Art of the Deal
How Bethlehem Forged a Partnership with a Casino Giant
Bethlehem’s iconic blast furnaces provide a stunning backdrop for concerts in the Levitt Pavilion at SteelStacks.
John Callahan said it was “like playing poker with people who play poker for a living.”
That’s one of the many colorful ways in which the mayor of Bethlehem, Pa. described the process that eventually led Las Vegas Sands Corp. (LVSC) to build a $900 million gaming facility on the site of the 1,800-acre steel mill that gave his community its identity.
“You had to decide which hill you wanted to die on,” Callahan told a delegation of more than 35 Western Mass. business, civic, and nonprofit leaders who ventured to Eastern Pennsylvania late last month as part of the City2City program, adding, jokingly, that he didn’t want to settle for a new fire truck — either literally or figuratively (much more on that later) — in his grueling negotiations with the casino giant when there were far bigger matters, and potential prizes, at stake.
These included preservation of the five iconic, 20-story-high blast furnaces that have become the unofficial symbol of Bethlehem (also known as the Christmas City), which was left to find a new economic engine — or engines, as things turned out — and replace tens of thousands of jobs after Bethlehem Steel shuttered what was left of its flagship plant in 1995.
Today, the blast furnaces not only still stand, they have become the stunning backdrop for concerts and other live shows staged at the Levitt Pavilion, part of an elaborate arts complex known as SteelStacks, created several hundred yards from the casino floor on land donated by the Sands as part of the city’s land-use agreement with the corporation.
Callahan paused for several minutes at a picture from a recent concert at the pavilion showing the dramatically lit blast furnaces (different colors are used for various occasions) — part of a PowerPoint program he offered to the delegation. He did so to display his pride, emphasize the significance of that development for his community, and offer some evidence that, while it could still be argued who officially won that poker game he described, the city certainly won more than a few hands.
And got much more than a fire truck.
“My general philosophy was to look for ways to align their interests with the city’s interests,” he said of the casino operators. “Any time you can do that, you’re likely to get something meaningful accomplished.”
“Where I looked to negotiate and add value to the community was in things that made sense to the casino and the project as a whole,” he continued. “Because, ultimately, it’s not about the fire truck, but about the project being successful; that is ultimately what’s going to make the community successful.”
Callahan’s presentation at breakfast on the second day of the delegation’s visit was one of many highlights of the City2City trip. Among the others was a talk from Ed Pawlowski, mayor of neighboring Allentown, which ultimately lost the battle to host a casino in Lehigh County, but won a different and perhaps equally significant fight in its bid for what’s known as an NIZ, or Neighborhood Improvement Zone.
Granted after an often-bitter conflict in the state Legislature, the NIZ, the only one of its kind in the state, was the catalyst for a multi-faceted, nearly $400 million project now taking shape in the center of the city’s downtown. Plans call for a $272 million, 8,500-seat arena that will become home to the Lehigh Valley Phantoms hockey team, as well as roughly 2 million square feet of new office space, a 220-room hotel, and other developments (see related story, page 10).
Meanwhile, the City2City group learned of another victory for Allentown, a revenue-sharing agreement with Bethlehem that gives the city roughly $4 million annually — about 20% of the more than $19 million in host fees paid by the Sands to surrounding communities.
The Western Mass. contingent also learned about Ben Franklin Technical Partners (BFTP), a business-incubation project established by the Pennyslvania Legislature in the wake of the steel industry’s precipitous decline in the late ’80s. Since its creation in 1989, BFTP-supported businesses have created more than 50,000 jobs across the state and more than 15,000 in Lehigh County alone.
But the story of how the Sands arrived in Bethlehem, and how that deal came together, dominated the junket and discussions among its participants. And for this issue, BusinessWest takes an in-depth look at Callahan’s poker game and how he played the hands he and his administration were dealt.
Callahan said he’s been asked by his high-school honors English teacher to stop telling the story about comments she directed his way at one of the many public hearings conducted on the Sands casino proposal — primarily because she doesn’t feel the way she did that night anymore.
And while he’s obliged, for the most part, he made an exception for the City2City delegation, and for a reason. He wanted to convey the enormity of the task at hand, and the many types of pressure, real and imagined, felt by those involved at the highest levels.
“She was at the podium, looked at me, and said, ‘and you!’” recalled the mayor. “‘Had a I known that you were going to try to bring a casino to this city, I never would have supported your campaign.’”
Callahan also borrowed a phrase from the holiday classic It’s a Wonderful Life to help get his points across.
“I would lie awake at night worrying that I was turning my city into Pottersville,” he said, referring to the community, dominated by pawn shops, sleazy nightclubs, and amoral people, that takes shape because the story’s hero, George Bailey, was never born.
By most all accounts — including those now apparently given by that high-school teacher — Pottersville has not emerged in South Bethlehem (see related story, page 9) because of steps taken by the community, and also because many of the negative perceptions people have about what happens when a casino opens are simply that — perceptions, said Callahan.
He and others who spoke to the delegation said that the crime, prostitution, pawn shops, and organized-crime activity that allegedly follow casino openings have not materialized in Bethlehem, nor have they in many other communities.
