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Three U.S. gambling companies are in the final round of bidding for a pair of Niagara Falls casinos put on the block last year by an Ontario government agency, after Canadian rivals dropped out of a game that got too rich.

The Ontario Lottery and Gaming Corp. (OLG) announced plans to sell long-term leases for Casino Niagara and Fallsview Casino Resort in April, 2017, as part of an initiative to modernize facilities and increase government revenues from all of the province’s casinos. Sources involved in bids for the two properties, who requested anonymity because the sale process is confidential, say the three remaining bidders are Caesars Entertainment Corp., Hard Rock Cafe International Inc. and Mohegan Sun Inc. The OLG previously stated that it plans to announce the auction winner this summer.

The two largest Canadian players in the sector, Gateway Casinos and Entertainment Ltd. and Great Canadian Gaming Corp., opted to drop out of the bidding as the price of the Niagara Falls properties increased, according to sources involved in the sale.

Two of the U.S. bidders are making what Canadian sources say are aggressive offers because the American chains see an opportunity to link the Niagara Falls casinos to their global client loyalty programs. Nevada-based Caesars and Florida-based Hard Rock have sophisticated customer tracking systems and use these programs to increase gambling traffic at all their properties, including existing Canadian casinos.

Canadian casino executives voiced concerns with U.S. control of the Ontario properties. Over time, they say, linking Fallsview and Casino Niagara client information into loyalty programs run by Caesars or Hard Rock could see the Canadian properties lose their high rollers to other casinos owned by the U.S. chains, where the house is able to keep more of what is wagered.

Casino operators routinely entice deep-pocketed gamblers to Las Vegas with complimentary meals and suites in hotels, and even free flights on private jets, because Nevada’s tax regime and regulations allow companies to keep more of money they earn from gambling than they can in Canadian jurisdictions and other U.S. states.

Caesars is one of the world’s largest gambling companies, with 47 properties. It runs the casino in Windsor, Ont., which opened its doors in 1998, and put in place a “Total Rewards” program that sees customers earn redeemable points while gambling, shopping, taking in concerts and dining.

Hard Rock runs 15 facilities in 11 countries. The company jumped into Canadian gambling in September, 2017, when OLG granted a 20-year lease on an Ottawa casino. Hard Rock, owned by the Seminole Tribe of Florida, also boasts a loyalty program that offers guests a “rock star experience” in return for their ongoing patronage.

Mohegan Sun owns a single, 1,600-room hotel and casino complex in New England. The company also runs professional basketball and lacrosse teams and is owned by the Mohegan Tribe of Connecticut.

Officials for the U.S. gambling companies either declined comment on the Niagara Falls casinos or could not be reached for comment.

OLG spokesman Rui Brum said the agency is following public procurement rules on the casino sales, including hiring a “fairness monitor” to oversee the process. Mr. Brum said: “As the procurement process for the Niagara bundle is ongoing, it would not be appropriate for the OLG to comment further.”

The OLG privatization process sees gambling companies compete to run casinos on 20-year leases. The companies take a percentage of the revenue generated from gambling, in return for making guaranteed annual payments to the province. While terms of the OLG leases are confidential, the winning bidder will be the company that makes the largest long-term cash commitment to the Ontario government agency. Operators of the casinos get to keep revenues from the hotels and restaurants.

Ontario takes in approximately $2-billion a year from the OLG and revenues are expected to grow as the casinos are upgraded by new operators. Sources familiar with plans for the Niagara properties said at least one bidder proposes spending $15-million to upgrade Casino Niagara, which opened in 1996, by adding new games, dining and entertainment facilities.

The province expects to make billions of dollars from casino privatization. The Financial Accountability Office of Ontario, a non-partisan agency, estimated that leasing the Toronto-area casinos and the subsequent expansion of the sites will mean $34.5-billion in revenue for the province over 22 years.

A new operator of the Niagara Falls facilities that can boost the number of guests on the properties − and in turn, increase local employment − would be welcome news for what has been, to date, a skeptical municipal government. Niagara Falls Mayor Jim Diodati has repeatedly expressed concerns about potential job losses if the casinos, which employ more than 4,000, are handed to new operators. Mr. Diodati was unavailable for comment on Friday.

Canadian gambling companies had financial and strategic reasons for dropping out of the bidding for Casino Niagara and Fallsview, according to sources familiar with both businesses.

Gateway and Great Canadian recently acquired what are referred to as “bundles” of Ontario casinos from OLG. Great Canadian won the right to operate properties in the Toronto area that are now being redeveloped, while Gateway is running and developing resorts in Southwestern and Northern Ontario.

Gateway is owned by private equity fund Catalyst Capital Group Inc., which is currently attempting to sell the company through either a public offering or sale to a rival gambling company or another private equity fund.

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