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COLUMN ONE

A 'Sure Thing' Gone Awry

Developer wowed New Orleans officials with plans for world's largest casino. Now the enterprise is bankrupt, sending a warning to places eyeing gambling as economic aid.

December 02, 1996|MICHAEL A. HILTZIK | TIMES STAFF WRITER

"I went over to Chris Hemmeter's office one day and every time I opened a door there someone would scramble and hide under a desk," said Wilson. "They were all relatives and friends of my colleagues on the council." It was like turning on the light and seeing the cockroaches scurrying off."

Therefore, no one was surprised when the city awarded Hemmeter the Rivergate lease in April 1993. But he still had to acquire a gaming license from the state. And there he ran into a buzz saw.

"Any rational state would have combined the lease and licensing procedure," said Timothy Ryan, dean of the University of New Orleans Business School. In bifurcating the process, he said, the state opened yet another doorway for corruption.

And Harrah's, which had linked up with a group of well-connected local lawyers called the Jazzville Group, was still in the running.

Thus the battle for the license featured two contestants scratching for influence any way they could. Hemmeter's development partner was Caesars World Inc., whose Lake Tahoe casino was a favorite haunt for Edwards.

Another partner was an Edwards crony, William C. "Billy" Broadhurst, a New Orleans lawyer previously famous for having chartered the yacht "Monkey Business" for a 1988 cruise with then-presidential candidate Gary Hart and Donna Rice. Broadhurst has since been indicted for allegedly taking kickbacks in a riverboat case.

But Jazzville also included many of Edwards' closest pals. Among them was Wendell Gauthier, one of the top plaintiffs' lawyers in the Southeast and a leading figure in a multimillion-dollar class-action suit against tobacco companies.

License Losers Cry Foul

The August 1993 licensing vote of the Louisiana Economic Development and Gaming Corp., or LEDGC, the state's gaming licensing board, ended up a squeaker: a 5-4 split--in favor of Harrah's/Jazzville.

Hemmeter and Caesars cried foul. They charged that LEDGC member James Vilas and Chairman Max Chastain had illicit meetings with Gauthier and that Vilas had been seen enjoying champagne and a hot-tub soak with a woman they identified as a Gauthier girlfriend. (LEDGC investigators requested permission to pursue the allegations; instead, the LEDGC board voted in a closed-door meeting to shut the investigation down.)

Vilas denied the allegations as "completely ludicrous and completely false." He had never been to the woman's apartment or shared her tub, he said. As for the licensing vote, he contended that Harrah's won because its project was more rational than Hemmeter's and its financial projections more believable.

But with Hemmeter/Caesars holding the lease and Harrah's/Jazzville the license, the casino was stalemated--until Edwards called both sides to the governor's mansion and bludgeoned them into making a deal in the space of two hours. The new arrangement merged the interests of Hemmeter, Harrah's and Jazzville. Caesars, dumped from the project, later sued Hemmeter and settled for $5 million.

What no one realized then, however, was that Edwards' shotgun marriage spelled big trouble for the project. The years of fruitless political maneuvering had given casinos in neighboring Mississippi time to reach critical mass. They were now siphoning off potential customers from Texas, Louisiana and Tennessee.

In this environment, industry observers believed that only a modestly scaled New Orleans project had a chance. But Harrah's was yoked to Hemmeter's grand scheme, which required building a temporary casino until the permanent site was completed.

Located in Rundown Area

The temporary site was woeful, an old city building located in a rundown section of town too far from the tourist center. Concierges and cab drivers alike advised tourists to steer clear.

After the hall opened in early 1995, the overall business was poor--about 30% of expectations. That left local residents as the major clientele and defeated the purpose of drawing outside dollars.

The whole project was jeopardized because Harrah's was counting on earnings from the temporary casino to help finance construction at the Rivergate.

By summer 1995, rumors began circulating that Harrah's was preparing to abandon New Orleans.

The company responded with a full-page newspaper ad on Nov. 12, 1995. Headlined: "Harrah's New Orleans Is Here to Stay. Bet on It," the ad called the rumors "malicious" and "irresponsible." Nine days after the ad's appearance, the project's banks withdrew their $137-million line of credit--after Harrah's tipped them off that it was considering closing the temporary site. Twenty-four hours later, the day before Thanksgiving and with almost no advance warning to the city or its employees, Harrah's shut the temporary casino and placed the New Orleans project in bankruptcy.

"It's unfortunate the advertisement was put in the paper," conceded Reed, insisting that it was truthful at the time.

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