Bethlehem Mayor John Callahan says his guiding philosophy was to find ways to align the casino’s interests with the city’s.
Backing up more than seven years, Callahan said that, soon after the Pennsylvania state Legislature passed a gaming measure, it became abundantly clear that Lehigh County — much like Western Mass., as current events have revealed — was a popular spot with casino developers.
And location is the principal reason why.
That part of Pennsylvania is only a few hours (and a relatively easy commute) from New York City and the New Jersey coast, said Callahan, adding that, in another striking parallel to Springfield, there would soon be several casino plans forwarded for that area, and three eventually materialized — one in neighboring Allentown and two in Bethlehem.
One of the Bethlehem plans involved a greenfield site on the outskirts of the city, while the other was proposed for a 163-acre portion of what is known to locals simply as “the steel site.”
The former offered fewer potential headaches, especially when it came to infrastructure (it was right off the interstate), but it also presented fewer opportunities to make a postitive impact within the community.
“That developer was making a pitch that went like this: ‘put it out here … you’ll get all the benefits, you’ll get all the revenue from the host-impact fee, but you’ll also minimize the potential negative impacts; people will get off the interchange, come in, do their thing, and go back to New Jersey or from whence they came,’” Callahan told the City2City delegation.
“They said, ‘you’ll still have the city that everybody loves, and this minimizes the risk,’” he continued. “But it also minimizes the potential upside, and from a planning standpoint, if I make this $900 million investment at the interchange, it may start to suck the life out of my downtown and take it to the outskirts.”
Thus, the lesson to be taken from this, for Western Mass. or any other region, is to find the right site and the right operator, and create a project that does much more than bring a casino to the community, even if there is a considerably higher degree of difficulty.
And in this case, there was, he said, noting traffic and other infrastructure concerns, but also the vast potential to breathe new life into the steel site.
Going back further, to the late ’90s, the mayor said the steel mill, then the largest brownfield site in the country, was a priority not only for the city as it fought to get some of that acreage back on the tax rolls, but also for national historic-preservation groups because of its importance to the nation’s industrial history, and also the contributions it made in the development of the nation and the fighting of several wars.
Indeed, the Bethlehem plant provided the steel for such iconic structures as the Golden Gate Bridge, the Chrysler Building, and Madison Square Garden. During World War II, more than 30,000 people worked at the plant, producing steel for everything from liberty ships to cannons.
“By 2004, it was listed as one of the 11 most endangered sites by the National Trust for Historic Preservation,” said Callahan. “So not only was it important to us, but it was also important nationally because of the role it played in building and defending the nation.”
As a result, the casino proposal held great potential for helping with both missions — preservation and economic development — but also brought pressure to get the jobs done right.
As he talked about the process of negotiating with Sands executives and making the casino plans reality, Callahan said there were many priorities.
Perhaps the most important, he said, was preserving the character of the community, and not letting its identity become the gaming facility.
“We were not going to let one industry come in and change who we are,” said the mayor.
Elaborating, he said the casino had to “fit” Bethlehem and relate to what’s around it. Those phrases involved both architecture and the community’s heritage.
“It doesn’t look like a spaceship that landed from another place and doesn’t relate to anything around it,” Callahan said of the casino’s design, which features large amounts of steel and glass, and incorporates an old ore crane at its front entrance.
Another priority, of course, was further development of the steel site, which was still struggling to create a new identity more than a decade after the last of the mill operations had shut down. Early on, the mayor said, a collaboration was forged between the Sands, the nonprofit agency ArtsQuest, local public television, and other parties to create synergistic development opportunities.
Bethlehem also wanted to minimize some of the contentiousness that often develops between the city that hosts a casino and those communities around it. In many cases, the host city gets all or most of the benefits, while neighbors get many of the headaches, he said, adding that a revenue-sharing plan was developed as a way to ease tensions and share the wealth — quite literally.
“I have a border with Allentown … and I thought we had a vested interest in Allentown getting something out of this,” said Callahan, adding that, with the help of an influential state senator, the area mayors were able to craft the only revenue-sharing agreement reached in the state.
“The question was how much we were going to give them,” he went on, adding that, while there would be some negative impact in Allentown, most of it would be in his community. “Ultimately, we got the balance right. It took months to get it done, but it was important.”
Meanwhile, there were other concerns, including a desire to limit the impact of traffic from the 20,000 visitors per day — “this thing brings 7.5 million people a year to the site, so if you don’t have the infrastructure worked out, it can choke off the whole rest of your downtown” — and also minimize and control the proliferation of pawn shops, check-cashing businesses, and massage parlors, something accomplished through zoning ordinances that restricted where such ventures could be located.
But what basically drove the process forward, said Callahan, was that desire, or philosophy, as he called it, to align the interests of both the casino operator and the community.
And with that, he returned to the symbolic fire truck.
Actually, in at least one other Pennsylvania community where a casino was located, a new pumper was one of the prizes, said Callahan, adding that he had no intention of “nickel and diming” the Sands corporation, or bargaining for things that ultimately wouldn’t help the casino project succeed.
