Philadelphia investor in SugarHouse criticizes planned expansion as 'cheapening'

Posted: August 18, 2012

WILMINGTON - A local investor in the SugarHouse Casino on Thursday criticized a proposed expansion of the site as "cheapening" the image of Philadelphia's first gaming hall.

"We want a first-class casino, not something cheesy," said Robert Potamkin, a Philadelphia auto dealership magnate, during testimony in Chancery Court. "And we want some control over it."

In a 12th-floor courtroom, the very private investors behind the SugarHouse Casino are locked in a very public battle over the future of the riverfront casino on Delaware Avenue in Fishtown and Northern Liberties.

It's Philadelphia vs. Chicago, with local backers of the casino arguing that the planned expansion should require a "supermajority" vote that effectively gives them veto power.

Though Potamkin was the only local investor to testify, he was joined in the courtroom by powerhouse Philadelphia lawyer Richard A. Sprague and former state Supreme Court Justice William Lamb of Chester County.

The Philadelphia side had its say for more than five hours. Chicago investor and billionaire developer Neil Bluhm is expected to testify Friday.

Bluhm and associate Greg Carlin control two-thirds of the casino through various partnerships and act as general partners. They have invested about $80 million of their own equity in the project.

In April 2011, Bluhm unveiled a plan to expand SugarHouse - the second revision since the group was awarded a license in 2006.

The original $742 million blueprint for SugarHouse was scaled back substantially in 2009, a move supported by all investors and endorsed by the Pennsylvania Gaming Control Board.

The investors spent $395 million to build the first phase, which opened in September 2010.

But that 2009 plan was altered last year by Bluhm, who presented a modified version with fewer slot machines and restaurants, and a lower parking garage with fewer indoor spaces.

Local investors, led by Potamkin and Sprague, objected and sued in Chancery Court in a bid to change the plan through a supermajority vote.

"We were building less - much less - than what we had promised the Gaming Control Board," Potamkin said.

Instead of increasing the number of slots to 3,000, the expansion would bring the total to only 2,000; instead of 3,000 spots in an indoor garage, there would be only 1,500, he testified.

Potamkin said SugarHouse's general manager, Wendy Hamilton, also questioned the scope of the expansion. "She said we're crazy for not building bigger," he said.

"We got a license based on building big," Potamkin said. "We made it a little smaller and now Mr. Bluhm wants to make it even smaller and cheapen it."

John Hickey, general counsel for the partnership representing local investors, RPRS Gaming L.P., said, "Size does matter because it affects the return on our investment."

The daylong testimony provided rare behind-the-scenes details on how the SugarHouse deal came together in 2005.

Soon after Pennsylvania legalized gambling in 2004, Bluhm called then-Gov. Ed Rendell expressing interest in applying for a license.

Potamkin testified that Rendell directed Bluhm to reach out to Sprague, who was putting together a local group to make a bid for one of two licenses reserved for Philadelphia.

Potamkin said Sprague wanted the casino to be "his legacy."

"He views this as what people will remember him by," Potamkin said. "And Richard Sprague didn't want to be associated with a low-end casino."

Potamkin described Bluhm's efforts to win over local investors, who also include Blue Bell developer Peter DePaul; former construction company owner Daniel Keating III; and business-services entrepreneur Jerry Johnson.

Bluhm took them on a tour of the Four Seasons Hotel in Philadelphia that he built, and also showed them a casino he was developing at Niagara Falls.

They signed a partnership agreement on Dec. 28, 2005. The next year, they submitted an application that was so voluminous it weighed 500 pounds and required two vans to deliver it to the gaming board in Harrisburg.

The deal between the Chicago and Philadelphia investors included a key provision: If the development cost of the project was 15 percent more or less than originally planned, a supermajority provision would kick in that gave the locals veto power on major decisions.

That number is at the center of the legal dispute.

The local investors believe the proposed expansion would fall outside that band, requiring the supermajority vote.

The Chicago side argues that the overall development price tag dropped sharply after the collapse of financial markets in 2008, requiring a less-ambitious development that everyone knew about and endorsed.


Contact Jennifer Lin at 215-854-5659, jlin@phillynews.com, or follow on Twitter @j_linq.

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