The Evolution of Project Finance and the Development of Gaming Mega Resorts

How Latham & Watkins pioneered the application of the project finance model to gaming mega resort developments.

July 26, 2013

Brett Rosenblatt is the Managing Partner of Latham & Watkins’ San Diego office and is a founding Co-chair of the firm's Hospitality, Gaming & Leisure Industry Group. In this interview he shares how Latham has been able to apply its project finance experience — working on energy, infrastructure and other related mega development projects — to mega development activities in the gaming industry.

How has the gaming industry worldwide evolved and changed during the last 15 years?

Rosenblatt: For a variety of reasons, historically, gaming and gaming development was considered a niche industry where only specified lenders played, often on a balance sheet financing model. At that point in time, land-based gaming development — at least at a significant resort scale — was restricted primarily to Las Vegas and Atlantic City. But today, gaming has become a broader mainstream business, understood and accepted by the broader financing industry.

As the gaming industry became better understood and appreciated by the mainstream banks and other debt providers, the developments also got larger and more expensive. And in order to finance these mega resorts, you started to see a market willingness to finance these transactions in the capital markets on a non-recourse basis.
As this market started to emerge, the debt providers looked for people to assist them in structuring these deals — primarily people who understood construction, real estate and multi-tranche financing on this large scale. Much of that know-how came from non-recourse financing models originally developed for the power, energy and infrastructure industries, where significant investment on non-recourse financing models had been employed for years.

How has the domestic gaming industry grown during the past ten years?

Rosenblatt: Over the last ten years major-expenditure gaming development in the US market has expanded from the traditional Las Vegas/Atlantic City footprint to major investments in a variety of jurisdictions as states pass legislation to permit gaming in order to support their tax bases and promote jobs for their residents — no state likes to see their residents crossing state lines to spend their money. Recent states to pass such expanded gaming legislation include Pennsylvania, Illinois, Ohio, New York and Massachusetts.

And of course you can’t forget Macau, China, as well as the various other international jurisdictions that have passed, or are in the process of passing, gaming and expanded gaming legislation to stimulate investment and development in the industry.

As states and foreign jurisdictions have enacted new and/or expanded gaming legislation, the private sector has stepped in to develop significant gaming assets — and Wall Street has followed. 

What are some of the biggest challenges facing the financing of these gaming assets?

Rosenblatt: They are a mix of traditional construction and financing challenges overlaid by regulatory, inter-creditor and operational peculiarities unique to the gaming industry and the gaming jurisdiction in question. You have to be very knowledgeable and careful in structuring these transactions. But these are the types of things that keep the practice interesting.

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