Given the recent freeze-out on new casino operators in Macao, executives at Harrah’s Entertainment might as well be sporting T-shirts that read, “I spent $577.7 million in Macao and all I got was this lousy golf course.” And, in light of Harrah’s considerable debt load, CEO Gary Loveman will have the unenviable task of advising tight-fisted co-owners TPG and Apollo Management what to do next with their expensive piece of Chinese real estate.

They could gamble on hunkering down for a few years, taking a low near-term return while waiting for Macao supremo Edmund Ho’s successor to possibly liberalize the enclave’s gaming regime, admitting new corporate players. Or Loveman could try to peddle it around -- probably at a loss, seeing as the land can’t be rezoned for gambling and he’s dealing from a position of weakness.

(A third option, whereby Harrah’s acts as a passive hotel operator as part of a joint venture in which Wynn Resorts or MGM Mirage owns the casino just seems too transparent and disingenuous to get past the current regime, IMO. It’d be obvious a subversion of the “three-plus-three” arrangement, turning it into 3 + 3.5.)

The fate of the golf course is a pressing question only because Harrah’s latest “Consolidated Summary of Operations” contains some scary-looking numbers. When 1Q08 is compared to 1Q07, interest expense has increased threefold (from $185.8 million to $557.6 million). Pile on $211.3 million in early retirement of debt – to reduce those interest payments – and an 11% decline in income from operations and it’s quite a jolt to the balance sheet. In the 1/28/08-3/31/08 period, combined income of $445.5 million was negated (and them some) by $679.2 million in interest expense and early debt retirement.

Then there’s the matter of the shuffling of properties between Harrah’s Entertainment and Harrah’s Operating Co. According to one analyst, it works like this ...

Harrah's Las Vegas, The Rio, the Flamingo, the A.C. Harrah's and Showboat Atlantic City, Harrah's Lake Tahoe, Harvey's and Bill's Lake Tahoe are going into the Entertainment portfolio, to be followed by Harrah’s Laughlin and Paris-Las Vegas. But then Bill’s, Harvey’s and Harrah’s Lake Tahoe, and Showboat are re-shuffled into the operating company.

(What? No mention of Bally's Las Vegas? Hmmmmmmmm. Why does the word "implosion" keep bouncing through my brain?)

In an excellent analysis, Amy Calistri writes, “Reducing interest expense, through the reduction of debt, has to be at the heart of this accounting tangle.” In other words, Harrah’s is positioning itself for a big sell-off, fleeing the Tahoe market and reducing its high Atlantic City exposure, already worsened by good business at Harrah's Chester. Trouble is, Calistri goes on, casino valuations aren’t what they used to be and potential buyers might still find credit scarce.

(The problem with operator consolidation is that it’s taken a lot of potential buyers off the table – no more Argosys out there -- although Ameristar Casinos needs to rack up some debt to reduce its profile as a takeover candidate. Penn National is in a buying mood but, with its private-equity buyout threatening to unravel, it’s got hassles of its own.)

As for the cheese-paring moves that customers are reporting at Harrah’s Strip properties, Calistri warns that “cost cutting and efficiency will only help [Harrah’s] at the margins ... Indeed, Harrah's biggest hurdle toward profitability over the near term is likely to be undoing the debt associated with their acquisition.”

Galaxy Entertainment's Starworld project, Macao

Which is why when analysts float the idea of Harrah’s buying Galaxy Entertainment as a quick means of entry into Macao, I’m tempted to employ one of my Mom’s favorite retorts: “Using what for money?” Galaxy has its problems (like basically learning the casino business on the job) but with no new gaming concessions on the Macanese horizon, its value just shot up considerably.

And then there’s the little detail of a $2.8 billion (with a ‘B’) tribal court judgment against Harrah’s that, if it continues to stand up (much data here), will lumber the company with even more debt and interest. The verdict isn’t really Harrah’s fault: The case dates back to when Arthur Goldberg was alive and running Park Place Entertainment, which became Caesars Entertainment, which was bought by Harrah’s Entertainment, which is contemplating changing its name to …  Caesars Entertainment.

It’s a good thing Apollo and TPG hung onto Loveman, just in case their casino acumen is on par with Apollo’s retail acuity. Earlier this month, Apollo vassal Linens ‘n Things filed for bankruptcy in what Bloomberg called “the biggest leveraged buyout failure since credit-market disruptions began last summer,” and what one analyst characterized as “an utter and complete disaster.” The company will close 20% of its stores, leaving 2,500 people unemployed.

Apollo’s exposure is only (“only”) $260 million, meaning that others, primarily General Electric, are holding most of the bag on this debacle. And maybe the timing wasn’t so good for taking real estate franchisor Realogy Corp. private for $8.5 billion, either. (Bloomberg says $6.6 billion.)

And don't forget about Harrah’s unraveling international strategy, which was ill-timed at best and possibly a total bust. But that’s a topic for another time ...