casino developer and operator solicitation waukegan… › il › cowil › board.nsf ›...

SUBMITTED TO

City of Waukegan

SUBMITTED BY

Johnson Consulting

DATE

October 2019

CASINO DEVELOPER AND OPERATOR SOLICITATION – WAUKEGAN, IL

ADVISORY SERVICES REPORT

6 East Monroe Street | Fifth Floor | Chicago, Illinois 60603 | Phone: 312.447.2010

www.chjc.com

Memorandum Report | October 2018

Casino Developer and Operator Solicitation – Waukegan, IL

PAGE 2

INTRODUCTION

Johnson Consulting was retained by the City of Waukegan (the “City”) to provide an independent review

and evaluation of proposals received in response to the City’s Request for Qualifications and Proposals

(RFQ/P) Casino Development and Operator. It is intended that the City will enter into an agreement with

one or more selected developer(s) and issue a letter of support to the Illinois Gaming Board (IGB) by

October 25, 2019, in accordance with the requirements of the Illinois Gaming Act.

Five (5) proposals were received by the City from (listed in alphabetical order):

1. CDI-RSG Waukegan, LLC. (CDI-RSG)

2. Full House Resorts, Inc. (Full House)

3. Lakeside Casino, LLC dba North Point Casino. (North Point)

4. Potawatomi Hotel and Casino. (PHC)

5. Waukegan Development Association LLC. (WDA-CGG) - On September 25, 2019 WDA-CGG

provided written notice to the City of withdrawal of their proposal.

It is hoped that the IGB will chose the operator that will optimize returns to all parties. From the City of

Waukegan’s perspective, the hope is that the IGB will advance the team that will offer the City the best

project that will have the greatest impact for its residents. The selected bidder should have financial capacity

and should also be the one that will ultimately create a project that is more than just a casino but rather an

entertainment destination within the City of Waukegan.

This memorandum report presents our summary-level analysis and ranking of proposals #1 through #4 as

received by the City, based upon the information presented in those proposal.

OBJECTIVES AND EVALUATION CRITERIA

As stated in the City’s RFQ/P, the City is seeking “a financially successful development that maximizes

sales tax and gaming revenues to the City and that provides a significant number of quality jobs to its

residents, as well as increasing the City’s EAV and bolstering its property tax base.” The proposed

development must include, at a minimum, a casino, sports betting, and parking, along with other necessary

supporting infrastructure.

The RFQ/P required that submittals provide the following information:

1. Property Specifications and Location.

2. Description of Proposed Development – including phasing plan and timeline; sustainable

development components; target audience and marketing approach; plans for community

reinvestment; benefits to the City and its residents; and requests of the City.

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3. Project Team and Experience.

4. Financial Data – including annual reports; existing project performance; and cost estimates and

operating projections for proposed project.

5. Application Fee.

Our evaluation considers items #1 through 4, as listed above.

PROCESS AND METHODOLOGY

As independent advisor to the City, Johnson Consulting has provided the following services:

1. Reviewed and summarized all proposals received by the City.

2. Facilitated developer interviews on September 11 and 12, 2019 with all 5 bidders.

3. Participated in a public hearing on September 18, 2019, which included presentations by all 5

bidders, as well as a summary-level report by Johnson Consulting.

4. Reviewed public comments received in writing by the City through October 2, 2019.

5. Prepared a memorandum report providing an independent, third party evaluation of the proposals,

reflecting our local and industry knowledge.

6. Presented our findings and recommendations at a special City Council meeting on October 17,

2019.

It is noted that pursuant to our engagement with the City, our scope of services does not include the

preparation of independent projections for, nor a market or feasibility assessment of, a new casino project

in Waukegan. Our analyses are based on the information provided by the respective bidders and provides

our assessment of the viability of their financial projections based upon our industry experience.

ABOUT US

Johnson Consulting, Inc. is a corporation founded in 1996 in Chicago, IL. Since inception, Johnson

Consulting has conducted hundreds of engagements in the U.S. and abroad, including casino, event and

entertainment facility, and mixed-use development projects that incorporate a mix of commercial, retail,

hotel and specialized uses. Our professionals have worked in real estate and hospitality planning for over

30 years. The majority of our work is focused on market analysis, financial analysis, development

consulting, operational reviews, economic and fiscal impact analysis, and developer and operator

solicitation.

Johnson Consulting is uniquely qualified to for this assignment based upon factors that include:

A. Experience in similar engagements that have resulted in casinos and other entertainment facilities

supportive of host community’s strategic goals and objectives.



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B. Reputation as objective and trusted economic and financing advisor, among investors,

underwriters, and developers.

