Why Rodney Blackwell Thinks He Has a Play in the Davenport Casino Game Print
Commentary/Politics - Guest Commentaries
Written by Jeff Ignatius   
Tuesday, 17 September 2013 16:28

Local developer Rodney Blackwell clearly got the Davenport City Council’s attention with a $250-million casino-development proposal on September 7. But from the outset it didn’t appear there was any path forward for it.

The Isle of Capri (IOC) has, through October 15, an exclusive negotiating agreement with Dan Kehl’s Scott County Casino company to sell its Rhythm City property. And, as Blackwell readily admits, even if it didn’t, the Isle wouldn’t want to negotiate with him and his partner, the Canadian company Clairvest Group.

So the city council’s 9-1 vote on September 11 to table a development agreement with Kehl appeared to be little more than a delay. Kehl has said he’ll complete the sale by the October 15 deadline. And the Riverboat Development Authority (RDA) – which holds the Rhythm City gaming license – on September 16 approved an operating agreement with Kehl’s company. (All these agreements are steps toward actually building the casino, and beyond them is approval from the Iowa Racing & Gaming Commission.)

The message of Kehl’s comments and the RDA’s action is that the train has left the station, and Blackwell isn’t on it. As RDA Chair Gary Mohr told the Quad-City Times: “The RDA will keep its commitments. I don’t know if people don’t understand it or they just don’t like it.”

But Blackwell thinks he has a play. He said in an interview last week that he believes the city council can kill the Kehl deal, and that it further has the leverage to force the Isle of Capri to negotiate with him and Clairvest. Alternatively, the city could use its power to push Kehl to make a larger investment than the $110 million he has pledged to spend on a new casino and hotel complex. (Kehl said the three-phase development will total $200 million.)

Both proposals promise to build a 30,000-square-foot casino within three years, both would have hotels, and both would give a portion of net gaming revenues to the Downtown Davenport Partnership. Kehl’s adds a performance theatre.

But the Blackwell/Clairvest proposal overall is grander – and would result in more money for the community. Its initial investment of $125 million and total investment are larger than Kehl’s, and the proposal from Blackwell/Clairvest would give a percentage of net gaming revenues – ranging from 0.15 percent to 0.35 percent – to a number of civic institutions: the Figge Art Museum, the Putnam Museum, the Davenport Schools Foundation, and Humility of Mary. At the time Blackwell’s proposal was unveiled, he’d already purchased the necessary land at Interstate 80 and Elmore Avenue, while Kehl hadn’t announced a location. (Kehl finally did at the September 16 RDA meeting – near I-80 and Brady Street.)

Still, the casino proposal from Clairvest looks like a long shot because it arrived so late in the process – a function, Blackwell said, of the time it took assembling the land for the development, which would be fully built out over 10 years.

But Blackwell said the city has two tools it can use to stop the current proposal from Kehl – or, at the least, delay it significantly or tie it up in court.

The first is the 2005 riverfront-development agreement between the City of Davenport and the Isle of Capri, in which the Isle agreed to build a parking ramp and hotel adjacent to its existing gaming boat – neither of which happened. The second is the city’s riverfront lease with the Rhythm City Casino, which can only be transferred with the consent of both parties.

“The city has to have the muster to sue the Isle,” Blackwell said. “We’re saying that you owe us money [for failing to complete the 2005 agreement], and obviously it would not be reasonable to transfer the lease if you owe us the money. And until you pay us for not having a hotel and all this development, we’re not transferring the lease.”

It’s an intriguing avenue that might have legs. In an e-mail, City of Davenport Corporation Counsel Tom D. Warner wrote: “IOC Davenport has responsibility and obligations remaining as a result of the 2005 Development Agreement and various leases. The parties must reach a resolution to the outstanding obligations. Oftentimes early and/or alternative resolution of obligations involve[s] a monetary payment.”

The issue of indemnification isn’t clear-cut, however. In 2011, the Isle of Capri sent a letter to the city pulling out of the riverfront-development agreement, noting that “the City has made clear to the public and to the Isle of Capri companies that the City wants a new, land-based casino complex in downtown Davenport, instead of building the new parking ramp and new hotel on the riverfront.” By that logic, the Isle might not need to indemnify the City of Davenport for failing to abide by the terms of the 2005 agreement; at this point, neither party wants to move forward with what was agreed to.

