton to award the grant to Nathan.

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At the hearing, some of the gaming commissioners said they were also surprised by Hilton’s failure to track how the $250,000 grant to Nathan’s firm was spent, said Wolfson, the gaming commission chairman.

“There was no due diligence on the part of Hilton as to what they were doing with their quarter of a million dollars,” Wolfson said. “As a businessman, I’m shocked. It makes absolutely no sense.”

Nathan’s attorney, Bruce Houdek, said his client presented Hilton with a check register showing how the money was spent on two expositions honoring African American women. “None of that money went to [former Port Authority Chairman] Elbert Anderson,” Houdek said.

Nathan, who declined to testify before the Gaming Commission, has been subpoenaed by the federal grand jury to supply documents related to the grant, Houdek said.

Anderson, who resigned as Port Authority chairman earlier this year, was unavailable for comment. An attorney for the Kansas City Port Authority said the agency has also been subpoenaed by the grand jury to supply financial documents.

Another source of worry for the gaming commission was Hilton’s association with William Black, a Kansas City construction executive who was convicted of a felony 20 years ago. Despite Black’s felony record, Hilton proposed early in the development process selling Black shares in the casino as part of the company proposal to have minority investors own 10% of the riverboat.

However, Missouri gaming regulations prohibit licensees from associating with known felons, let alone wooing them as potential investors. Hilton, which knew about Black’s felony record early on, has since distanced itself from Black, who recently won a pardon for his felony conviction from the Missouri governor.

While Hilton began dealing with Black before Missouri formulated its gambling laws, regulators said that Hilton should have known better because of its extensive gaming experience across the country.

Black could not be reached for comment.

The Missouri Gaming Commission voted 4-1 last week to find Hilton “suitable” for a gambling license, but only after Hilton’s Bollenbach conceded the company’s mistakes and announced the resignation of the senior executives.

In addition, Bollenbach said it would contribute an additional $250,000 to Missouri minority and community groups and would create a blue ribbon commission to oversee the funds’ distribution.

“The commission was satisfied about Hilton’s eligibility after looking closer at the facts and at Hilton’s remedial action,” Irwin said.

Today, the gaming commissioners are scheduled to board the Flamingo Casino for a final inspection before issuing Hilton the coveted gambling license, allowing the company to finally open the riverboat to gamblers.

Ironically, after Hilton’s struggle to open the Flamingo Casino, gaming industry analysts are not all that excited about the boat’s financial prospects. Entering a market where 10 rival riverboats will soon be operating, the Flamingo Casino should barely cover the cost of operations, said gaming industry analyst Harry Curtis at Smith Barney.

“It’s going to be a tough environment for everyone,” Curtis said.

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Floating Bets

Hilton’s entry in the Kansas City, Mo., gambling market, the Flamingo Casino riverboat and dockside complex, is one of the largest floating casinos in the country. A look at the scandal-ridden project, work on which has been dormant for weeks:

Location: The project is being built on a 142,000-square-foot floating facility in a basin on the south shore of the Missouri River. About 100,000 cubic yards of dirt have been excavated from the basin to create a 5-acre lake in which the casino floats.

Cost: $110 million

Size: The project, almost as big as a city block, includes a 380-foot-by-190-foot casino, offices, shops, restaurants and lounges.

Construction: Ground was broken on the site in 1993. The barge will be made of more than 7 million pounds of steel.

Opening: The complex was scheduled to open last summer; it could cast off as early as today.

Jobs: The casino will provide 800 full-time jobs with an annual payroll of more than $15 million.

Source: Hilton Hotels Corp.