C. Proven clear and transparent processes that engage leadership, stakeholders, prospective

developers and communities.

D. Proven collaborative processes that utilize appropriate market data, precise analytics and industry

knowledge so that our clients can make the most informed decisions.

E. Substantial prior work for and in the City of Waukegan.

Johnson Consulting’s advisory services practice is committed to providing guidance and recommendations

that are specific to each of our client’s unique needs through a collaborative and tailored approach. At the

same time, we rely upon the lessons learned from our experience advising municipalities and private

developers on the best ways to realize their desired outcomes. As advisors to community leaders, we

understand that success is not defined solely by financial performance but also “return on vision”. Therefore,

our process always entails a significant amount of engagement and interaction with community leadership

and community members to ensure that our recommendations respond to the unique needs and desires of

the host community, and positively contribute to economic development.

EVALUATION OF PROPOSALS

The Appendix to this memorandum report provides a summary of responses to each of the evaluation

criteria identified above, based upon the submittal requirements of the RFQ/P, and described below.

1. PROPERTY SPECIFICATION AND LOCATION

Each of the remaining 4 proposals identifies the 28-acre, City-owned Fountain Square site as the location

for the proposed casino project. While there is considerable variation in the proposed purchase price for

the site, the highest bidders include structured annual payments and donations (North Point) or a desire for

a long-term lease agreement (Full House). Figure 2 provides a comparison of the proposed purchase price

for the Fountain Square site. The amounts shown are as proposed in each submittal, but will be subject to

negotiation.



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Figure 1

Figure 2 summarizes our commentary on the responses received in relation to Evaluation Criteria #1

Property Specifications and Location.

Figure 2

Waukegan Casino RFQ/P

Comparison of Property Specifications and Location

CDI-RSG Full House North Point PHC

Commentary Mid-ranked purchase

price.

Higest purchase price;

Desire for long-term

lease with option to

purchase site.

2nd highest purchase

price comprised of

upfront payments plus

structured, annual

payments and donations

to City-approved

projects.

Lowest purchase price.

Source: Respective proposals, Johnson Consulting



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2. DESCRIPTION OF PROPOSED DEVELOPMENT

Key components of the proposals are summarized as follows:

A. PROPOSED DEVELOPMENT: Each of the 4 proposals present a unique vision for the development

of a casino on the Fountain Square site. Figure 3 provides a comparison of the proposals based

upon the number and types of gaming positions. As shown, the number of gaming devices range

from 1,100 (CDI-RSG) to 1,800 (PHC) and the number of gaming tables range from 48 (North

Point) to 60 (both CDI-RSG and Full House). All proposers indicated that they are willing to pay the

per position privilege fee for the maximum allowable 2,000 gaming positions.

Figure 3

All proposals include sports betting facilities, along with various restaurants and bars. Only one

proposal includes onsite accommodation in the initial phase of development (Full House – 20 luxury

villas), while all proposals indicate potential for a hotel in subsequent phases of development.

As it relates to non-gaming amenities, all 4 proposed developments include a variety of dining

options. Indoor event space is proposed by Full House (1,500-person Entertainment Center) and

PHC (10,000 SF of meeting space), and North Point includes an outdoor amphitheater.



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In all 4 of the proposals, parking is provided predominantly in surface lots, although each proposal

does include a parking deck in Phase 1 of the development program. It is our opinion that the ratio

of parking spaces is in line with the relative scale of each proposed development.

At this preliminary stage, detailed site planning has not been undertaken by any of the proposers.

This will be important to ensure appropriate site orientation to minimize impact on adjoining

residential areas, access, circulation, and other site planning considerations.

B. PHASING PLAN: The timelines and phasing approaches of each proposer were similar, with each

indicating a willingness and ability to commence construction immediately upon receipt of the

license.

C. SUSTAINABLE DEVELOPMENT COMPONENTS: All proposers commit to incorporating sustainable

development components.

D. TARGET AUDIENCE AND MARKETING APPROACH: All proposers indicate that they have database

of potential patrons to market to. The 2 proposers with existing regional operations (CDI-RSG and

PHC) indicated some shifting, but no significant cannibalization, of demand.

E. TIMELINE: As it relates to temporary operations, as specifically referenced in the RFP, 2 proposers

outlined plans for a temporary casino onsite (Full House and North Point), 1 proposer indicated that

they would be willing to discuss temporary operations if desired by the City and/ or pay the City an

agreed upon amount annually in lieu of temporary operations, equal to the tax revenues that would

be earned by the temporary casino (CDI-RSG), while the remaining bidder did not propose

temporary operations (PHC).

