March 13–Wind Creek Hospitality — the company behind what will be one of the largest property sales in Lehigh Valley history — has a pretty good thing going for itself in Alabama.

For nearly a decade Wind Creek, the gambling and hospitality arm of the Poarch Band of Creek Indians, has enjoyed a monopoly on casino gambling in the state. That's because, despite ongoing debates in the state Legislature, Alabama still prohibits casinos on nontribal land. And Wind Creek enjoys tax-free revenue at its three casinos on tribal land because its games are technically electronic bingo, not slots.

The company's finances are private, and officials declined last week to share its most recent annual report. But according to media reports, Wind Creek was raking in more than a half-billion dollars in untaxed annual revenue in 2012, prior to the opening of its third — and largest — Alabama casino.

Under that scenario, casino-executive-turned-consultant Steve Norton noted: "It doesn't take many years to amass the kind of war chest you would need to acquire a $1.3 billion property in Pennsylvania."

But Wind Creek figures it will face competition one day in Alabama, and it wants to put its growing pile of cash to work in the meantime, said Kevin Scheible, partner and managing director of Innovation Capital, an El Segundo, Calif., boutique investment bank that Wind Creek hired two years ago to advise it on a diversification strategy.

It has been executing that strategy in recent months.

In October, Wind Creek acquired two gambling facilities in the Caribbean — the Renaissance Aruba Resort & Casino and the Renaissance Curacao Resort & Casino. And at $1.3 billion, Wind Creek's acquisition of Sands Casino Resort Bethlehem appears to be the largest-ever U.S. sale of a single casino property outside of Las Vegas or Atlantic City.

While it declined to provide a breakdown, Wind Creek said in a news release that it expects to fund the acquisition with a combination of its existing cash and new debt financing provided by Credit Suisse.

Innovation Capital was Wind Creek's exclusive financial adviser for the transaction. The deal is a "big bite" for Wind Creek, Scheible said Friday, but worth every dollar. Sands generates significant cash flow and represents the "top 1 percent" of casinos in regional gambling throughout the country, said Innovation Capital founding partner Matt Sodl.

"Lehigh Valley folks should be really proud in what they have here," said Sodl, a Whitehall High School graduate. "Between its considerable size and its mix of amenities, it feels like a Vegas casino when you walk into the place."

Wind Creek, Scheible said, had been eyeing properties on the East Coast and reached out to Sands after MGM's proposed $1.3 billion deal fell through. Wind Creek was impressed by the loyal base of players stretching across northern New Jersey to New York City, and the "very strong busing program" Sands has developed in those markets.

In fact, Wind Creek came away from the due diligence process confident that the New York market can be tapped even further, Scheible said.

The company factored the threat of future competition into the deal, he said, but Wind Creek believes it can continue to market the casino as a regional crown jewel.

Wind Creek "feels comfortable that they can withstand the additional competition if and when it comes given the significant advantages it has built into the market," he said.

Analysts agree Sands got a good price for its Bethlehem property, given the ongoing gambling expansion in Pennsylvania and the potential for competition down the road that could loosen up the casino's stranglehold on northern New Jersey and New York City.

But that potential competition isn't online yet, helping Sands Bethlehem — 80 miles from New York City — rake in $579 million in revenue last year, up from $571 million in 2016. The property's adjusted EBITDA — earnings before interest, taxes, depreciation and amortization, a key measure of health — was $147 million last year, up from $141 million a year.

"That Bethlehem property is a very nice property," said Colin Mansfield, a lead analyst in the gaming, lodging and leisure sector at Fitch Ratings, a financial information firm.

"It's extremely strong for the market it's in. We think the property will be just fine in the near term," he said. "Longer term, you could have competition risks from New York City or North Jersey. But regardless of who is operating it, that's a risk no matter who owns the asset."

One of those competitors has already opened. Resorts World Catskills opened last month in Sullivan County, N.Y., about 90 miles from New York City. But so far, Mansfield said, the property's numbers have underwhelmed, especially when considering there's typically a surge in business when a casino first opens.

Perhaps the real threat for Sands Bethlehem will come around 2023, when New York lawmakers have to decide whether to put three casinos in its population-rich downstate area. And while New Jersey voters in November 2016 overwhelmingly rejected a ballot question to expand casino gambling to the northern part of their state, some feel the question will again make its way to voters — eventually.

In the meantime, Mansfield expects Wind Creek — if and when it takes over the Bethlehem casino — to maintain as much of the property's management staff as possible. After all, the current staff has helped build a facility that is Pennsylvania's table games king — dominance that can be traced to the more than 50 busloads of people it lures every day from the heavily Asian-populated New York neighborhoods of Flushing, Chinatown and Brooklyn.

The Bethlehem acquisition also will allow Wind Creek to cross-market its new Caribbean properties using its rewards program, the company said in a news release. Regulars in Bethlehem will be able to escape to the Aruba and Curacao resorts during winter months using travel perks offered through the rewards program.

Keith Foley, a senior vice president with Moody's who covers the gambling sector, suggested the reverse as a possibility: Maybe Wind Creek's current customer base wouldn't mind seeing a property not too far from New York City.

One of the biggest unknowns is what Wind Creek plans to do with the 120 acres of the former Bethlehem Steel plant that stretches from the casino near Minsi Trail Bridge to the blast furnaces. While Wind Creek says it's too early to discuss its plans, Scheible said the tribe intends to build upon the relationship Sands established with the local community.

If Wind Creek's relationship with its hometown of Atmore, Ala., is any indication, the company likely will try to partner with the community. In Atmore, a small city 50 miles northeast of Mobile, even the residents who mentioned the tribe largely avoiding taxes as unfair hesitate to complain because Wind Creek pumps some of those savings into the local community and its schools.

In Pennsylvania, however, Wind Creek would be taxed: 55 percent on slots revenue and 16 percent at the tables — just like every other casino.

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DETAILS OF THE DEAL

Breaking down Wind Creek's planned purchase of Sands Bethlehem by the numbers:

Purchase price: $1.3 billion (combination of existing cash and new debt financing)

Sands Bethlehem 2017 revenue: $579 million

Sands Bethlehem 2017 EBITDA: $147 million

Conclusion: While analysts agree Sands got a good price for its Bethlehem property — in fact, the same price it was negotiating with MGM last year — experts have said the going rate for a casino like Sands Bethlehem is roughly 8.5 to 9 times EBITDA. The deal's value is on the higher end of that range, roughly 8.8 times EBITDA.

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