As for the lease, Warner wrote that “permission for the assignment cannot be unreasonably withheld. So, if the tenant presents a new tenant of similar or better financial wherewithal, permission cannot be withheld.”

But Blackwell said that it wouldn’t be unreasonable to block a lease transfer until indemnification is settled. Effectively, Blackwell is arguing that if the Kehl proposal becomes reality, either Kehl or the IOC should be required to indemnify the city as consideration for approving a significantly smaller project than Clairvest’s.

This alludes to another possibility – that Kehl could revise his proposal to put it on more even footing with Clairvest’s. As Blackwell said: “If Mr. Kehl could show that his true interest lies in building the [Quad Cities’] number-one casino in Davenport, and he would actually sign on the dotted line that he would build something [larger than his current proposal], I think that would be a different story. ... I don’t think the city should give indemnification if all we’re going to get is the third-best product [in the market] on opening day. ... If he wants to up his ante ... I bet you he wins.”

Yet even if Blackwell is correct that the city can block or seriously delay the current Kehl proposal, there’s the problem of getting the Isle of Capri to go along with the Clairvest project – or even a larger-scale proposal from Kehl or another operator.

The Isle and Kehl, he argues, have a similar goal of building a second-class casino in Davenport. The Isle would like to protect the revenues of its Bettendorf operation, while Kehl wants to protect the Riverside Casino & Golf Resort of which he’s CEO – a little more than an hour’s drive from Davenport. (Earlier this year, Kehl said he’d build a water park in Linn County – less than hour away from the Riverside operation – if voters rejected a casino referendum. They didn’t.)

“They’re the only two people in the state of Iowa that don’t want another product – a good product – in Davenport,” Blackwell said.

So by Blackwell’s own thinking, it’s not in the Isle’s interest to sell the Rhythm City property to Clairvest, or anybody else whose operation would significantly cut into the Bettendorf casino. Even if the City of Davenport can block Kehl’s current proposal, the Blackwell/Clairvest project might be little more than a pipe dream.

But Blackwell said that the Iowa Racing & Gaming Commission has made clear to license-holders that they “have to maximize the value of the license and do it land-based.” That, he said, precludes the Isle of Capri from letting the riverboat status quo stand in the long run if the Kehl project dies: “In no scenario is a new [land-based] casino not going to be built. It’s just a matter of how it gets done.”

But the Isle of Capri could stall for as long as it’s able – a result that Blackwell said the company actually prefers over new competition in the Quad Cities market.

There are lots of players in the game, and the City of Davenport is a minor one. The Isle of Capri obviously drives things, as it’s the party with the gaming operation to sell. The Riverboat Development Authority has a say as the holder of the gaming license. The Iowa Racing & Gaming Commission is the regulating body.

But a majority of the Davenport City Council could decide it wants to play hardball. It could nix the development agreement with Kehl, or demand that he substantially match the Clairvest proposal in terms of the product and the benefits to governmental and not-for-profit bodies, or say that it’s willing to go to court or to hold up a lease transfer, or ... .

It might have the power, in other words, to significantly alter the outcome here.

At its September 25 meeting, city-council members will have two development agreements to review – one from Kehl and one from Blackwell/Clairvest, one that’s already well on its way and another that might be a nonstarter with the Isle of Capri.

Staying on the Kehl train is the path of least resistance, but in comparison to its competitor it looks modest. If Blackwell and Clairvest have done nothing else, they’ve shown by contrast that the Isle of Capri, the Riverboat Development Authority, and (to this point) the City of Davenport have with the Kehl proposal left a lot of money on the table for taxing bodies and a handful of not-for-profits.

Trying to derail the Kehl train could have substantial benefits, but it offers no guarantees. There’s a significant chance that blocking Kehl would leave Davenport with its lackluster third-place boat for the foreseeable future.

So Blackwell and his partners must first convince the city council that Kehl is not a done deal and can be stopped.

But that’s just a first step, because it’s not a choice between the Kehl and Blackwell proposals. It’s a choice between the Kehl proposal and the possibility of Blackwell’s – with another potential outcome that killing the Kehl deal would mean no viable plan for a new casino.

That’s a tough sell this late in the process.

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