F. COMMUNITY REINVESTMENT: All proposers expressed a commitment to local hiring; organized

labor; minority, woman, veteran, and disabled-person owned businesses; buy-local, sponsorships,

contributions and event participations; foundation establishment or investment; and other

community-oriented plans.

G. ECONOMIC BENEFITS: 3 of the 4 proposers included an estimate of total economic impact of

ongoing operations at the respective proposed projects, ranging from $232.9 million per annum

(CDI-RSG) to $392.5 million per annum (PHC). Full House did not provide an estimate of the total

economic output generated by the project.

As it relates to ongoing employment, Figure 4 provides a comparison of the proposals based upon

anticipated job creation. As shown, the annual on-site jobs (at the casino project) range from 685

(North Point) to 1,382 (PHC), and total jobs, including those that are created elsewhere in the

economy, range from 1,180 (North Point) to 2,599 (PHC).



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Figure 4

Figure 5 shows the estimated fiscal impact of each of the proposed projects, including gaming and

admissions taxes collected by the City of Waukegan and based upon estimates provided by the

respective proposers. As shown, annual gaming and admissions taxes range from $4.4 million

(North Point, although it is noted that this figure does not include admissions taxes) to $9.5 million

CDI-RDG).



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Figure 5


Description of Proposed Development.



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Figure 6

3. PROJECT TEAM EXPERIENCE

All project teams identified in the proposals have extensive experience nationally as developers and

operators of casinos. Two proposers operate existing regional casinos in Des Plaines, IL (CDI-RSG) and

Milwaukee, WI (PHC). It is our assessment that all teams include seasoned professionals with skills and

resources necessary to deliver a high-quality project to the Waukegan market. Figure 7 summarizes our

commentary on the responses received in relation to Evaluation Criteria #3 Project Team and Experience.


Comparison of Proposed Development


Commentary Market-driven concept,

with reasonable schedule

and phasing.

Market-driven concept,


and phasing.



and phasing.



and phasing.

Open to temporary

casino or payments to

City in lieu of temporary

operations.

Proposal includes

temporary casino.

Proposal includes

temporary casino.

Proposal does not

include temporary

casino.

Detailed plan for

sustainable development

components.

Detailed plan for


components.

Detailed plan for


components.

Detailed plan for


components based on

existing operations at

Milwaukee property.

Primary Target Market

defined as residents in

northern Cook County,

Lake and McHenry

Counties, and southeast

Wisconsin up into the

Milwaukee area; will

leverage database from

Des Moines property;

anticipate cannibalization

will be minimal.

Target Market includes

local, day trip market,

and Chicago/ southeast

WI.

Primary Target Market

defined as a 30-mile

radius, including 2.3

million adults; will market

casino as destination.

Integrated marketing

approach leveraging

existing customer

database; anticipate that

cannibalization will be

minimal.

Waukegan First local

hiring and vendor

program.

Commitment to local

workforce hiring and

relationships.

Black Chamber of

Commerce partnership.

Will replicate Milwaukee

hiring policies.

Highest estimated fiscal

impact to City of

Waukegan.

Second lowest estimated

fiscal impact to City of

Waukegan.

Lowest estimated fiscal

impact to City of

Waukegan (excluding

Admission taxes).

Second highest

estimated fiscal impact to

City of Waukegan.




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Figure 7

4. FINANCIAL DATA

Figure 9 show the estimated project cost as presented by each proposer. As shown, the project costs

(including all hard and soft costs) range between $275.3 million (Full House) and $416.0 million (CDI-RSG).

Figure 8


Comparison of Project Team and Experience


Commentary Extensive experience;

Operates regional facility

- Des Plaines, IL; Project

Team includes silent

partner currently

engaged in litigation with

City.

Extensive experience. Extensive experience. Extensive experience;

Operates regional facility

- Milwaukee, WI.




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Each of the proposals includes projected revenues from gaming devices and from table games. Figure 9

provides a comparison of these revenues, highlighting that gross device gaming revenues range between

$103.8 million (North Point) and $213.3 million (PHC), while gross table gaming revenues range between

$21.0 million (North Point) and $49.8 million (CDI-RSG) in a stabilized year of operation (assumed to be

Year 5).

Figure 9

Figure 10 shows the total projected revenues from gaming devices and from table games, as presented by

each proposer, relative to the average revenue reported by existing Illinois casinos (based upon data

published in the Illinois Gaming Board’s 2018 Annual Report). As shown, the revenue projections presented

in 2 of the proposals (Full House and North Point) fall generally in line with, or slightly below, the Illinois

average ($137.3 million), while the projections presented in the other 2 proposals (CDI-RSG and PHC) are

significantly higher than the average but still fall well below reported revenues at the Rivers Casino in Des

Plaines ($441.0 million), which is the newest casino in the market and reported the highest revenues in

2018.



