Caesars Entertainment, one of the biggest names in the gambling industry, has been dropped from a casino venture at Suffolk Downs due to grave doubts that the international gambling giant would pass its mandatory state background check.
The racetrack’s ownership team intends to replace Caesars with another casino manager in their effort to win the sole Greater Boston resort casino license.
The stunning shake-up at Suffolk Downs comes less than three weeks before voters in East Boston and Revere decide the fate of the casino proposal in referendums and could provide casino opponents new ammunition to attack the project.
State casino investigators, charged with keeping people of questionable character out of the Massachusetts gambling industry, raised several concerns about the company, including a business relationship with a person alleged to have family members involved in organized crime outside the US, said people familiar with the content of the investigators’ report.
The report, provided to Suffolk Downs late Friday, is not yet public. Redacted versions of the background reports generally become public the day the commission addresses the findings of each investigation at a public hearing. A hearing for Suffolk Downs is expected within two weeks.
After receiving a briefing from the commission’s staff on Friday, Suffolk Downs said it is confident the track will be deemed suitable to bid for a license — just not with Caesars.
“As a result of the briefing we have asked our management partner, Caesars Entertainment, to withdraw as a qualifier from our license application,” Suffolk Downs Chief Operating Officer Chip Tuttle said in a statement Friday.
Caesars agreed Friday night to exit the project.
“Caesars Entertainment, which is licensed in more jurisdictions than any other gaming company, has decided to withdraw its application to develop a casino in Massachusetts,” a company spokesman said in an interview. “We believe that the Gaming Commission is attempting to set suitability requirements that are arbitrary, unreasonable, and inconsistent with those that exist in every other jurisdiction.”
Mayor Thomas M. Menino, who has long supported a Suffolk Downs casino, signed a host agreement with Suffolk Downs that would provide the city at least $32 million annually from a casino at the site. Menino has also maintained that preserving the integrity of the development process is paramount, said his spokeswoman, Dot Joyce.
“The mayor is very happy that the Massachusetts Gaming Commission has been diligent in their efforts,” she said. “While the mayor is pleased that Suffolk Downs is moving forward in seeking a new operator for their gaming operations, his first priority is protecting the interests of the city and especially the residents of East Boston.
“Our host community agreement includes, in small part, Caesars Entertainment, and the city will seek clarity in how [Friday’s] events could impact the overall agreement with Suffolk Downs.”
Suffolk Downs intends to maintain its current vision and design for the project, which it has presented at numerous neighborhood meetings.
Celeste Myers, head of the anti-casino group No Eastie Casino, questioned how a vote could go forward on Nov. 5 without the residents knowing who would operate the casino.
“This project has been about as transparent as pea soup,” she said.
Now out of the Boston venture, Caesars loses a chance to win a piece of one of the most attractive emerging gambling markets in the US. The move comes four months after South Korea rejected a casino bid in which Caesars was a major partner, due to concerns over the company’s high debt, according to the Reuters news agency.
For the state gaming commission, a new board just 18 months old, establishing standards that would force out such a major industry player could cement Massachusetts’ reputation as the toughest US jurisdiction in which to qualify for a gambling license.
In the commission’s background investigations to date, the five-member panel has already disqualified one bidder, Ourway Realty, the initial applicant at Plainridge Racecourse, after state investigators discovered that a key member of the company had taken more than $1 million from the struggling track’s money room.
Five applicants have passed background checks: Penn National Gaming, Cordish Cos., Raynham Park and partner Greenwood Racing, Mohegan Sun, and Rush Street Gaming. Rush Street abandoned its slot parlor bid in Millbury and currently is not an active applicant.
Even among those approved for a license, the commission has grilled casino executives over hiring practices, as well as business and personal relationships — even relationships many years in the past. By coming down hard on casino companies for old or relatively small concerns, the commission has seemed to leave itself little leeway to go easy on an applicant with a significant problem.
Caesars is a massive company, which owns or runs 54 casinos in 13 states and six countries, according to the company. It operates 39 casinos in the US, including its Las Vegas flagship, Caesars Palace.
Caesars, led by chief executive Gary Loveman, who lives outside Boston, joined Suffolk Downs as a partner in 2011, bringing a household name in the gambling business to the Depression-era racetrack on the East Boston-Revere city line. Caesars acquired a small stake in the venture, about 4.2 percent, but had planned to earn lucrative fees running the resort.
The company has similar arrangements in Ohio, where Caesars operates casinos and holds a minority position.
The Suffolk Downs partnership includes Richard Fields, a casino developer and former Donald Trump associate; Joseph O’Donnell, founder of Boston Culinary Group; and several others with small shares.
A New York property investment firm with about 20 percent of the project, Vornado Realty Trust, last spring declined to participate in the background checks. In March, the gaming commission let the company transfer its shares into a blind trust, with the understanding Vornado would divest from the project.
Suffolk Downs is competing for a license with a Wynn Resorts proposal in Everett and a Foxwoods project in Milford. The gambling commission expects to choose a winner in early 2014.