On Monday, casino operator Harrah's Entertainment (NYSE:HET) and StarwoodHotels & Resorts (NYSE:HOT) announced a partnership with BahaMar Resorts to build a $1.6 billion "destination resort metropolis" in the Bahamas on Nassau's Cable Beach. The project will feature a 1,000-room Caesars-branded hotel with a 95,000-square foot casino; four Starwood hotels under the W, St. Regis, Westin, and Sheraton brands, totaling 2,000 rooms; and an expansion to the current 550-room Wyndham Nassau Resort.

The Baha Mar will compete with KerznerInternational's (NYSE:KZL) Atlantis resort on Paradise Island. Baha Mar will contribute 56.7% of the $1.6 billion investment, with Harrah's putting up 33.3% and Starwood 10%, with construction beginning in 2007 and completion in 2010.

This is Harrah's first Caesars-branded project since the company completed its acquisition of Caesars Entertainment this past June, and it "represents an auspicious international debut" for the brand, according to management. Back in August, the company had announced that it would convert its Caesars Indiana riverboat near Louisville, Ky., into a Horseshoe-branded property, preserving the Caesars brand for high-end international resort projects such as the Baha Mar.

Trump to sell Chicagoland boat to Majestic Star
In another interesting piece of news, Trump Entertainment Resorts (NASDAQ:TRMP) announced last Friday that it would sell its Trump Indiana casino in Gary, Ind., to Majestic Star. Majestic will pay $253 million, or a healthy 8.1 times the property's trailing 12-month EBITDA (earnings before interest, taxes, depreciation and amortization).

It's a natural union for Majestic Star, as the Trump and Majestic riverboats share the same dock, parking garage, and adjacent land-based and waterside operations (such as the buffet).

More interesting are the ramifications for Trump. Trump will net $227 million from the sale after taxes, fees, and other expenses, which will help fund capital projects at the company's core Atlantic City properties "and the flexibility to pursue other growth opportunities." This most likely refers to the company's interest in one of the two slot-parlor licenses in Philadelphia. Based on the extensive research report (in PDF format) done by the Philadelphia Gaming Advisory Task Force, I believe that Trump's proposed site has to be a frontrunner for one of the two licenses because of its favorable location.

Trump really isn't giving up much. Trump Indiana is at best a marginal asset with tough competitors, though in a very healthy and underserved Chicagoland gaming market. Harrah's Horseshoe and its formerly owned East Chicago are both closer to Chicago and are higher-end operations, while Boyd Gaming (NYSE:BYD) operates a riverboat to the east.

More on Ameristar's Philly withdrawal
Speaking of Philadelphia, riverboat casino operator Ameristar Casinos (NASDAQ:ASCA) announced in its earnings report last Thursday that it would no longer pursue a license in Philadelphia, as the aggregate tax rate north of 54% of gaming revenues would make it difficult to attain a sufficient return on investment. Ameristar had previously planned to invest up to $500 million in its proposed project, including the $50 million license fee.

Interestingly, Philadelphia's gaming task force assumed that the properties would generate a 17% to 20% EBITDA return on investment, which implies an EBITDA multiple of between five and 5.5. However, that would also imply EBITDA margins around 30%, which might be a stretch given the 54%-plus gaming tax rate.

As I noted last week, Ameristar's management has been very value-conscious. Still, the announcement came as a bit of a surprise, particularly since I saw Ameristar and Trump as the best bets to gain the two licenses.

Poker players talk about making that big "lay down" -- when you fold a big hand that you feel is losing to an even bigger hand. As Mike Caro says, "Money you don't lose is worth just as much as money you win." That said, I'm not sure there's another casino operator that would have come to the same conclusion.

Isle of Capri (NASDAQ:ISLE) and the now nonexistent10th Illinois casino license is a perfect example. Back in March 2004, Isle was dying to pay $518 million for a license to build on the Illinois side of Chicagoland, where the tax rate currently scales up to 70%, and the property would have a 1,200-position limit (as opposed to 3,000 to 5,000 in Philadelphia). That's $518 million just for the license, and before committing any capital to actually building a casino and hotel. Harrah's bid $520 million for the same license.

For reference, if Illinois' current gaming tax structure only topped out at 50%, a 3,000-slot casino producing $350 million in annual revenue (a base projection for a Philadelphia slot parlor) would have an effective tax rate of about 45%. Just consider that the $518 million gaming license by itself would be roughly Ameristar's total initial investment in Philadelphia, and you get the picture.

At this point, Ameristar already has $590 million worth of capital projects in the works at its Black Hawk, Colo., St. Charles, Mo., and Vicksburg, Miss., properties, from which the company can generate more predictable and favorable returns. In addition, Ameristar has other opportunities to pursue, which may include a shot at the Argosy Joliet in the Chicagoland market. Penn Nationalagreed to sell the property in order to gain approval for its $2.2 billion acquisition of Argosy Gaming.

Ameristar Q3 Market Share

Market

2002

2003

2004

2005

St. Louis , Mo.

26.8%

31.8%

31.1%

31.8%

Kansas City , Mo.

35.7%

34.8%

35.4%

37.3%

Council Bluffs , Iowa

38%

39.4%

41.3%

43%

Vicksburg , Miss.

40.2%

40.1%

44.9%

47.4%


Fool contributor Jeff Hwang owns shares of Ameristar Casinos. The Fool has a disclosure policy.