Investors Line Up For Piece Of Tribe’s Action National Indian Lottery Needs Big Stake For Set-Up Costs

The game hasn’t even started yet, but already the National Indian Lottery has drawn a number of high-stakes gamblers.

The Coeur d’Alene tribe’s controversial venture has drawn a spate of New York and Denver investors willing to put up millions in exchange for a shot at the jackpot - a share of the business.

A company spokesman said last week that Denver-based Unistar Entertainment Inc. will open a 20-person regional office near Coeur d’Alene within the next several weeks.

The fledgling company faces a daunting task: assembling, by late autumn, the largest interstate lottery in history. During peak times, a million people an hour are expected to call the lottery center near tiny Worley, 25 miles south of Coeur d’Alene.

Before that can happen, technicians must set up high-speed computers, miles of fiber optic phone lines and perhaps a microwave radio hookup, in case the phone lines go down. And then there are the legal fees. Attorneys general from Connecticut to California are threatening to fight the lottery.

Unistar is paying for everything: equipment, payroll, attorneys, marketing - even the building on the Coeur d’Alene reservation. Total cost, according to Unistar spokesman Guy Smith: $35 million to $50 million.

The fledgling Unistar has never done anything like this before. In fact, the lottery is the company’s sole venture.

“We were swamped with proposals” to help run the lottery, said tribal gaming director Dave Matheson. “They (Unistar) had so much detail and thought into it. Every question we asked them, they had an answer for. That gave us confidence in them.”

Soon, in a complex series of transactions, privately owned Unistar Entertainment Inc. is slated to become Unistar Gaming Corp. The firm will be publicly traded.

“The playing public will be able to invest in the game,” said Smith.

Unistar Gaming Corp. will be run by two key officials:

Mel Schnell, chairman and chief executive officer: A Brooklyn native, Schnell is a former vice chairman of the New York commodities exchange and a brokerage veteran. He sits on several corporate boards.

James Spencer, current president of Unistar Entertainment Inc.: A retired Army lieutenant colonel, Spencer is the only top Unistar official with lottery experience - two years managing the purchasing department of the Florida lottery. Spencer, who’s been working on the lottery project for three years, will remain as one of the key players.

Matheson said he’s not worried about Unistar’s overall lack of lottery experience. A lottery’s stock in trade is record-keeping and a chance, he points out, and Unistar’s management has considerable legal, accounting and banking experience.

“We are in the process of hiring additional staff,” adds Smith. “They will all have very deep lottery experience.”

The venture has drawn other investors.

A company called Cooper Life Sciences, Inc. has paid $5 million dollars for roughly one-quarter ownership in Unistar. (Schnell is president of Cooper Life Sciences.)

Cooper vice president Steven Rosenberg wouldn’t say how much the company has projected it would make from the lottery, saying only, “We think it has a large upside potential.”

If so, it would be good news for a 16-year-old company that’s had more than its share of disappointments.

Formed in 1979, Cooper made medical lasers and dental equipment. By 1985, eclipsed by bigger companies, Cooper’s management began selling off everything.

“It never made a dime,” said Rosenberg. “There was little hope they could ever compete.”

In 1991, the company formed Moore Sports Ltd., to manufacture baseball team memorabilia.

“It was not successful,” said Rosenberg.

In 1993 and 1994, Cooper bought a majority interest in the Second Advantage Mortgage Corp., hoping to cash in on the then-burgeoning market in refinancing mortgages. But interest rates rose rapidly in 1994, and Cooper got out in November, netting a small profit.

“We ran out of that business more quickly than we expected,” said Rosenberg.

Now, Cooper’s only venture is the lottery.

Cooper stock began a steady rise last summer. After four years of hovering around $7 a share, the stock has risen to more than $16 a share. It has sagged slightly in the past few weeks, apparently because of various states’ threats to fight the lottery.

Cooper and Unistar both say they’re confident the game is legal and feasible. Attorneys for both companies spent months reviewing the tribe’s compact with the state and potential legal challenges.

Now they’re putting their money on the line.

“It’s a business decision,” said Rosenberg. “There’s a certain amount of risk in any venture.”

Graphics: Dividing up Indian lottery money

MEMO: This is a sidebar that appearec with the story: Unistar directors Unistar, the management firm for the Coeur d’Alene Tribe’s proposed National Indian Lottery, has pulled together a diverse group of brokers and lawyers for its fivemember board of directors. They are: Jerry Seslowe: A lawyer and founder of a financial consulting and investment firm. Robert Starzel: Vice chairman and director of Southern Pacific Rail Corp. since 1988. Also a lawyer. Louis Adler: A Texas investor. Adler is president of an investment company and vice chairman of Luther’s BarB-Q Inc. Clark Schubach: A senior managing director of Bear, Stearns and Co Inc., a large investment banking firm in New York. Robert Berman: A private New York investor. Berman is a senior managing director of a private merchant banking firm.

The following fields overflowed: BYLINE = Rich Roesler Staff writer Staff writer Eric Torbenson contributed to this story.