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Figure 10

Figure 11 provides a breakdown of revenues per gaming position (slots) and per table (for table games),

based upon projections presented in each proposal, highlighting that average device gaming revenues

range between $81,128 per position (Full House) and $181,273 per position (CDI-RSG), while average

table gaming revenues range between $437,500 per table (North Point) and $830,000 per table (CDI-RSG),

in a stabilized year of operation (assumed to be Year 5).



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Figure 11

Figure 12 shows the average projected revenues from gaming devices, as presented by each proposer,

relative to the average revenue from gaming devices reported by existing Illinois casinos. As shown, the

revenue projections presented in 3 of the proposals (Full House, North Point and PHC) fall generally in line

with, or below, the Illinois average ($107,103), while the projections presented in the other proposal (CDI-

RSG) are higher than the average but still fall well below reported gaming device revenues at the Rivers

Casino in Des Plaines ($294,890), which is operated by that proposer.



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Figure 12

Figure 13 shows the average projected revenues from table games, as presented by each proposer, relative

to the average revenue from table games reported by existing Illinois casinos. As shown, the revenue

projections presented in all of the proposals fall generally in line with, or below, the Illinois average

($783,178) and all are well below table gaming revenues at the Rivers Casino in Des Plaines ($2.7 million),

which reported the highest table gaming revenues in the market in 2018.



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Figure 13


Financial Data.



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Figure 14


Comparison of Financial Data


Commentary Reported combined

assets of $2.84B (the

majority of which are

financial assets) in

2017.

Reported $182.3M of

assets in 2017.

Reported $834.9M of

assets in 2017.

Reported $392.4M of

assets in 2017.

Of the proposed

$416.0M project cost,

CDI-RSG plans to

borrow two-thirds (or

approx. $183.0M) from

commercial banks, with

remaining one-third (or

approx. $91M) as equity.

Of the proposed $275.3

Million cost, Full House

will finance the project

through existing cash,

debt securities, and a

public equity offering.

North Point plans to fund

the proposed $302.2

Million cost as follows:

$90.1M equity,

$132.4M debt financing,

$79.7M funded by casino

cash flow.

Of the proposed $343.3

Million cost, PHC plans

to fund the construction

and startup of the

project, to be repaid by

Waukegan Potawatomi

Gaming, LLC.

Bank references from

Wells Fargo and JP

Morgan Chase Bank.

Bank references came

from Credit Suisse

Securities (USA) LLC.


from Wells Fargo and

Canadian Imperial Bank

of Commerce (CIBC) .


from PNC Bank.

Highest project cost

($416.0M).

Lowest project cost

($275.3M).

Second lowest project

cost ($302.2M).

Second highest project

cost ($343.3M).

Second highest gross

gaming device revenue

($199.4M); Highest

gross table gaming

revenue ($49.8M);

Projections are

aggressive but not

unrealistic particularly

given performance of

Des Plaines property.

Second lowest gross

gaming device revenue

($121.7M); Second

highest gross table

gaming revenue

($45.9M); Projections

are considered to be

conservative.

; Projections are

considered to be

conservative.Lowest

gross gaming device

revenue ($103.8M);

Lowest gross table

gaming revenue

($21.0M).

Highest gross gaming

device revenue

($213.3M); Second

lowest gross table

gaming revenue

($39.8M); Projections

are aggressive but not

unrealistic given

knowledge and

experience in local

market.




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ASSESSMENT

Figure 15 provides Johnson Consulting’s independent mathematical ranking of the proposals based upon

the 4 categories of information required by the RFQ/P – 1). Property Specifications and Location; 2).

Description of Proposed Development; 3). Project Team and Experience; and 4). Financial Data. No

weighting or commentary about qualitative or other factors has been considered.

Figure 15


Score Matrix (Ranking*)

CDI-RSG Waukegan,

LLC

Full House Resorts,

Inc.

Lakeside Casino, LLC

dba North Point

Casino

Potawatomi Hotel &

Casino

#1 Property Specification and Locations 3 1 2 3

#2 Description of Proposed Development 3 1 1 3

#3 Project Team and Experience 1 1 2 2

#4 Financial Data 1 3 2 2

Overall Ranking 2.0 1.5 1.8 2.5

* 1 = Highest Ranking


Evaluation Criteria


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