“The best thing I can do as mayor is to make sure that the entire project is successful,” he said, “because that’s going to be far more important than whether we got a new fire truck 15 years ago. If they buy that fire truck, it’s going to come out of somewhere else — maybe the parking garage — and I’m much more interested in seeing them build the best project they can. If that happens, and they’re successful, I can buy the fire truck.”
So Callahan and his administration focused on other matters, such as securing $26 million in road improvements from the company, building ample parking into the plans, making workforce-training initiatives available to residents, and gaining commitments to hire from the local population as much as possible.
“The fact that 90% of the people working in that casino are local is far more important in the long haul than whether I got a fire truck,” he said, adding that convincing the Sands to donate 10.5 acres of the steel site to the city of Bethlehem, its redevelopment authority, PBS, and ArtsQuest to build SteelStacks was perhaps even more critical.
The campus now includes the ArtsQuest Center, which offers music, comedy, cabaret, dance, and other performances year-round, and the Levitt Pavilion, which hosts more than 50 live, free, family-friendly concerts from Memorial Day through Labor Day weekend, and is also center stage for Bethlehem’s annual Musikfest, a 10-day event that has become the largest free music festival in the U.S. It is also the site of an array of festivals, including an authentic Octoberfest.
Jeffrey Parks, long-time executive director of ArtsQuest and a native of Bethlehem, told BusinessWest that, in the years after the steel mill closed down, he was one of the individuals and groups calling for the blast furnaces to be dismantled and sold as scrap.
“Having sucked in the fumes from the blast furnaces from the time I was a toddler, I was all in favor or ripping them down, because to me they symbolized dirt, gime, and something we needed to get rid of so we could change into a modern city,” he said, adding that his outlook shifted after a trip to Germany’s Ruhr Valley in 2002. There, he observed a series of former blast furnaces, decoratively lit, as the centerpiece of a tourist attraction, and came back to Bethlehem determined to do something similar.
That vision became part one of the dreams realized, in large part, through the partnership forged between the community and the casino, said Parks, noting that the casino has made commitments to maintain the towering structures, and also pays for the lighting that adds a new dimension to the historic landmark.
And in many ways, the blast furnaces and their survival represent the most visible example of determining what is important to a community — and what to focus on when negotiating with a casino operator, said both Parks and Callahan.
“That trip to Germany convinced me that, once you’ve got something that no one else has, you’re foolish to rip it down,” he said. “That’s what they did in Pittsburgh — they have no blast furnaces left there.”
The mayor, taking a bigger-picture slant, agreed.
“It’s all about prioritizing what’s important and what isn’t important, and getting the right operator,” he said, adding that these are some of the many lessons he learned from visiting other cities with casinos and listening to those who brokered deals with the operators.
“I knew what I wanted for our site and what I thought was important,” he continued. “Also, I learned what was negotiable and what was non-negotiable; I didn’t get everything I wanted, and they didn’t get everything they wanted, but I knew where to draw the line, because I knew, from a planning perspective and from a vision of what we wanted this site to become, what was most important.”
At times, the relationship between the city and the casino were strained, and the negotiations became more heated, said Callahan, noting that the work was undertaken at the height of the Great Recession, and the Sands found itself struggling to meet commitments, such as those to build a hotel, shopping mall, and other components beyond the casino floor itself.
Things came to a head when the casino, which first won a license for a slots parlor, went back to the state for a table-games license after the gaming legislation was expanded.
“I went to the state and said, “I don’t think you should give them a table-games license until they finish what they started,’” Callahan recalled. “‘They said they were going to build a hotel, a mall, an events center, and a casino; so far, they’ve built a casino. … Before we re-up their existing license, they need to make good on what they promised.’
“We didn’t talk to each other for a while after that,” he continued, returning to his comparison to a poker game against professionals. “It was a tough conversation that we had. But three weeks later, they started on the hotel.”
When asked about advice he would give to Western Mass. officials as the competition for a license intensifies, Callahan said they have to find their metaphorical blast furnaces and steel-mill redevelopment projects and work hard to keep these priorities at the forefront.
“Springfield has to find out what makes it special and unique and build on that,” he said, using that city as one example. “A slot machine is a slot machine; it’s what’s around the slot machine that matters.”
Signs of the Times
As he wrapped up his remarks to the City2City delegation, Callahan provided another anecdote, this one involving a woman who had driven literally to the front door of the gaming complex soon after it opened, but still needed some help finding it, and sought it from the mayor, who was standing nearby.
“The ‘Sands’ sign was there, but it was daylight, so it wasn’t lit up — maybe that confused her,” he recalled. “Anyway, she said, ‘where’s the casino?’
“If you had just spent $900 million building this, that’s probably not what you want to hear,” he went on. “But that’s exactly what I was going for. This [casino] is going to become a part of who we are, but it’s not going to dominate and become who we are.”
His advice to officials in Springfield, Holyoke, and Palmer is to work with an operator that will create a project that will allow the host community to say the same thing.
George O’Brien can be reached at email@example.com