Casino M8trix Gambles Big
Posted by Comments (4)on Thursday, May 3, 2012
Eric Swallow’s latest venture, Casino M8trix, is a $50-million, 16-story building alongside the freeway near San Jose’s airport, Swallow currently owns the city’s oldest card room, Garden City Casino, with partners Peter and Jeanine Lunardi. They want nothing more than to shut down the aging facility and replace it with a 21st-century gambling establishment.
Swallow and the Lunardis, his neighbors in the East Bay community of Danville, split a $1 million down payment and obtained more than $30 million in bank financing to erect the building. M8trix features computer-controlled fountains and Italian glass tile murals by the same artisans who crafted the floor murals at Las Vegas’ Wynn resort, according to Swallow. Limited liability companies were set up in California as well as in the business-friendly states of Nevada and Delaware to hold the assets. The big-stakes game has confounded city regulators, who don’t usually work with high rollers who play fast and take large risks.
If everything goes as planned—and little has gone that way up to this point—Casino M8trix will be the next big thing in the South Bay. It features a sports bar, meeting rooms, a noodle restaurant, video games, a karaoke club and an expansive first floor dotted with card tables.
Casino M8trix’s eighth and top floor breaks into four small, semipublic card rooms that overlook the west, east and north sides of San Jose. These rooms were designed as much for their exceptional views as the cachet of playing cards seven floors above the other saps.
M8trix is modeled after Los Angeles’ Commerce Casino, the world’s largest card room. Commerce also offers a 200-room hotel, something that M8trix plans to build in several years.
Other than Garden City, the only other card room allowed to operate in San Jose now is Bay 101. It opened in 1993 and resides just southeast of San Jose’s airport and Casino M8trix. Unlike Nevada establishments, local card rooms do not make money by collecting winnings or betting against players as “the house.’ Instead, they rent tables where players can bet against one another. The city limits the number of tables and controls which games are played.
Together, San Jose’s two gaming establishments, which offer card games like poker and Pai Gow, contribute roughly $15 million in tax revenue to cash-hungry Sam Jose. Swallow says that number could jump a few more million as soon as Casino M8trix opens its doors.
Swallow contends that the city is inappropriately holding things up. His group is already a licensed operator, and the number of tables is staying the same. It’s just a move to a new building.
The evolution to a new model parallels Las Vegas’ recent history. The old Vegas made its money almost exclusively though gaming and attracted gamblers to its smoky casinos with $29 rooms, discounted steak dinners and all-you-can-eat buffets.
Today’s Las Vegas is a different place, an entertainment center with expensive boutique hotels, trendy clubs, stylish theatrical performances and restaurants operated by the world’s most famous celebrity chefs. Gambling is just part of the mix.
Swallow is attempting something similar. With the number of tables limited by law, M8trix has created an ecosystem of activities around the gambling component and hopes to build ancillary revenue streams by renting rooms for functions and business meetings, selling drinks, attracting diners and catering to cigar smokers. Eventually, the operators hope hotel revenues and possibly a performance venue will be part of M8trix’s offerings.
Police Chief Chris Moore, however, says no matter how many radio and television ads the M8trix buys—and Swallow says more than $1 million has been spent to advertise a soft opening that was slated for early April—police won’t rush the process of background checks on Casino M8trix’s ownership structure.
“We’ve been trying at the highest levels to get them up and running, and they’ve made it very difficult for us,’ Moore says. “Whatever delays there are, they’re on their shoulders.’
Assistant San Jose City Manager Ed Shikada sent a letter to M8trix’s owners last month regarding ongoing concerns about how the money will move around the partitioned eighth-floor card rooms, which by Title 16 have to be open to the public. He wrote that the soonest the casino should expect to open is June 30.
“Every councilman, forgets their ideology, they’re all saying let’s get you open,’ Swallow says. “But dealing with the police chief, whatever day I said I was opening would have been the wrong day.”
Previous mayors have attempted to end or further restrict gambling in San Jose, but the present administration is pragmatic. “I have a different approach, because times have changed in California,’ says Mayor Chuck Reed. “It’s just a different issue than it used to be. They’re legal in San Jose; they’re legal in California; they should be treated as a business.’
But as much as Reed wants more casino revenue, he’s careful to hold the line. He says the process of checking every receipt and stock statement for Casino M8trix’s owners is essential before it can move down the street.
“You have to be able to follow the money back to the people,” Reed says, “and they have a complicated financial structure to be able to follow the money. They have multiple corporations involved in this. It’s not just the Lunardis and Swallow. It’s a complicated financial structure.”
“I was trying to create something beyond playing cards,’ Swallow explains. “If you’re a business executive, you would want to come meet here or hang out at the sports bar. The reason I built the eighth floor is to keep the revenue here. My goal was to keep people from going to Vegas, so I need to give them an experience that feels similar.’
Like any poker game, the opponent has a chance to call, and casino operators are quick to point out problems on the city’s side. Two recent audits of the police department’s gambling unit were anything but glowing. The reports, one by the city auditor and another by an independent gaming group called White Sands, depicted a poorly structured group that is in over its head when it comes to regulating card rooms and enforcing Title 16.
“Largely unable to draw on the appropriate skill sets to conduct meaningful operational oversight from other than its two senior staffers who are already overcommitted on the licensing side, DGC fails to achieve the balanced approach to regulation envisioned by Title 16,’ the White Sands report concludes.
Richard Teng, who heads up the DGC and declined comment for this article, wasn’t directly criticized in the audits, but that hasn’t stopped some councilmembers and Casino M8trix’s owners from identifying him as a problem.
“What’s very frustrating is the city attorney just backs Richard Teng up, and they know he’s an idiot,’ Swallow says.
SJPD contracted out much of the work for a forensic audit to Conroy & Associates, which, considering the length of time the investigation has taken, raises other questions. Before Michael Conroy and his wife started their own investigative agency, Michael spent much of his career with the SJPD.
“If you have a relationship with somebody,’ Constant notes, “the investigation will lead wherever you want it to lead.’
Fed up with the millions he claims he’s losing every week that Casino M8trix remains closed, Swallow says he’s prepared to call the city’s bluff. Even if a court hearing May 7 allows the card room to open its doors before June 30, it might not be long before the parties will be back in court.
“We’ll file [a lawsuit], and it will be in the tens of millions,’ Swallow promises.
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