Thursday, Oct. 31, 1996 | 11:59 a.m.
Wall Street skepticism and a simmering feud between principals is threatening to keep Starship Orion grounded.
The proposed $1 billion project, which called for up to seven casinos, hotels and other facilities to replace the shuttered El Rancho resort on the Strip, hasn't been able to generate any enthusiasm from investors.
Now, the new and former owners are fighting over who controls the 22-acre El Rancho site.
Earlier this year, International Thoroughbred Breeders said it bought the site from Las Vegas Entertainment Network for $43.5 million. The agreement called for ITB, which operates two New Jersey racetracks, to come up with financing for the project by Oct. 25.
If ITB was unsuccessful in raising money, LVEN had the option to seek alternative financing for a less-expensive project, such as reopening El Rancho. To exercise that option, however, LVEN was required to pay half the costs incurred since the agreement was announced.
A week before the deadline, according to ITB Chairman Joel Stern, the company notified LVEN it wouldn't be able to raise Starship Orion funds by Oct. 25. Stern said ITB told LVEN it could exercise its option by paying for half the mortgage, development and fund-raising expenses, which were "in excess of a couple million dollars."
Stern said LVEN sent ITB a letter late Friday indicating it intended to exercise the option but wasn't sending any money. LVEN also issued a news release saying it had exercised the option, Stern said.
"Our position is that they didn't exercise the option because they didn't put up any money," he said. "If they had, they would have the right to veto a sale if they didn't deem it worthwhile.
"Now, they have no involvement in the management or control of the project. That should make it a lot easier to go forward."
LVEN officials didn't respond to several requests for comment. Phone calls to LVEN's number were switched to a Source Venture Capital answering machine, but no messages were returned.
Stern acknowledged investors have been cool toward the Starship Orion concept, which was to convince six or seven small gaming companies who couldn't do so individually to join forces and build a large project on the Strip.
"We thought we'd have seven heads of seven companies say they'd all work together, and this may not be the right time for them to do it. No one has come forward to put up any money."
The ITB executive said that, while "theoretically the concept remains a good idea," his company is pursuing other options.
"Through our financial advisers, we've talked indirectly to all the prominent people looking to enter the Las Vegas market," Stern said. "Everyone knows the value of the property, but they are pursuing their own concepts."
After signing the El Rancho purchase agreement, ITB bought an option on 16 acres owned by ITT Corp. between the El Rancho and Paradise Road. The option expires at the end of the year, Stern said.
"We're a small racing company from New Jersey and the racing industry here has suffered somewhat because of competition from the casino industry.
"We aren't under the illusion that we should try to develop that property alone. But if someone came forward with the money, we could put together a significant development and management team. We just don't have the capitalization availability right now."
As a whole, casino stocks have declined sharply from their highs earlier this year, largely because investors are concerned about overcapacity in certain markets.
While Las Vegas has traditionally been able to absorb new resorts, much of that tradition developed before casino gaming was available throughout many states. As a result, investors have been leery about the impact of the opening of three Strip resorts -- Stratosphere, Monte Carlo and New York-New York -- and the off-Strip Orleans later this year.